Square has been told by local regulators to stop providing "money transmission services" in Illinois.
In a cease and desist order - picked up by former Citi banker Thomas Noyes - the Illinois Department of Financial & Professional Regulation says that Square is violating the Transmitters of Money Act.
The Act requires "any person engaged in the business of transmitting money in Illinois" to be licensed by the department, which Square is not.
The order, from January, demands that Square cease and desist from offering its service in the state and hand over relevant documents.
A Square spokesperson told The Next Web: "We've been in close contact with the Illinois Division of Financial Institutions for several months and are addressing their concerns."