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Square Slapped With Cease And Desist By Illinois State Department

techcrunch.com

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Re: Square Slapped With Cease And Desist By Illinois State Department

#11

Post by sophacles »

tptacek wrote: post #4
btilly wrote: post #2

Is Square even in Illinois? If not, then can someone explain to me how Illinois has the power to enforce this statute? I am not a lawyer, but it would seem to me to be a pretty clear case of interstate commerce, which is under federal jurisdiction.

IIRC money transfers are regulated as banking activities, not interstate commerce. Every US state seems to have a variant of these rules; for instance, here's every license Paypal needs to operate: https://www.paypal-media.com/state_licenses.cfm

This makes a certain amount of sense. If I, as a resident of Illinois, purchase a coffee from my locally owned and operated shop, we could suddenly get around in state regulations just by processing the payment via a medium that includes a different state, e.g. square, or writing a check from a bank with branches not in IL.

Re: Square Slapped With Cease And Desist By Illinois State Department

#12

Post by aristus »

tptacek wrote: post #7
dsl wrote: post #6

Earlier quoted context omitted.

Just because another state has not yet taken enforcement action doesn't mean Square isn't in violation. The TechCrunch article mentions they have been in talks with the state for a while, which means they could be talking to 40 other states that have the same concerns... we don't know. If you are big enough to be noticed by the states as a major money mover, you're probably big enough to get the proper licenses to co…

Of the various regulatory hurdles you have to jump over to be a business that handles money for other people, money transmitter licenses seem like one of the most reasonable requirements, so I guess I agree. It must suck a lot to have to deal with every state on these, but I'm not sure we'd like federal requirements any more.

If the bond requirement becomes daily volume times 50 states, they are boned.

Re: Square Slapped With Cease And Desist By Illinois State Department

#13

Post by rayiner »

jrs235 wrote: post #9

Ah, the great corrupt state of Illinois! I wonder who and how much money got passed under the table to investigate and pursue this. Yes, I realize that no money may have been passed and that someone might have just been doing "their job" (as they see it).

I don't even understand the motivations behind posts like this. Government = bad and tech company = good, so therefore any time there is an issue between them, it can only be the result of government corruption squashing innovation? Is that basically the gist of it? If it had been the state of Illinois versus say Apple, would you say the same thing?

Square is part of the financial services sector. It's regulated, and always has been, for good reasons. There is no need to turn the imposition of reasonable licensing requirements into a anti-government rant.

What boggles my mind is that many of the same people who go off on things like this also think the government doesn't do enough to regulate oil companies, banks, etc. Guess what--people who work in those industries think they're the "good guys" too, and tirade against the government for imposing regulations to keep them "innovating." "We shouldn't regulate tech companies, it just hinders innovation, the government doesn't understand the space anyway" is pretty much precisely parallel to the thinking that got us deregulation in financial services.

Re: Square Slapped With Cease And Desist By Illinois State Department

#14

Post by AnIrishDuck »

aristus wrote: post #12
tptacek wrote: post #7

Earlier quoted context omitted.

Of the various regulatory hurdles you have to jump over to be a business that handles money for other people, money transmitter licenses seem like one of the most reasonable requirements, so I guess I agree. It must suck a lot to have to deal with every state on these, but I'm not sure we'd like federal requirements any more.

If the bond requirement becomes daily volume times 50 states, they are boned.

I wonder if they can post one bond that meets the requirements of all 50 states somehow... that seems reasonable, the issue is which party they would post the bond with.

Re: Square Slapped With Cease And Desist By Illinois State Department

#15

Post by jrs235 »

rayiner wrote: post #13
jrs235 wrote: post #9

Ah, the great corrupt state of Illinois! I wonder who and how much money got passed under the table to investigate and pursue this. Yes, I realize that no money may have been passed and that someone might have just been doing "their job" (as they see it).

I don't even understand the motivations behind posts like this. Government = bad and tech company = good, so therefore any time there is an issue between them, it can only be the result of government corruption squashing innovation? Is that basically the gist of it? If it had been the state of Illinois versus say Apple, would you say the same thing? Square is part of the financial services sector. It's regulated, and…

It's more of a jab at Illinois (that state seems to have more than its fair share of known corruption issues) than government in general. "If it had been the state of Illinois versus say Apple, would you say the same thing?" Yes.

Some Government regulations are in fact reasonable, even a libertarian such as myself can concede that.

Someone else pointed out that Square doesn't really hold funds, they transfer them. (I haven't verified this statement.) Even if this is true... they still have access to a lot of people's funds and could very easily steal them.

Your other points are also spot on.

UPDATE: I was a little surprised myself that the net karma score for the parent comment was positive.

UPDATE 2: "I don't even understand the motivations behind posts like this." To be a little snarky I guess and to raise eyebrows and questions. At face value, little value is added by the comment... until someone replied and added to the discussion.

