A report says approximately 85% of gold coin dealers across the nation have abruptly stopped their service to Minnesota customers. The Certified Gold Exchange is one of these dealers. Why?
A law enacted on July 1, 2013 (which became effective July 1st of this year) hinders the extent to which coin dealers, local and out-of-state, can do business in Minnesota.
The law was originally intended to fight fraud, unscrupulousness, and shady business practices inherent in the state. Con artists were known to prey on unsuspecting investors, typically retirees and other mom-and-pop investors looking to build a safe home for their funds.
While the moral justification is sound, many dealers, including the Certified Gold Exchange, find that its regulations are too strict, forcing innocent and reputable dealers to cut off service to investors in Minnesota.
The most cumbersome regulation involves registration. The law states that if a dealer has made more than $5,000 in bullion coin transactions with Minnesota consumers between July 1, 2013 and July 1, 2014, they are required to register with the chamber of commerce, or cease doing business with Minnesota residents, including residents who may already be satisfied clients of a particular coin dealer.
In this case, the law defines “bullion” as “any coin containing more than one percent by weight of silver, gold, platinum, or other precious metal.” That is enough to encourage many dealers to halt the sale of any gold, silver, platinum, or palladium in the state.
If a dealer did not make $5,000 worth of transactions in that time period, or if they end up reaching $5,000 in transactions in the future, they have 30 days to submit an application and comply with the law. Future registration renewals are also required.
As part of the application, a dealer must disclose all information in the previous 10 years regarding financial fraud, misconduct, and/or civil judgments made against them (of which the Certified Gold Exchange has none). They must also identify every location where they are doing business, the name, assumed names, business name(s), and/or caller identification names associated. In addition, documentation must be filed with the secretary of state that declares any names, other than dealer’s legal name, being used, and all website domain names must be disclosed, among other pieces of required information.
All changes in registration information must be provided to the commissioner in the form of a written notice, and a small registration fee will be assessed. After an application has been submitted, it goes under review by the commissioner in Minnesota before being approved.
Prior to submission of the registration application, and prior to each renewal, each bullion coin dealer is lawfully obligated to establish screening procedures for its owners, officers, and representatives. Screening is meant to produce background checks for previous criminal behavior, convictions, and criminal history, done by The National Association of Professional Background Screeners or a similar vendor. The process must be undertaken no more than 60 days before submission of an application, and the results of each screening must be sent to the commissioner.
A third regulation requires a surety bond to be maintained by a surety company that is approved to do business in Minnesota. A surety bond is a legally binding proposition in which one party of a transaction is obligated to pay the other party a specific amount — if the first party does not meet the terms of a deal, such as those listed in a contract.
Under the Minnesota law, that specific amount relates to the amount of the transactions. Here are those amounts:
$0 to $200,000 $25,000
$200,000.01 to $500,000 $50,000
$500,000.01 to $1,000,000 $100,000
$1,000,000.01 to $2,000,000 $150,000
Over $2,000,000 $200,000
A host of other regulations are imposed, involving consequences for misconduct, misrepresentation, fraud, misstating the value of coins, delayed delivery, the lack of explicit disclosure of the precious metal content of specific coins, faulty invoicing, etc. These regulations, while implemented with good intentions, impose undue time, labor, and monetary costs on coin dealers, fraudulent and reputable alike.
Consequences of the Minnesota State Law on Dealers and Consumers
In theory, this law should help clean up the gold coin fraud in Minnesota. Many dealers feel, however, that lawmakers did not fully consider the externalities this law imposes on smaller and out-of-state bullion coin dealers.
Other than interference in trade and commerce, the state government may have gone too far. For dealers, these regulations impose thousands of dollars in potential costs per year and an extensive amount of detailed paperwork. For many, the time, labor, and monetary implications of complying with this law far outweigh the benefits of doing business in the state. For those that continue to serve Minnesota customers, it immediately decreases their profitability.
For many, it’s too costly to continue doing business with Minnesota investors. This new law could force local companies to move out of state, and out-of-state dealers to halt their service until the law is changed. Many dealers surveyed are even wary of accepting the business of Minnesotans who physically walk into their out-of-state stores. The potential hassle of the trade is just too costly.
For Minnesota consumers and investors, their outlook is not much better. With fewer dealers doing business in the state, their options dwindle. The booths at Minnesota coin shows will have only a fraction of their past attendance, and dealers who do manage to comply with the new regulations will be in a tougher position to offer competitive prices, whether they are buying or selling.
Consumer fraud may also become an issue. With in-state dealers shutting down and out-of-state dealers avoiding their business, they may be driven to find illegal ways to hide their Minnesota residency. Some have even said that consumer-on-consumer fraud is a potential effect of the new law.
With these unintended consequences of the new Minnesota law, the state government may have enough incentive to make changes that will accommodate more businesses, or to simply repeal the law altogether.
With dealers leaving the state, tax collections are sure to decline. Consumers are more likely to speak up, as the price and availability of bullion coins becomes unfavorable. Finally, coin dealers might push the state government to reduce the burdensome paperwork and financial obligations this law imposes. As the full effects come to fruition, external pressure may work to accommodate reputable gold coin dealers back into the state, or fully vanquish this law from the books.
Recommended for you: Gold IRA Rollover Guide and Silver Investments.
Buy Gold Coins Tags:
bullion coin definition, gold coin dealers, minnesota coin dealer law