
Repeal the California Money Transmission Act - lisper
http://blog.rongarret.info/2013/03/cutting-to-chase-repeal-california.html
======
JumpCrisscross
“ _The theory is that by requiring businesses that move money around on behalf
of third parties to get licenses and post large bonds, that this will cut down
on fraud. This theory was almost immediately falsified by the discovery that
Moneygram, a licensed money transfer agent, had engaged in a massive fraud.
And this was not an isolated incident. So the MTA clearly does nothing to
prevent fraud._ ”

X mitigates Y. Y occurred. Thus X does nothing?

Posting bonds isn't to prevent fraud as much as to limit losses from
disorderly unwindings. Think of it as the transaction equivalent of capital
reserves.

Is the system broken? Yes. It's slow, fragmented, and overly cautious which
serves to protect vested interests. But this article does a poor job of
highlighting why the law is better dead than alive or modified.

Let's take as an example asset management regulation. Processors above a
certain size must file capital adequacy, amongst other, disclosures.
Regulators have the power to conduct investigations and, ultimately, suspend a
processor's connections to the U.S. banking system. The advantage of a
reactionary regulatory approach is speed and flexibility. Payment processors
would be expected to fail from time to time, but fail gracefully, in a way
that doesn't threaten to shut down the economy's ability to process payments
(cash and bank-to-bank transfers are the safety mechanism).

~~~
lisper
> X mitigates Y. Y occurred. Thus X does nothing?

No. X was intended to prevent Y. Y occurred -- to the tune of $100M. And it
was not an isolated incident. Therefore X fails to prevent Y. In addition, X
has lots of deleterious effects, not least of which is stifling competition.

> this article does a poor job of highlighting why the law is better dead than
> alive or modified

That's why this article is part of a (long, and not yet completed) series.

> Payment processors would be expected to fail from time to time

This is only true because the underlying infrastructure is antiquated and
broken. With a modern payment processing system based on a secure protocol
there is no reason a payment processor should ever fail (other than fraud, but
that is already a crime under _federal_ law).

~~~
JumpCrisscross
The bond is meant to reduce, not eliminate, the frequency of fraud. It also
makes winding up a failing institution smoother. Yes, this impacts efficiency,
but it also decreases risk. One could argue about the size of the bond, but as
a mechanism it's a technique with a good history across finance.

Also, no firm is bust-proof. There are a number of human and technical errors
that could take down a payment processor. Payment processors are also exposed
to payment fraud. There there is good old competitive pressure.

~~~
danbmil99
I would willingly take the risk of default on small purchases (< $100) in
return for saving 3% on the cost of the transaction. This would pay off every
50 or so transactions -- and the failure rate is likely orders of magnitude
lower than that.

~~~
JumpCrisscross
Consumers don't bear the brunt of the risk of a payment processor folding. The
merchant with millions of accounts payable, an unsecured claim, does.

I agree with the core of the post: the system is too cautious. I disagree with
the call to lower the bar for starting a payment processor to parity with a
photo sharing app.

~~~
lisper
Repealing the MTA would not lower the bar "to parity with a photo sharing
app". There are still a whole host of _federal_ regulations that you have to
comply with.

~~~
JumpCrisscross
Perhaps this would be a more concise argument than the multi-series approach?
In essence, federal regulation is more than enough and the California finish
is superfluous.

~~~
lisper
Yeah, I probably should have said that explicitly. I'm trying to keep an awful
lot of balls in the air right now, and sometimes one of them falls on the
floor.

------
khuey
1\. Law is passed to reduce fraud. 2\. An incident of fraud occurs under the
new law. 3\. Law is pointless and should be repealed.

1+2 do not imply 3.

I don't know much about the California MTA. It may very well be a terrible
piece of legislation that prevents desperately needed innovation. But the
argument presented here is laughable.

~~~
thinkcomp
It's more like...

1\. Paid lobbyist writes law to protect enormous clients, convinces consumer
advocates and legislators that it's in the best interest of the public and
that there is "industry consensus" (actual words used).

2\. Many incidents of fraud occur under the new law, including one that is
nationwide to the tune of $120 million (settled for $100 million in three
weeks to avoid an admission of guilt) involving one of the paid lobbyist's
clients, whose license for some reason is not revoked.

3\. Law is protectionist and not in the public's interest and should be
repealed.

