First of all, they should have a sign up "For Entertainment Purposes Only" printed clearly for all to see. But, other than that, the cops should be investigating psychic businesses and looking for obvious signs of fraudulent activity, such as classic cold-reading techniques and pseudo-science. A lot of detectives will probably have to be trained in what to look for.
Or require all psychics to take a test which proves they are authentically psychic before they are allowed to accept money for their psychic abilities. Some will say this is unfair, but its just as unfair that I can't put a sign that says "doctors office" outside my front door and start taking medical patients without actually going to medical school.
edit: Really, Ethan? Most professionals have some requirements before they can do their job...Lawyers need to pass the bar exam, doctors have to complete X amount of education, and most professional jobs you just won't get into if you don't have some education or pass some test. Would you really go to a doctor who hadn't gone to medical school? Come on now. You and I both know the only reason psychics would be adamantly opposed to testing and regulation is because there would be no psychic businesses at all they had to be legit psychics.