Square has just received a cease and desist order from the Illinois Department of Financial & Professional Regulation. You can access the document here.
Were not lawyers but the scuffle appears to be over an Illinois state law, the Transmitters of Money Act. According to the Statute, No person may engage in this State in the business of selling or issuing payment instruments, transmitting money, or exchanging, for compensation, payment instruments or money of the United States government or a foreign government to or from money of another government without first obtaining a license under this Act.
So it seems that, according to what Illinois says, Square needs some sort of license to transmit payments in the state. Square issued this statement about the C&D: Weve been in close contact with the Illinois Division of Financial Institutions for several months and are addressing their concerns.
As Noyes comments, the C&D doesnt seem to make sense. Square does transmit funds, but from our understanding, it doesnt hold the funds, so it may not fall under this jurisdiction.
It seems like this is unlikely to shut down Square in Illinois, but perhaps this is likely to start a conversation for Illinois to better understand how Square works with businesses.