Re: Square Slapped With Cease And Desist By Illinois State Department

#16

Post by [deleted] »

jrs235 wrote: post #15
rayiner wrote: post #13

Earlier quoted context omitted.

I don't even understand the motivations behind posts like this. Government = bad and tech company = good, so therefore any time there is an issue between them, it can only be the result of government corruption squashing innovation? Is that basically the gist of it? If it had been the state of Illinois versus say Apple, would you say the same thing? Square is part of the financial services sector. It's regulated, and…

It's more of a jab at Illinois (that state seems to have more than its fair share of known corruption issues) than government in general. "If it had been the state of Illinois versus say Apple, would you say the same thing?" Yes. Some Government regulations are in fact reasonable, even a libertarian such as myself can concede that. Someone else pointed out that Square doesn't really hold funds, they transfer them. (I…

[deleted]

Re: Square Slapped With Cease And Desist By Illinois State Department

#17

Post by dsl »

aristus wrote: post #12
tptacek wrote: post #7

Earlier quoted context omitted.

Of the various regulatory hurdles you have to jump over to be a business that handles money for other people, money transmitter licenses seem like one of the most reasonable requirements, so I guess I agree. It must suck a lot to have to deal with every state on these, but I'm not sure we'd like federal requirements any more.

If the bond requirement becomes daily volume times 50 states, they are boned.

The bond requirements are per state for daily volume, so if they needed one in every state it would be equal to one days volume.

Re: Square Slapped With Cease And Desist By Illinois State Department

#18

Post by epitrochoidal »

From the C&D: "Consumers obtain said devices, free of charge, either through U.S. postal mail or by picking them up at multiple retail locations throughout the State of Illinois." Seems like the real issue may be the "free of charge" part. No charge, no sales tax revenue for the State of Illinois. Maybe I'm too cynical, but I can see this as a bureaucratic rationale.

Re: Square Slapped With Cease And Desist By Illinois State Department

#19

Post by DenisM »

dsl wrote: post #10
tptacek wrote: post #8

Earlier quoted context omitted.

I don't think that's true; if you Google "dormant commerce clause", you'll see why. State laws restricting interstate commerce have to have a legitimate interest for that particular state and their interference with interstate commerce has to be outweighed by their benefit.

My point still stands that its up to the state to make the determination, not you or I. Obviously they feel that Square is doing something that they can regulate.

It's not up to the state. Supreme cour often overrides state laws on the grounds that they interfere with interstate commerce.

Also, the "not you or I" part was unnecessary.

Re: Square Slapped With Cease And Desist By Illinois State Department

#20

Post by thinkcomp »

Money transmission laws are complex. (See http://www.thinkcomputer.com/corporate/whitepapers/heldhosta... .) They're designed to be complex. Most of the laws passed in the past twenty years have been designed by one man, Ezra Levine (http://www.mofo.com/ezra-c-levine/), who is now a lawyer at Morrison & Foerster. His client is The Money Services Round Table (TMSRT), and its membership comprises some of the largest money transmitters in the country.

Square has a money transmission license in California but it is not part of TMSRT. What's surprising about this situation is the following:

1) Square has a lot of lawyers. It has enough money and clout that they are probably very good lawyers. Yet even all of that money, clout (Jack Dorsey) and lawyering could not protect Square from this insane regulatory regime.

2) It is not clear to me, having studied this topic for two years basically full-time, that Square actually is a money transmitter. They might be, but they might not be. Per federal regulations (I think 31 CFR § 1010 point something), they aren't; they are a payment processor, but states ignore these regulations. Even though the definition varies from state to state, it's hard for me to figure out what Square does with money that is not done on behalf of a bank, and banks are exempt from every state money transmission statute to the best of my knowledge. Usually it's just assumed that their agents are also exempt (hence the federal "payment processor" term--suddenly you're not a "money transmitter").

3) State regulators talk to one another but these laws are rarely, if ever, enforced. Virtually every payment startup I know of that isn't Square is violating them, including several YC startups, and even non-payment startups. It's not clear to me what happened in Illinois that their department of banking decided to take the lead on this. I wonder who has a major presence in Illinois that was upset enough that it happened. (Obviously not Visa--they're an investor.)

Square might want to consider filing an amicus brief in my company's case against the California Money Transmission Act (http://www.plainsite.org/flashlight/case.html?id=716056) and/or joining the coalition of entrepreneurs and investors I have helped to assemble in opposition to the insanity that is the money transmission regulatory regime in the United States, especially given AB 786 in the California legislature (http://www.leginfo.ca.gov/cgi-bin/postquery?bill_number=ab_7...) and the hearing about it on March 11 (http://abnk.assembly.ca.gov/hearings). E-mail me at aarong@thinkcomputer.com. This issue will not go away unless we make some noise about it.

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