Issues like this are complex and deserve our attention. The argument isn't
laughable, it's just the tip of a very complicated iceberg.

~~~
khuey
If the issue is complex the author shouldn't try to dumb it down as far as he
did.

------
codex
"The financial system in the U.S. is horribly inefficient. Retail transactions
conducted with credit cards cost 2-3%, which is a ridiculously high cost given
today's technology."

No.

The reason banks charge high transaction fees on credit cards has to do with
how credit cards are billed. The billing cycle for a card is 30 days, after
which you have 30 days to pay. This is effectively a loan for which you are
paying zero interest. Somebody must pay, though, because you are risky,
unsecured debt and your interest rate is maybe 12 percent. Up to two months of
free credit therefore costs the bank two percent, which they charge the
merchant.

Credit card companies could shorten this billing cycle once the delays of
snail mail are no longer commonplace, but that doesn't reduce the transaction
cost--it only moves it from the merchant to the consumer, who now begins to
accrue interest charges earlier. Consumers could theoretically pay off their
debts faster and thus pay less interest, but only to a point, because most
consumers live paycheck to paycheck and will carry a balance until their
biweekly paycheck isn't eaten up by rent and auto payments--roughly a month.

And I would argue that most consumers and banks prefer the grace period and
simple interest calculations; it makes the whole billing process easy to
understand.

~~~
lisper
Just because _my_ interest rate is 12% doesn't mean that this is the cost to
the bank. The cost to the bank of floating this loan is the rate the bank pays
for its money, which has been about 0.2% for the last four years. But you do
raise a valid point: part of the problem is the conflation of payments and
credit. I'll be writing about that in a future post.

~~~
codex
The bank's costs also include bad debt and fraud, which are high for credit
cards; are you including those in your figures? At any rate, the opportunity
cost to the bank of giving free credit to the consumer (by structuring the
billing cycle this way) is the retail cost of the money (what you would have
paid them) not the wholesale cost.

Debit cards are a whole different story, of course, because no credit is
extended.

------
itafroma
Links to the Hacker News discussions from previous parts, compiled because I
was curious and on occasion a mention to a Hacker News discussion is made
without a link:

Part 1: <http://news.ycombinator.com/item?id=5265563>

Part 2: <http://news.ycombinator.com/item?id=5276471>

Part 3: <http://news.ycombinator.com/item?id=5295236>

Part 4: <http://news.ycombinator.com/item?id=5302661>

------
pbreit
When you say things like "does nothing to prevent fraud" and "does nothing to
protect me as a consumer" you have lost me for I know these statements to be
untrue.

------
pbreit
4 or 5 long essays about a "simple solution" and yet I have almost no idea of
what the solution might look like. Is it really that difficult to describe the
user experience in a paragraph or 2?

~~~
lisper
I can describe it in one sentence: replace the existing protocol with one
where payment authorization is done with secure digital signatures.

~~~
pbreit
That's really not helpful. What is the user experience at the checkout
counter? Are there any new instruments or hardware involved? How are such
things deployed to consumers and merchants?

~~~
lisper
Troll. You already asked me that, and I already answered it.

~~~
pbreit
Then please humor me and either point me to such an answer or repeat it here.
When I walk into a store and pay with your service, what is the experience?
Your answer need not mention digital signatures (unless you are referring to
the actual signing on some sort of touch screen as you sometimes see these
days; and in which case i know your solution is a non-starter for deployment
reasons) or encryption.

And enough with the "troll" stuff. I am not remotely such. 16 very successful
years in the payments industry.

~~~
lisper
<http://news.ycombinator.com/item?id=5296345>

------
thinkcomp
In addition to Ron's excellent summary, if you're not yet convinced but still
interested as to why the MTA should be repealed--and it definitely should--
it's a long and sad tale. (As I've said other places, I'm personally not
against uniform, reasonable regulation at the federal level, but the MTA is
the wrong way to do it for so many reasons.) Bits and pieces can be found
here:

Think White Paper (Broad Overview)

Held Hostage -
[http://www.thinkcomputer.com/corporate/whitepapers/heldhosta...](http://www.thinkcomputer.com/corporate/whitepapers/heldhostage.pdf)

Think Legislative Comments (Extremely Detailed)

November 7, 2012 - <https://s.facecash.com/legal/20121107.dficomment.pdf>

February 25, 2013 - <https://s.facecash.com/legal/20130225.packetnumbered.pdf>

Personal Essays

May 10, 2011 - In Fifty Days, Payments Innovation Will Stop In Silicon Valley
- <http://www.aarongreenspan.com/writing/essay.html?id=54>

