What the law accomplishes sounds mundane enough: it requires money transmitters--companies that act like banks, but aren't, such as PayPal--to get licenses. As usual, however, the devil is in the details. Previously, California corporations were only required to get money transmitter licenses for international funds transfers, and domestic transfers were unregulated. Now both kinds of transfers are regulated. Also, the price of each license is a little bit steep: half a million dollars and change.
Oh, and if you want to do business nationwide, you'll need 43 more of those licenses from almost every state. The forms and requirements are different everywhere, most states want your fingerprints to do a criminal background check (the exact same criminal background check, it turns out), and the price varies wildly from a measly $10,000 to $1,000,000+ per state. Want the forms? Good luck finding them; some states don't post them on-line.
Why does California's law matter at all when the regulatory framework for money transmitters is already such a mess? Well, Silicon Valley is located in California, and if Valley startup founders risk going to jail (which, under the updated PATRIOT Act, they do) for transmitting money illegally without a license, then there aren't going to be very many new companies working on ways to handle payments that don't involve the same old banks touting the same old plastic cards. Not to mention that there aren't a lot of investors who like the idea of putting half a million dollars into a company's bank account so that it can be immediately locked up and used for licenses.
In other words, the Money Transmission Act is designed to kill innovation.
I wish I could get worked up when stuff like this happens, but frankly it's just how America is. What wipes us out as an economic power won't be hyperinflation, default, or obvious crushing taxes; it'll be a million cuts just like this one.
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