There have been a number of articles published lately in various venues about the foundering generation of 20-somethings to which I belong. The stories are variations on a theme. Law students can't find work as lawyers and can't afford law school as a result (http://www.nytimes.com/2011/07/24/business/the-new-math-of-law-school.html). Medical students can't afford their burgeoning debts, not to mention malpractice insurance premiums, necessary to fend off the unemployed law students' lawyer-parents (http://online.wsj.com/article/SB10001424052748703389004575033063806327030.html). Those undergraduates lucky enough to get into elite private schools are pressured to work for the investment banks pressuring the rest of society into debt (http://www.nytimes.com/2008/06/23/education/23careers.html), while roughly everyone else is lucky if they can make a decent hourly wage at Starbucks to pay off that debt (http://wearethe99percent.tumblr.com).
At a recent screening of his documentary "Inside Job" (http://www.sonyclassics.com/insidejob), which remains as relevant today as it was when it was released two years ago, Charles Ferguson summarized the situation as follows: "There are only two places a smart young person can make money today. Banking, and tech."
From an early age I knew that I wanted to work in technology. And from the moment in 2003 that I was coerced into sitting through a Bear Stearns hiring presentation at Harvard Business School, I knew that I did not want to work in banking. Little did I know that my career path would eventually lead to a direct conflict between the two.
The California Money Transmission Act appeared to materialize out of thin air in mid-2010, but in reality, it was a long time coming. It started off, as many cookie-cutter laws do, as a list of bullet points (https://www.facecash.com/legal/brown.html#document13) apparently drafted by Ezra Levine, a partner at once-venerable Howrey LLP, a major intellectual property law firm in Washington that is no longer with us (it declared bankruptcy in early 2011, owing its creditors millions of dollars). This was not Mr. Levine's first time composing such a list; after all, he represented The Money Services Round Table, a group of multi-billion dollar financial corporations hoping to make the nation's laws a little bit more favorable to their interests. To achieve this end, Mr. Levine had been employed since at least as early as 1999, when the same group called itself by a slightly less-pronounceable name, the "Non-Bank Funds Transmitters Group," to write comment letters to officials in Washington and various states containing...mere suggestions.
Then, in 2006, Mr. Levine was successful in instituting a new money transmission law in Hawaii (http://archives.starbulletin.com/2006/06/07/business/story02.html), where the State Auditor had specifically recommended against it, citing the high cost and complete lack of benefit (http://hawaii.gov/auditor/Reports/2004/04-10.pdf). This law, like the California law that would come four years later, was based on a template that could be customized to the specific and inevitable fears and concerns of state legislators. Mr. Levine's template was actually one of two templates available to the odd state legislator who was just aching for a set of money transmission regulations, the other made available by the National Conference of Commissioners on Uniform State Laws (http://www.law.upenn.edu/bll/archives/ulc/moneyserv/msbchart.htm).
In California, The Money Services Round Table must have wanted to be doubly sure that its law would get passed, because it hired another lobbyist to complement Mr. Levine: a lawyer named Robert Garcia. Under the name of Golden State Advocacy, this very amenable sole practicioner, relying on his Pacific Bell e-mail account to send and receive drafts of bills that would soon become law, represented a plethora of clients in Sacramento, from breweries to telecommunications companies (http://www.sos.ca.gov/prd/lobreport00-8qtr/firms/firm-golden.htm).
Mr. Levine and Mr. Garcia knew that in order to get their clients' bill passed, they would need to create the illusion of consensus, and so they asked a confused lobbyist from Consumers Union for her seal of approval. After a couple of meetings, they got it.
After a couple of months, the bill became law. For professional lobbyists who know the people and the process, writing your own law is a breeze.
So, when I decided to start working on a mobile payment system in Silicon Valley in mid-2009, I unknowingly began working in a state that would soon be regulated, not because of any logical reason, but because companies in the United States of American can buy any law they want, if only they are large enough.
There was only one problem with this scheme: the United States Constitution. The Constitution does not allow any state to regulate activities outside of its borders. It also has been interpreted by judges over many decades to forbid state laws that impose an undue burden on interstate commerce, especially when state laws differ from one place to another.
Despite what were undoubtedly the best efforts of Mr. Levine and Mr. Garcia, the California Money Transmission Act did an especially poor job of lining up its requirements with those of other states. It also gave California the power to regulate commerce nationwide, which from a constitutional point of view is especially problematic.
Not only that, but the Constitution guarantees due process to individuals (and corporations, which are treated as individuals in some respects) as a means of protecting them from the state. California had long insisted that it did not need to explain the requirements for a license under the Money Transmission Act until after the license had already been applied for—a clear due process violation.
As it so happens, all kinds of laws are available for sale. An organization called the American Legislative Exchange Council (ALEC), recently profiled in Bloomberg Businessweek (http://www.businessweek.com/magazine/pssst-wanna-buy-a-law-12012011.html), specializes in the very same kinds of bill templates that were used by The Money Services Round Table in Hawaii and California. And who might fund ALEC? Well, the answer is a lot of organizations, but among them is the least sexy name ever given to a corporate interest: the Non-Bank Funds Transmitters Group.
Essentially, the California Money Transmission Act is an anti-competitive law that is also blatantly unconstitutional. It's not the only one, however, as there are at least 46 more just like it, many put in place by corporate lobbyists.
But it's not just money transmission. Behind every major societal problem there is at least one story like this one, but usually many more. Organized corporate lobbying explains why most of your junk mail comes from credit card companies in South Dakota offering you more debt (http://www.pbs.org/wgbh/pages/frontline/shows/credit/interviews/mierzwinski.html). Lobbying explains why health care costs defy gravity on a regular basis (http://www.forbes.com/sites/merrillmatthews/2011/10/13/now-the-health-care-lobbying-really-begins/). Lobbying explains why a startup can make a relatively decent web site in a week for under a thousand dollars, while government spends ten thousand times as much to take years using decades-old technology (http://www.rawstory.com/news/2005/New_questions_surround_multibilliondollar_Homeland_Security_1130.html). Lobbying explains why elementary school children are obese and more likely to die young (http://www.nytimes.com/2011/12/04/opinion/sunday/school-lunches-and-the-food-industry.html).
It's out of hand. In this narrow scope, my company should have the same rights as American Express Financial Services, Sigue Corporation, Western Union, and all of the other members of The Money Services Round Table. Had these kinds of laws existed when each of those companies began, they never would have gotten off the ground. In a broader scope, knowing what I now know, it would make me sick not to sue the state.
For in this day and age, the state is the corporation, and the corporation is the state. It's a strange day when entrepreneurs rally against corporate power in court, and when Attorneys General defend the rights of financial conglomerates rather than the public who put them there. Yet that day has arrived, and I think it's about time.
Follow the suit at https://www.facecash.com/legal/brown.html.