STATE OF FLORIDA

DIVISION OF ADMINISTRATIVE HEARINGS

OFFICE OF FINANCIAL REGULATION,

vs.

Petitioner,

Case No. 14-4153

MS MONEY, INC.,

Respondent.

/

RECOMMENDED ORDER

Pursuant to notice, a final hearing in this cause was held by video teleconference between sites in Orlando and Tallahassee, Florida, on February 25, 2015, before Linzie F. Bogan, Administrative Law Judge of the Division of Administrative

Hearings.

APPEARANCES

For Petitioner: Jennifer Leigh Blakeman, Esquire

Office of Financial Regulation Suite S-225

400 West Robinson Street Orlando, Florida 32801

For Respondent: Jerry Michael Warren, Esquire

Warren and Skaggs, PLLC Suite 200

100 West Lucerne Circle Orlando, Florida 32801

STATEMENT OF THE ISSUE

Whether Respondent violated statutory and rule provisions relating to record-keeping requirements for licensed check cashers, and if so, what penalty should be imposed.

PRELIMINARY STATEMENT

On April 14, 2014, the Office of Financial Regulation (Petitioner) filed an Amended Administrative Complaint against MS Money, Inc. (Respondent), charging Respondent with eight counts of violating chapter 560, Florida Statutes,1/ and Florida Administrative Code Rule Chapter 69V-560,2/ the record-keeping requirements for licensed check cashers. Respondent filed a Request for Hearing and the matter was forwarded to the Division of Administrative Hearings for assignment of an administrative

law judge to conduct a hearing and issue a recommended order. On February 13, 2015, Petitioner was granted leave to file a Second Amended Administrative Complaint.

At the final hearing held on February 25, 2015, Petitioner offered the testimony of Judith Foster, Respondent’s owner; Anthony Battaglia, Petitioner’s area financial manager; and Andrew Grosmaire, Petitioner’s chief of its bureau of enforcement. Petitioner’s Exhibits 1 through 16 were received into evidence. Respondent called Judith Foster to testify as its only witness. Respondent’s Exhibit 2 was received into evidence.

Petitioner moved that the parties be allowed to file proposed recommended orders within 30 days of the filing of the transcript of the final hearing. Petitioner’s motion was granted. The Transcript of the final hearing was filed with the Division of Administrative Hearings on April 3, 2015, and the parties timely filed Proposed Recommended Orders. The Proposed Recommended Orders filed by the parties were considered in the preparation of this Recommended Order.

FINDINGS OF FACT

1. Petitioner, Office of Financial Regulation (Petitioner), is the state agency charged with administering and enforcing chapter 560, Florida Statutes, related to licensing of Money Services Businesses, a term that includes check-cashing businesses.

2. MS Money, Inc. (Respondent), has been a licensed check casher, pursuant to chapter 560, Part III, Florida Statutes, since September 2008. Respondent's fictitious name on file with the Florida Department of State is “Mister Money.” Respondent is located at 2 North 4th Street, Haines City, Florida, and Judith Foster is the president and owner of the business.

3. On March 28, 2013, Mr. Battaglia and Petitioner’s former employee Lester Joseph visited Respondent's business for the purpose of examining Respondent's books and records in order to ascertain whether Respondent was in compliance with chapter 560,

   
   

   Florida Statutes, and rules related thereto. Petitioner performs such examinations so as to protect consumers and ensure that the licensees are following statutory requirements.

4. March 1, 2012, through February 28, 2013, is the time period covered by the examination. Although there is a specific examination period, the examiner may review documents not within the examination period if such documents are provided to the examiner.

   1. Count I

      
      

5. As part of the examination, Petitioner reviewed whether Respondent secured and maintained from its customers appropriate personal identification for checks in amounts over $1,000 that were cashed.

6. When a licensee, such as Respondent, cashes a check that exceeds $1,000, the licensee is required to secure and maintain a valid form of personal identification from the customer.

7. For customers J.E. and J.W., Respondent cashed one payment instrument for each customer exceeding $1,000. For customer M.B., Respondent cashed three payment instruments exceeding $1,000. For the five referenced payment instruments presented by customers J.E., J.W., and M.B., Respondent, when cashing the respective checks, failed to secure from each customer a valid form of personal identification.

