The Law Governing Barter Exchanges

I recently attended the annual conference of the International Reciprocal Trade Association (IRTA), which is the trade association for the barter exchange industry. One of the hot topics was the applicability of state and federal money transmitter laws to barter exchanges.

What is a Barter Exchange?

Barter exchanges act as a clearinghouse for barter transactions between their members.  The units of account for barter transactions are known as “trade credits.” Such credits have value and are accepted as final means of payment within the barter network and denote the right of a network member to receive, or the obligation of a network member to pay, a certain value in goods and services.  The barter exchange serves as a third-party record keeper for these transactions.  The sole guarantee of a trade credit is a network member’s contractual obligation to supply goods and services and accept payment in accordance with the terms of a member agreement. Trade credits are not redeemable for cash under any circumstances.

Is a Barter Exchange a Money Transmitter?

IRTA requested an opinion from the California Department of Business Oversight regarding whether commercial barter exchanges are regulated under the California Money Transmission Act

The Commissioner of Business Oversight responded by stating that a commercial barter exchange acts merely as a record keeper of barter transactions between its members and therefore it is not “receiving money for transmission.”  Also, because the barter exchange is not a guarantor of the value of trade credits earned in barter transactions, the barter exchange is not an issuer under the Act.

The letter concludes that because of this, commercial barter exchanges need not seek licenses under the Money Transmission Act.

Interestingly, the Commissioner does not opine on whether trade credits are money.

According to IRTA, representatives of the federal Financial Crimes Enforcement Network have also stated that the federal law governing money transmitters would not apply to barter exchanges.

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