Illinois State Department of Financial Regulations Serves Squares a Cease and Desist Order

Apr 29, 2014
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Square has been slapped with a “cease and desist” order from the Illinois State Department of Financial Regulations. Apparently Square does not have any type of license or permit to transact payments in the state. This is shocking for many small business owners who rely on Square as their payment terminal for plastic card payments.

In the cease and desist order sent to Square, the Illinois department says that Square is “engaged in the business of transmitting money in Illinois, as defined by the Act, without the required license.”  The act clarifies that transmitting money means “the transmission of money by any means, including transmissions to or from locations within the United States or to and from locations outside of the United States by payment instrument, facsimile or electronic transfer, or otherwise, and includes bill payment services.” Apparently, even though Square is the “go between” from the vendor to his bank, and does not actually hold the funds, they are still in need of a license to do so in the state. Square’s response to this incident is that “We’ve been in close contact with the Illinois Division of Financial Institutions for several months and are addressing their concerns”.

Oddly enough, this request is not new. The request is from January 2014, nearly five months ago. Under the cease-and desist order, Square is liable to the department for $1,000 per transaction it has supported in Illinois, plus another $1,000 for each day the company is in violation of the act. Moreover, the act requires Square to pay the department an amount equal to four times the amount of money transmitted while in violation of the act, the order states. Those fees were to be paid by February 1, 2014, though it is unknown if they were.

The total penalty Square might face is unknown, but according to Square it has more than 800,000 U.S. customers.  Most use Square devices infrequently, however some small businesses use them as their only plastic card payment processor.   Square may not hold the funds transmitted in its transactions, but it certainly sells or issues the “payment instrument,” which the act says makes the company liable. The courts may have to decide whether the state’s position is correct. If it is, expect other cash-hungry states to follow Illinois’ lead.

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Having a merchant account allows an account holder to take advantage of merchant cash advances. When a merchant is approved for an advance, the business agrees to receive a lump sum of cash in exchange for an agreed-upon percentage of future credit card sales.

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