June 1, 2011 - In Thirty Days, Payments Innovation Will Stop In Silicon Valley
- <http://www.aarongreenspan.com/writing/essay.html?id=59>

June 14, 2011 - Why I'm Furious with Silicon Valley -
<http://www.aarongreenspan.com/writing/essay.html?id=60>

July 20, 2011 - The California Law That Should Send The President and Fellows
of Harvard College (and Every Private University) To Prison -
<http://www.aarongreenspan.com/writing/essay.html?id=62>

December 5, 2011 - Why I'm Suing the State of California -
<http://www.aarongreenspan.com/writing/essay.html?id=73>

July 16, 2012 - Naked Regulation: Capital Requirements Don't Work -
<http://www.aarongreenspan.com/writing/essay.html?id=77>

July 23, 2012 - Hypocrisy Comes Full Circle: Money Transmission Meets Campaign
Finance - <http://www.aarongreenspan.com/writing/essay.html?id=78>

February 13, 2013 - In Nine Days, the California Money Transmission Act Could
Get Even Worse - <http://www.aarongreenspan.com/writing/essay.html?id=86>

FaceCash Lawsuit (Think Computer Corporation v. Venchiarutti, et al)

<http://www.plainsite.org/flashlight/case.html?id=716056>

<http://www.facecash.com/legal/brown.html>

MoneyGram USDOJ Lawsuit (USA v. MoneyGram International, Inc.)

<http://www.plainsite.org/flashlight/case.html?id=2334104>

Square, Inc. Cease & Desist Letter (Illinois)*

[http://www.idfpr.com/dfi/CCD/Discipline/SquarePersonifiedCDO...](http://www.idfpr.com/dfi/CCD/Discipline/SquarePersonifiedCDOrder13CC208.pdf)

* Not directly related to the MTA, but illustrative of how even licensure under the MTA for a California company with a former Secretary of the Treasury on its Board, good lawyers, and a very wealthy founder is not enough to comply and avoid violating federal law.

18 U.S.C. § 1960

<http://www.plainsite.org/laws/index.html?id=14426>

------
205guy
I am very happy to see this issue getting exposure. I have long been saying
that CC are a big scam and essentially a protection racket taking 3% of every
transaction. People get 1% cash back (when they're lucky) and they think that
money came out of thin air. The fact that vendors cannot pass that cost on to
CC users is part of the racket--and is finally being recognized as illegal.

But the OP gets at the heart of the matter: "Retail transactions conducted
with credit cards cost 2-3%, which is a ridiculously high cost given today's
technology. Retail transactions (actually, any money transfer transaction)
could be profitably brokered at 0.1% or less."

Given the high fees on CC's I always wondered why there was no alternative
card with lower fees, or why ATM cards still had 1% fees. Now I know it's
because of legislation like this. I bet the CC companies paid lots of campaign
donations to the legislators who passed this thing. If I was still in CA, I'd
send the email he suggested.

~~~
dangrossman
> If I was still in CA, I'd send the email he suggested.

Are you still in the US? Money transmitters need to be licensed in 48 of the
50 states.

------
rdl
Repealing the California MTA still leaves sufficient federal legislation and
other state legislation in place to effectively regulate payment systems. The
MTA is just a bad law.

------
contingencies
The California Money Transmission Act is only one small portion of a greater
struggle that is going on across the planet; a struggle that cuts to the very
core of our societies, our diplomacy, our fundamental rights and freedoms, and
nothing less than the future our world. It is a logical outgrowth of
globalization, of technology, and of the internet. For international finance
is the last great systems, next to law and the rule of government itself, that
has not yet been toppled or reorganized by internet based, distributed
technologies. Media has fallen. Education has fallen. Retail has fallen.
Transport has fallen. Manufacturing seems to be coming under threat.

Finance is _certainly_ under threat, but it consistently beckons for state
protection under the ruse of protecting the public from the ethereal
boogeyman. Why? To cut to the chase, finance is government: they are in
essence one and the same. Throughout modern history, the state's monopoly on
physical violence has been used to collect taxes; taxes that must be paid in
the state's own currency. Often, the use of foreign tender is made illegal.
The money, otherwise backed by little, thus acquires value: you need it to
stay out of the state's jails or system of punishment, to eat, and to live.
Almost without exception, the state then further demands interest or otherwise
manipulates their currency's value.

At the turn of the 16th century, Martin Luther's doctrine of the two kingdoms
marked the beginning of the modern separation of church and state, which was
enshrined in to law in many countries throughout the 20th century. I believe
that today, citizens have had enough of financial abuses, and our societies
stand on the threshold of one further separation: the separation of state and
finance.

For as we have seen over the past few years, at present we have a financial
system that sees itself above the law. A financial system that, despite
reaping vast profits and efficiently systematizing both usury and the total,
constant, warrantless international surveillance of private citizens and
corporations alike (for it is inseparable from the state), has for the past
twenty or thirty years failed to provide meaningful innovation or reduction in
price, to provide transparency, to provide protection against corruption, to
provide any meaningful service to society. Instead, we largely see the finance
industry doing its best to stifle and defeat the threat of change, all the
while scratching the state's back and imposing economic blockades against
organizations and nations alike without any form of due process.

Thus, it is perhaps too optimistic to expect the state, intertwined as it is
with the existing system, to punish our financial overlords. Luckily, this is
not a requirement. Simply by refusing to artificially stifle innovation, the
winds of change will come, they will whisk through the vacuous marble halls of
old finance, they will carry fresh ideas, they will underpin great movements
toward transparency of governance, they will empower the collective
individual, and they will take no hostages.

State-sanctioned or not, this change is coming. We as humanity will continue
along our historic trajectory: the technologically-backed shift away from
nations and nationalism - Einstein's "infantile disease, the measles of
mankind" - towards a human society. We will find ways to remove the
state/financial overlords of old, and to enable for the whole of humanity -
not just multinational businesses and the dynastic capital of old - the
capacity to replace oligopolies of usury and fear with cooperation and
enterprise, without regard for borders.

It is said that one cannot resist an idea whose time has come. Make no
mistake: the shackles of old are opening, and only fools will attempt to hold
them in place.

