New Hampshire H.B. 1700
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From: Aaron Greenspan <firstname.lastname@example.org>
I'm writing to you from Silicon Valley, where we are thrilled that H.B. 1700 is going to a floor vote on March 7th. My company, Think Computer Corporation, operates a next-generation payment system called FaceCash (https://www.facecash.com), which lowers payment transaction fees for small businesses (not to mention large businesses and government) to 1.5% flat--less than half relative to traditional credit card interchange rates, which average around 3.3%. FaceCash also reduces fraud by requiring cashiers to verify the purchaser's photograph (which appears on the cash register as well as a smartphone) at the point of sale. We've invested more than a million dollars in the technology. You can see a few short videos explaining how it works at https://www.facecash.com/video.
We support H.B. 1700 for the following reasons:
1. Capital Requirements and Bonds Protect No One And Kill Innovation
Unfortunately, right now, we cannot enter the New Hampshire market because of the excessive burden that money transmission regulation presents--even though we have a new, compelling product that could save merchants and consumers both time and money. It would be fantastic if we could get a foothold in New Hampshire.
The net worth and bonding prerequisites that New Hampshire's law requires don't actually have any rational basis in fact, don't match other states' requirements nationwide, and do not dependably protect New Hampshire consumers in any event. One only need to look at MF Global and Madoff Investment Securities, LLC to realize that having a lot of capital does not necessarily make a business safe. MF Global was worth over $46 billion--and it still failed, misusing over $1 billion of its customers' assets.
The burdens that these arbitrary requirements pose to individual money transmitters, who effectively have to insure themselves in nonsensical pools of one, far exceed the benefits to the public, which are extremely limited. (If PayPal failed, New Hampshire residents would be lucky to see pennies on the dollar.) The only way to solve this problem is through federal oversight of non-bank entities, which the Consumer Financial Protection Bureau (CFPB) is already looking into.
For a more detailed overview of how these laws work across the country, and the risks involved, see http://www.thinkcomputer.com/corporate/whitepapers/heldhostage.pdf.
2. Repeal of New Hampshire's Money Transmission Law Will Not Hinder Prosecutors
There appear to be are some concerns about the repeal of New Hampshire's money transmission statutes possibly eliminating avenues for prosecutors to target financial crimes, but any assertion that the repeal would cause a sudden increase in crime is simply untrue. Money transmission statutes tend to be redundant, in that the crimes they seek to prevent are already illegal by several other means. For example, prosecutors could still use wire fraud (18 U.S.C. § 1343) and/or money laundering (18 U.S.C. § 1956), not to mention common law fraud, to prosecute a criminal who would still be considered a money transmitter under the Bank Secrecy Act (BSA) and its corresponding federal regulations (31 C.F.R. § 1010). The repeal of the New Hampshire statute would have absolutely no effect on the validity of the BSA, which still mandates that money transmitters register with FinCEN and file Suspicious Activity Reports (SARs), regardless of which state they are located in, or whether that state has its own money transmission statute. Nor would there be any impact on the USA PATRIOT Act, which would still be in effect. The repeal would affect one and ONLY one avenue of prosecution, which is for failure to obtain a money transmission license. This crime is rarely prosecuted, and when it is, it is in tandem with other criminal charges anyway.
Ironically, the licensing requirements are so arbitrarily high right now that they encourage new companies to break the law (which appears less expensive, even though it's not), which results in criminal liability for entrepreneurs and their investors. This makes no sense in an economy where we need all of the innovation we can get in order to create new jobs.
Notably, Massachusetts, South Carolina, New Mexico and Montana do not have money transmission statutes, and they are not considered hotbeds of financial crime.
3. Small Businesses Need Help--Not Large Banks
Hawaii and California did not have money transmission statutes until 2006 and 2011 respectively--both of which only came into being because of the lobbying efforts of The Money Services Round Table (formerly the Non-Bank Funds Transmitters Group), a lobbying group with American Express, Western Union, MoneyGram International, Travelex, RIA Corporation, and Sigue Corporation among its members.
The monopoly that Visa, MasterCard, Discover, American Express, and their member banks hold on payment processing in the U.S. is a direct result and an unintended consequence of money transmission laws nationwide, which is why they lobby so hard for them. In each state, there are rarely more than 40 licensees, and they tend to be multi-billion dollar financial conglomerates. Startups that are equipped to compete with these large institutions simply do not have the resources to meet the requirements of 47 state money transmission laws all at once--if they can even afford to register in their home states. In the rare instances that they can, the recurring compliance requirements are overwhelming. (Note that PayPal got its start in 1999, before the USA PATRIOT Act strengthened money transmission laws, and before many states adopted them.)
Were companies like ours allowed to operate in New Hampshire, we could save small businesses (and the State itself) tens of millions of dollars per year in credit card transaction fees.
4. Money Transmission Laws Are Unconstitutional In Their Present Form
We're already fighting California's new anti-competitive money transmission law in federal court as one example of the 47 laws nationwide that are facially unconstitutional, and further violate due process as they are arbitrarily applied. You can read the full proceedings here: http://www.plainsite.org/flashlight/case.html?id=716056
There's simply no point in keeping an unconstitutional law on the books, especially when it costs the state money. If we win our case, New Hampshire's law may be invalidated anyway.
5. New Hampshire Has The Opportunity to be a High-Technology Hub
Since Massachusetts does not regulate domestic money transmission, a similarly open New Hampshire would present technology companies with the ability to offer low-cost payment services between two contiguous states for the first time in decades.
As you can probably tell, this issue matters immensely to us. We are hoping for a federal regulatory regime that makes sense--not no regulation. Repeal of arbitrary state laws is the first step in this direction. Please feel free to call or e-mail me with any questions. I'm more than happy to discuss anything related to mobile payments or money transmission that might help you make your decision.
Last updated March 3, 2012, 8:38 P.M. Pacific Time