   
   

   1. Count II

      
      

8. Chapter 560 licensees are required to immediately endorse all payment instruments that are accepted for cashing. An endorsement is typically a stamp on the reverse side (or back) of a check which shows the name of the licensee, its financial institution, and account number.

9. Ms. Foster admitted that during the examination period, employees failed to immediately endorse checks that were cashed for customers. Ms. Foster explained that this omission, which occurred when she was physically not on the premises, resulted from her instructing her employees to not use the endorsement stamp in her absence. The evidence does not quantify the number of instances when checks were not immediately endorsed.

   1. Count III

      
      

10. As part of the examination, Petitioner reviewed whether Respondent timely filed currency transaction reports with the Financial Crimes Enforcement Network (FinCEN). Currency transaction reports are used in the prevention and detection of money laundering in money services businesses.

11. As required by 31 C.F.R. § 1010.311 (2012), a currency transaction report must be filed with FinCEN for each deposit, withdrawal, exchange of currency, or other payment or transfer, to the financial institution which involves a transaction in currency of more than $10,000.

    
    

12. On January 16, 2013, Respondent cashed a check for customer N.J. in the amount of $13,827.38. Respondent failed to file a currency transaction report with FinCEN within fifteen days of cashing the check presented by customer N.J.

13. Respondent explained that the company it hired to file currency transaction reports on its behalf is to blame for the untimely filing and Respondent should, therefore, be held harmless for this violation. Contrary to Respondent’s assertion, it is Respondent’s ultimate responsibility, and not that of its agent, to ensure that currency transaction reports are timely filed.

    1. Count IV

       
       

14. As part of the examination, Petitioner reviewed whether Respondent's payment instruments had thumbprints properly affixed.

15. Florida Administrative Code Rule 69V-560.704(4)(a) provides that at the time a payment instrument exceeding $1,000 is presented by a customer for cashing, the check casher is required to obtain and affix an original thumbprint to the original payment instrument.

16. In a sample of 19 payment instruments over $1,000, four of them were missing thumbprints.

    
    

    1. Count V

       
       

17. As part of the examination, Petitioner reviewed 39 deferred presentment agreements to determine whether they included the required transaction numbers assigned by the Veritec online electronic database.3/ Veritec archives all payday loan data.

18. A payday loan, or a deferred presentment provider transaction, is functionally equivalent to a short-term consumer loan whereby currency or a payment instrument is provided in exchange for a drawer's check, and where the check is held for the deferment period, typically between seven and thirty days.

19. As part of a payday loan, a deferred presentment provider agreement is executed between the customer and the licensee.

20. In executing a payday loan or deferred presentment agreement, a transaction number must be assigned by the Veritec database. A transaction number identifies the specific loan agreement with the customer and is utilized for tracking purposes in Veritec.

21. The transaction number must be placed directly on the deferred presentment provider agreement. The transaction number requirement cannot be met by putting the number on another associated document, such as a check.4/

    
    

22. In a sample of 39 deferred presentment provider agreements, Respondent failed to place the transaction number on five of them.

    1. Count VI

    
    

23. As part of the examination, Petitioner reviewed whether Respondent timely closed out deferred presentment agreement transactions/payday loans in the Veritec system. A deferred presentment transaction/payday loan is closed when the customer returns to the business at the end of the loan period and redeems, or pays, the amount due.

24. For every deferred presentment transaction a licensee executes with a customer, the licensee is required to input information regarding the transaction into the Veritec database.

25. One of the items of information the licensee has to report in Veritec is the date the transaction is closed.

26. The deferred presentment transaction must be closed out in Veritec as soon as the customer pays off that transaction and exits the licensee's premises.

27. A customer cannot have two deferred presentment transactions open at the same time. Once a customer completes a transaction, s/he must wait 24 hours before opening a new transaction.

    
    

28. It is important for licensees to timely close out transactions in Veritec, in order to "re-set the clock" for the customer, given the 24-hour waiting period.

29. Upon payment of the transaction in full, the customer is given a loan payoff receipt which shows the date when the loan was redeemed.

30. Column Q on the Veritec spreadsheet is titled “Backdated System Closed Time" and reflects the date the licensee closed the transaction in the Veritec system.

