4 States Investigate eBay's Billpoint Payment Service

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Four states recently sent inquiries to eBay Inc., questioning whether its Billpoint online payment service should be regulated under the states' money transmitter laws.


In its annual report, eBay revealed that Oregon, California, Louisiana and Illinois banking regulators asked the online auction service to explain why it should not be regulated in those states as other payment services are.


"We are currently discussing the applicability of these laws with the relevant state authorities," eBay said.


EBay said in its annual report that it would register its payment service with those states, if necessary. No one from eBay was available to comment.


States that license money-transfer services typically require the companies to pay a nominal fee based on the amount of transactions conducted in the state or the number of physical locations it has. Some states also require such services to put up a surety bond, a kind of insurance to guarantee transactions.


Using the Billpoint service, eBay users can pay for their online auction winnings. About one-quarter of all eBay auctions use the Billpoint service. The majority of auction winnings, however, are paid for using Billpoint's chief rival, PayPal.


PayPal, too, is being investigated by state regulators in New York, California and Louisiana, who are looking into whether it is operating as an unauthorized bank.


Last month the Federal Deposit Insurance Corp., the country's chief banking regulator, ruled that PayPal is not a bank and should not be regulated as one. The FDIC said it does not consider the company to be a bank or savings association because it does not accept deposits as defined by federal law, which requires institutions to have a banking charter. PayPal doesn't have a charter, therefore it is not a bank, the FDIC said.


"PayPal does not physically handle or hold funds placed into the PayPal service," the FDIC said.


However, some state regulators are looking into whether PayPal is operating an unauthorized money transmitting service. In February, Louisiana regulators asked PayPal to stop offering its service to state residents until it secured a license from the state to transmit money. PayPal received that license late last month.


But Shawn Milne, an analyst with SoundView Technology Corp., said the FDIC's decision is a positive one for PayPal.


"While the FDIC letter may not be a silver bullet to ward off state regulators, we believe it could significantly strengthen PayPal's case with states that may consider regulating the company under banking and/or money transmission laws," he said.


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