~~~
rayiner
> It is a logical outgrowth of globalization, of technology, and of the
> internet. For international finance is the last great systems, next to law
> and the rule of government itself, that has not yet been toppled or
> reorganized by internet based, distributed technologies. Media has fallen.
> Education has fallen. Retail has fallen. Transport has fallen. Manufacturing
> seems to be coming under threat.

This would be interesting, if any of it were true. Media is still totally
dominated by cable news and talk radio. The application of the
internet/computers to technology has been a miserable failure. Online
universities are a punchline rather than a credible alternative to brick-and-
morter institutions. Amazon's revenues are less than 1/7'th as much as Wal-
Mart's, and a bit smaller than Target's. Transport is booming for completely
non-internet related reasons--people are traveling more than ever despite the
availability of internet communications. Our highways are congested, our
airports are overloaded, etc. I'm not even sure what to make of the
manufacturing comment. What internet-related or distributed anything is
threatening manufacturing?

As far as I can tell, the only thing the internet has really replaced is
physical mail, phone calls, and mail-order catalogs. And in the process it has
been far more centralized, not more distributed.

~~~
contingencies
All fair points, though I would suggest we are in the early stages of change
at present and that the average citizen of the US is a poor benchmark for
global media consumption habits. While some areas, such as China, are rushing
toward the supermarket model it is not yet dominant in global terms and
perhaps will never be. A common tendency of each era in history is to say
"here we are! things are complete! (weren't things great a long time ago)"
whilst in fact major changes have not yet begun or have not yet been
recognized as significant. What we need to do is zoom out.

------
smutticus
This article is long on opinion and short on actual facts.

~~~
lisper
If you want the actual facts, follow the link in the second paragraph. You'll
find over 200 pages worth of facts.

------
yarou
It's odd that there are restrictions on "transmitting" money. Doesn't the USA
do this already with hot money? How hypocritical. :)

------
toomim
Bitcoin.

~~~
josephagoss
This law is all about the company moving money around, not a restriction on
the money itself. So using BTC would not make a difference.

~~~
thinkcomp
Correct. If you are a fan of Bitcoin then you should definitely favor repeal
because right now all Bitcoin exchange services are unlicensed and therefore
illegal under the state and federal statutes.

~~~
josephagoss
If an exchange is in a different country then how can it be illegal?

The only law that affects me is both the law of the country the exchange is
located and the law of my country.

Being as the exchange I use is based in Hong Kong and my country is Australia,
USA laws do not apply to me.

I understand that the USA law will apply to the majority of BTC users however,
because most of the exchanges and developers are all USA based, unfortunately.

Also I believe that Bitcoin-Central is licensed to operate in the European
union.

~~~
thinkcomp
Sorry, I was thinking of U.S. exchanges. You're correct that international
ones are outside of the scope of U.S. law--though interestingly, California
does take the view that the MTA can police other states.

