#Chopra

3 12, 2024

FedFin on: Nonbank-Payment Provider Regulation

Eliza Allen2024-12-03T16:48:27-05:00December 3rd, 2024|The Vault|

Continuing its efforts to advance controversial actions before the end of the Biden Administration, the CFPB has finalized proposed supervisory standards for large nonbank providers of general-use digital-payment-platform services. The new standard brings these companies under CFPB supervision as well as regulation and enforcement actions, better aligning their governance with rules applicable to bank payment providers and addressing the Bureau’s deep concerns about digital marketing. However, this new framework depends on voluntary compliance in anticipation of or as the result of rigorous CFPB supervision…

The full report is available to retainer clients. To find out how you can sign up for the service, click here and here.…

6 11, 2024

FedFin Assessment: Trump II Financial-Policy Outlook

Arezou Rafikian2024-11-06T10:55:18-05:00November 6th, 2024|The Vault|

Given the likelihood of a Trump win, we turn in this report to our outlook for federal financial policy in a very different Administration than the one that has set it for the last four years. We will refine this outlook when final tallies determine Congressional control, but slim margins will dog both parties and thus significantly complicate the legislative outlook. Congress, like the White House, will also be preoccupied with nomination battles, immigration, geopolitical risk, and acute fiscal-policy challenges in areas such as the new president’s budget, planned tax breaks, and tariffs.

The full report is available to retainer clients. To find out how you can sign up for the service, click here and here.

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21 10, 2024

Karen Petrou: Competitiveness in a Cold, Cruel World

Eliza Allen2024-10-21T12:04:19-04:00October 21st, 2024|The Vault|

When I gave a talk last week about bank-merger policy, I was asked an important question: if I’m right about the franchise-value challenges facing most U.S. banks, then why is banking here doing so much better than in other advanced, market-oriented nations? The answer in part is that, in a pond full of ugly ducklings, a scrawny mallard with just a few more feathers looks a lot better. But, it’s more complicated than that. The reasons why make it clear that, if bank-merger policy remains implacably set against economies of scale and scope, then only a very few, very big birds and more than a few nonbirds will own the waters.

As in any comparative analysis, the first step to judging U.S. banks versus those in other nations is to define which banks are being compared. Most other nations have very few, very big banks often considered national-champion charters dedicated as much to supporting their sovereign governments as to placating shareholders. As our recent merger-policy paper details, national champions are insulated from market discipline because they are almost always expressly too big to fail. Credit Suisse was an exception to this rule, but only because it failed so fast and Switzerland was so unready for resolution that it could do nothing more than fold one national champion into another, UBS.

For all the talk of TBTF banks in the U.S. and the benefits the very biggest enjoy during flight-to-safety situations, none are yet a national champion, and a good thing …

26 08, 2024

Karen Petrou: Next Up: Federal Preemption Standards for Elder-Fraud Prevention

Eliza Allen2024-08-26T12:13:45-04:00August 26th, 2024|The Vault|

As we noted before the August recess, Senate Democrats have pressed a new bill designed to make the CFPB Director’s wish the command of law: banks would be clearly accountable for many instances in which consumers fall prey to those impersonating bankers, FBI agents, the CIA, and anyone else they think will persuade a customer, often elderly, to part with a whole lot of cash. Nothing will come of this bill in this Congress, but it will surely be back in the next. With it will come measures also to create a federal framework for the patchwork of state laws holding banks accountable for elder fraud. This sounds good, but drafting here is devilishly difficult.

There is no question that elder fraud is a grievous concern. I saw it firsthand as my father slipped farther and farther from being able to discern that the “nice” people happy to talk to him for hours were not beguiled by his avuncular charm – they wanted his bank account number. Washington media is full of stories of the “gold-bar” fraud stealing millions from local retirees and this is, of course, just a tiny sample of a problem estimated to cost at least $3.4 billion a year.

Is there a need for federal preemption? Last week’s American Banker had a helpful run-down of various state approaches. In general, state laws or pending measures seek remedies such as notifications to adult protective services or law enforcement, mandatory holds on suspect transactions, or at the …

8 07, 2024

Karen Petrou: What MAGA Republicans and Rohit Chopra Both Want

Eliza Allen2024-07-08T13:20:21-04:00July 8th, 2024|The Vault|

Following last week’s celebration of American independence, my thoughts turned to the confluence of concern from both sides of the political spectrum about an issue at the heart of the Bill of Rights: “financial censorship.” When Florida Gov. Ron DeSantis and CFPB Director Chopra agree – as they do – on a hot-button point such as freedom of thought as it may be expressed in financial transactions, a new framework is upon us no matter who wins in November. Virtuous as this ideal is, putting it into practice is fraught with consequences, more than a few unintended.

That Mr. Chopra chose to address the Federalist Society is notable in and of itself. I’ve done this more than a few times and emerged not only unscathed, but often enlightened. But that was before Democrats viewed the Society as a cabal meant to subvert rules such as those Mr. Chopra is fond of issuing. But the CFPB director knew his crowd – he and even super-MAGA conservatives fear that powerful financial companies threaten freedom of thought because giant platforms have undue control over each of our wallets. This may not be true, but at least one such company gave it a try and those taking aim at financial censorships think that once is enough, and they are right.