31. In a sample of 39 payday loan transactions, Respondent failed to timely close the following payday loan transactions:

    1. R.C., transaction number 54619724, payoff date July 6, 2012, closed in Veritec on July 7, 2012.

       
       

    2. G.C., transaction number 57401945, payoff date November 2, 2012, closed in Veritec on November 20, 2012.

       
       

    3. M.D., transaction number 56186881, payoff date September 21, 2012, closed in Veritec on October 8, 2012.

       
       

    4. M.F., transaction number 55261617, payoff date August 7, 2012, closed in Veritec on August 10, 2012.

       
       

    5. M.F., transaction number 56667963, payoff date October 15, 2012, closed in Veritec on November 14, 2012.

       
       

    6. J.G., transaction number 54023229, payoff date June 2, 2012, closed in Veritec on October 4, 2012.

       
       

    7. D.H., transaction number 55090429, payoff date July 26, 2012, closed in Veritec on August 11, 2012.

       
       

    8. C.J., transaction number 54828984, payoff date July 13, 2012, closed in Veritec on July 16, 2012.

       
       

    9. J.P., transaction number 58454187, payoff date December 29, 2012, closed in Veritec on February 16, 2013.

       
       

32. The nine transactions were redeemed in cash, and they should have been closed in Veritec as soon as they were paid off

    by the customer.

    
    

    CONCLUSIONS OF LAW

    
    

33. The Division of Administrative Hearings has jurisdiction over the subject matter of this proceeding and the parties thereto pursuant to sections 120.569, 120.57(1), and 120.60(5), Florida Statutes (2014).

34. Petitioner is the state agency charged with administering and enforcing chapter 560, Florida Statutes, related to licensing of check-cashing businesses.

35. Because Petitioner seeks to impose an administrative penalty, which is a penal sanction, Petitioner has the burden of proving by clear and convincing evidence the specific allegations in the Second Amended Administrative Complaint. See, e.g., Dep’t

    of Banking & Fin. v. Osborne Stern & Co., 670 So. 2d 932 (Fla.

    
    

    1996); Ferris v. Turlington, 510 So. 2d 292 (Fla. 1987); Pou v. Dep’t of Ins. and Treasurer, 707 So. 2d 941 (Fla. 3d DCA 1998).

    
    

36. Clear and convincing evidence “requires more proof than a ‘preponderance of the evidence’ but less than ‘beyond and to the exclusion of a reasonable doubt.’” In re: Graziano, 696 So.

    2d 744, 753 (Fla. 1997).

    
    

37. Through the Second Amended Administrative Complaint, Respondent is alleged to have violated section 560.310(2)(b), Florida Statutes, and Florida Administrative Code Rule 69V- 560.704(4)(c), requiring check cashers to maintain a legible copy of the personal identification presented by the check cashing customer; section 560.309(2) and rule 69V-560.704(2)(a), requiring check cashers to endorse at the time of acceptance of the check from the customer all payment instruments accepted by the check casher; section 560.123(3)(c) and rule 69V-560.608, requiring check cashers to file a currency transaction report with FinCEN within 15 days following the day on which the reportable transaction occurred; section 560.310(2)(c) and rule 69V-560.704(4)(a) through (b), requiring check cashers to affix an original thumbprint of the customer to the original of each payment instrument and maintain a copy of the original payment instrument, including the thumbprint of the customer; section 560.404(3)(h) and rule 69V-560.904(1)(a)11., requiring that each deferred presentment transaction agreement must contain the transaction number assigned by Respondent; and section 560.404(23) and rule 69V-560.908(6), requiring that check cashers

    
    

    shall be responsible for immediately closing each transaction in the database when the transaction has terminated.

38. In each violation cited, Petitioner proved by clear and convincing evidence that the violation existed at the time of the examination.

39. Respondent established that it made personnel changes and modified certain of its business practices to address some of the violations cited herein. However, the changes implemented by Respondent cannot be accepted as acts of mitigation because they were not implemented “prior to detection and intervention by [Petitioner].” See Fla. Admin. Code R. 69V-560.1000(148)(d).

40. The undersigned has considered Respondent’s claim that Petitioner incorrectly applied a strict compliance standard, rather than a substantial compliance standard. Respondent’s argument is not persuasive.

