Square Hit With Cease-and-Desist Order in Illinois

by Mercator Advisory Group 0

Perhaps VeriFone Systems Inc. was wise to leave the micromerchant market and let its own, licensed customers accommodate the sector’s needs with mobile point-of-sale devices. VeriFone sold its Sail mobile-POS business to an undisclosed buyer earlier this week.

The Illinois Department of Financial & Professional Regulation, Division of Financial Institutions, has entered a cease-and-desist order against Square Inc. after its own investigation found that the company did not have a state money-transmitter license.

Under Illinois’ Transmitters of Money Act, Square must be licensed by the department to engage in the transmitting of money in the state, and a department investigation found it had never granted Square such a license.

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. The order required full payment by Feb. 5 this year. It’s uncertain whether Square complied.

According to Tech Crunch, Square said in a statement about the order: “We’ve been in close contact with the Illinois Division of Financial Institutions for several months and are addressing their concerns.”

The total potential penalty Square might face is unknown, but Square says it has more than 800,000 U.S. customers. Most use Square devices infrequently, so the implications could be relatively small, perhaps up to a few million dollars or so, for the company that essentially created the mPOS market with its smartphone dongle. 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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