However, the focus on financial censorship goes beyond what payment companies allow us to express via what we purchase. The debate is over a decade old, beginning as it did when Obama Administration banking …

13 05, 2024

FedFin on: FSOC’s Analytical Methodology

Arezou Rafikian2024-05-13T16:52:29-04:00May 13th, 2024|The Vault|

Never Mind…

When FSOC released its systemic-designation methodology last year, the Council made it clear that nonbank mortgage companies faced top-down federal regulation. Never mind. As with so many other FSOC-declared systemic risks – see, for example, stablecoins – federal regulators have decided not to use the prudential tools they have in favor of asking for statutory change they know they won’t get.

The full report is available to subscription clients. To find out how you can sign up for the service, click here.

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22 04, 2024

Karen Petrou: Credit-Card Surcharges: One Inflationary Culprit the CFPB Could Catch

Shane Smith2024-04-22T09:29:18-04:00April 22nd, 2024|The Vault|

One could go on – indeed many do – about whether inflation is showing enough signs of a slow-down to warrant lower interest rates. I’ve said before that lower rates won’t have the housing-affordability benefits advocates expect, but this doesn’t address the underlying issue of just how hot inflation may be running. I’m not sure if anyone – including the Fed – really knows, but battles on my neighborhood listserv validated by growing data make clear that federal data overlook one hidden price hike driving more and more Americans flat-out crazy: credit-card surcharges that are nothing but shadow price hikes of as much as four percent.

In fact, card surcharges are the epitome of the “junk” fees the CFPB has vowed to quash. The credit-card late fees the Bureau lambasts are due to consumer sins of omission or commission – i.e., consumers have the ability – I would say obligation – to keep their card debt within amounts they can honor as well as the choice to pay on time. How much should be charged for paying late is obviously a point of discussion, but that consumers have a duty to pay on time is indisputable.

In sharp contrast, card surcharges are often unavoidable and ill-disclosed. The neighborhood listserv is something of a group rant, but it does include interesting illustrations of hidden credit-card surcharges that are often – think car-repair shops – meaningful and material add-on prices discovered only after the fix, quite literally, is in.

D.C. is an …

30 10, 2023

Karen Petrou: How to Prevent Open Banking From Turning Into the Wild West

Eliza Allen2023-11-13T15:44:38-05:00October 30th, 2023|The Vault|

There are so many rules coming from so many directions at U.S. financial institutions that spotting key strategic challenges or opportunities is harder than ever. That more and more of these rules are longer than 1,000 pages makes C-suite impact considerations still harder to highlight. In the midst of this morass, one proposal from the CFPB on consumer-data rights may be easy to overlook, but this seemingly-petite 299-page rule is at least as consequential as the thousands of capital and CRA pages getting all the not-so-love.

Why? Quite simply, consumer data are the currency of commerce in general and retail finance in particular. The stratospheric ascent of data-driven companies such as Amazon are indisputable proof that competitors who control data quickly control consumers, mobilizing ever more powerful network effects that then crush all but the most nuanced niche providers. The CFPB is right that banks no more deserve exclusive provenance over consumer data than tech-platform companies, but requiring banks to give these data away as the Bureau plans means the crown jewels of each retail franchise are now out on the shop counter for free.

Companies far better able to make astute use of these data than all but a few banks will quickly find ways to persuade consumers to give personal information to them unless the final data rights standard has considerably more consumer protection built in than the proposal. I know it sounds odd to say that a CFPB proposal is light on consumer protections, but so it …

8 02, 2023

FedFin on: Credit-Card Late Fee Regulation

Arezou Rafikian2023-02-09T09:43:39-05:00February 8th, 2023|The Vault|

Following on a controversial advance notice of proposed rulemaking, the CFPB has now released an NPR setting specific standards for credit-card late fees that also eliminates the inflation adjustments established by the Federal Reserve when implementing the 2009 credit-card law. The NPR also seeks comment on still more stringent late-fee restraints and limits on some or all of the other penalty fees now charged by some credit-card issuers. When issuing the ANPR, the Bureau also noted that it plans to advance other initiatives under its “junk-fee” standards, likely starting with those pursuant to ….

The full report is available to retainer clients. To find out how you can sign up for the service, click here and here.…

23 01, 2023

Karen Petrou: How the CFPB Plans to Rule by Registry

Eliza Allen2023-01-23T11:09:36-05:00January 23rd, 2023|The Vault|

Last week, we provided clients with an in-depth analysis of the CFPB’s latest nonbank registry as well as a hard look at its impact on mortgage securitization. Any nonbank subject to the CFPB will find its legal arsenal much depleted by the registry’s requirements, a point already well understood by opponents. Far less noticed but of still greater consequence to all consumer-finance companies is another implication of the Bureaus actions here and in another recent registry proposal: even where the CFPB has little to no regulatory authority, it will deploy its formidable ability to gain public attention to make unbearable the reputational risk of any practice it abhors.

Justice Brandeis is often quoted as saying that sunshine is the most powerful disinfectant and Director Chopra clearly plans to cast companies under a scorching sun. That is works was demonstrated by his decision to detail the ways in which he believes overdraft fees support predatory earnings at considerable cost to vulnerable consumers. That most banks charged overdraft fees in strict compliance with current rules made enforcement action at best a challenging route to reform. Rewriting the rules would have gotten the Bureau where it wanted to go, but only over at least a year of wrangling. Set out in the merciless sun by Mr. Chopra and Congressional Democrats, many banks decided that the political and reputational risk of continuing overdraft fees was just too high.

Overdraft reform thus proved easy to say and then to do. So it is …