41. Section 560.310 does not allow for substantial compliance because the statutory provisions use the mandatory term “must.” The word “must” is generally considered a mandatory term unless the context of its use indicates otherwise. Agile

    Assur. Group, Ltd. v. Palmer, 147 So. 3d 1017, 1018 (Fla. 2nd DCA 2014). The governing statutory language does not reasonably suggest that the Legislature intended for the word “must” to mean anything other than mandatory.

    
    

42. By contrast, other state agencies are given authority to determine substantial compliance with regulatory requirements. See, e.g., § 395.4001, Fla. Stat. (2014) (Department of Health

verifies “substantial compliance” with trauma center and pediatric trauma center standards); and § 400.23, Fla. Stat. (2014) (Agency for Health Care Administration surveys nursing homes to determine “substantial compliance” with licensing criteria). Chapter 560 is not a statute authorizing substantial compliance with regulatory criteria.

RECOMMENDATION

Based upon the aforementioned Findings of Fact and Conclusions of Law, it is RECOMMENDED that Petitioner, Office of Financial Regulation, enter a final order:

1. Finding that Respondent, MS Money, Inc., violated subsections 560.123(3)(c), 560.309(2), 560.310(2)(b), 560.310(2)(c), 560.404(3)(h), and 560.404(23), Florida Statutes; and Florida Administrative Code Rules 69V-560.608, 69V- 560.704(2)(a), 69V-560.704(4)(a) through (c), 69V- 560.904(1)(a)11., and 69V-560.908(6); and

2. Imposing an administrative fine against Respondent in the amount of $16,100.00, payable to Petitioner within 30 calendar days of the effective date of the final order entered in this case.5/

DONE AND ENTERED this 15th day of May, 2015, in Tallahassee,

Leon County, Florida.

S

LINZIE F. BOGAN

Administrative Law Judge

Division of Administrative Hearings The DeSoto Building

1230 Apalachee Parkway

Tallahassee, Florida 32399-3060

(850) 488-9675

Fax Filing (850) 921-6847 www.doah.state.fl.us

Filed with the Clerk of the Division of Administrative Hearings this 15th day of May, 2015.

ENDNOTES

1/ Unless otherwise indicated, statutory references are to the version in effect at the time of the transactions that form the bases of the charges.

2/ All subsequent references to the Florida Administrative Code will be to 2009, unless otherwise indicated.

3/ Veritec is a third party contractor which operates a statewide, real time, on-line check cashing database pursuant to section 560.310(4), Florida Statutes (2012).

4/ Section 560.404(1) provides that “[e]ach deferred presentment transaction must be documented in a written agreement signed by the deferred presentment provider and the drawer.” Section 560.402(3) defines a “deferred presentment transaction” to mean “providing currency or a payment instrument in exchange for a drawer’s check and agreeing to hold the check for a deferment period.” Section 560.404 makes it clear that the purpose of the written agreement is to memorialize the deferred presentment transaction. Section 560.404(3)(h) unequivocally directs that each written agreement must contain “the transaction number assigned by the office’s database.” While there is nothing in section 560.404 that prevents a drawer’s check from referencing

the required transaction number, the requirements of section

560.404 are not satisfied when the related written agreement fails to include the required transaction number.

5/ Mr. Grosmaire credibly testified that a recommended administrative fine in the amount of $16,100 is appropriate under the circumstances of the instant case. Mr. Grosmaire’s analysis provides a reasonable basis upon which to determine an appropriate fine and the same is adopted by the undersigned.

COPIES FURNISHED:

Jennifer Leigh Blakeman, Esquire Office of Financial Regulation Suite S-225

400 West Robinson Street Orlando, Florida 32801 (eServed)

Jerry Michael Warren, Esquire Warren and Skaggs, PLLC

Suite 200

100 West Lucerne Circle Orlando, Florida 32801 (eServed)

Drew J. Breakspear, Commissioner Office of Financial Regulation

200 East Gaines Street Tallahassee, Florida 32399-0350 (eServed)

Colin M. Roopnarine, General Counsel The Fletcher Building, Suite 118

200 East Gaines Street Tallahassee, Florida 32399-0370 (eServed)

NOTICE OF RIGHT TO SUBMIT EXCEPTIONS

All parties have the right to submit written exceptions within

15 days from the date of this Recommended Order. Any exceptions to this Recommended Order should be filed with the agency that will issue the Final Order in this case.

Docket for Case No: 14-004153

Orders for Case No: 14-004153