BPInsights: July 30, 2022

Stories Driving the Week

Big Tech, Data Sharing, Fees: What’s on Chopra’s Agenda

CFPB Director Rohit Chopra laid out several priorities in a series of media interviews this week. He highlighted two pending rulemakings as significant: a rule on small business data collection and the Section 1033 rule on consumer financial data sharing. Here are some takeaways from the interviews.

  • Big Tech threat: Chopra is focused on Big Tech’s entry into banking and payments, such as Apple’s foray into buy now, pay later. “For me, the highest-stakes issue for us to deal with is what are we going to do about Big Tech entering financial services?” he said in a POLITICO Q&A. He expressed concern about tech firms exploiting consumer data and impeding competition. “Any tech giant that has a lot of control over a mobile operating system is going to have unique advantages to exploit data and ecommerce more broadly,” Chopra said in the Financial Times. Tech giants entering financial services “have to play by the same rules,” he told Law360.
  • What’s next: The CFPB plans to publish its initial findings on buy now, pay later soon, according to POLITICO. It will likely issue a report on Big Tech in payments after that.
  • Data sharing: Chopra said he hopes to take the next step in the Section 1033 rulemaking process by the end of 2022. “I think the linkage between the Big Tech payments piece and how transaction data is used, I think that’s going to impact how we’re looking at that rulemaking quite a bit,” he said in POLITICO.
  • Payments fraud: Fraud on peer-to-peer payment apps is something the CFPB is targeting, Chopra said in Law360. “There are a number of players in this space that have started to make changes to their user interface and user experience to address some of those customer issues, including asking someone what the last four digits of the recipient’s phone number are or going through a couple more steps to make sure that the sender-recipient transaction is a legitimate one,” he said.
  • Fees: Chopra noted changes in the market for bank fees. “Particularly when it comes to overdraft and nonsufficient funds fees, we’re seeing a real set of changes in the market,” he said in Law360. The CFPB issued a request for information on fees charged by financial institutions earlier this year.
  • Procedure and guidance: On the CFPB’s recent UDAAP exam manual change – which was not made through notice and comment — Chopra responded that the Bureau is trying to issue plenty of guidance to clarify the rules for firms and avoid “regulation by enforcement.” On changes to administrative adjudication rules, Chopra said, “I believe that the standard is those are procedural rules. We have not even used them.” The exam manual change is contrary to the law, as noted in a letter from the American Bankers Association, Consumer Bankers Association, Independent Community Bankers of America and U.S. Chamber of Commerce. 

Kraken Suspected of Skirting Sanctions

Crypto exchange Kraken is suspected of violating U.S. sanctions by servicing accounts in Iran and elsewhere, according to the New York Times this week. Some Kraken customers have accounts in Syria and Cuba, which are also under U.S. sanctions. Treasury’s Office of Foreign Assets Control has been investigating the firm since 2019, the article said. Kraken CEO Jesse Powell questioned in Slack messages whether it was “worth the risk to not follow the legal requirement” in certain situations. “Not following the law would by default be ‘ill-advised,’ but it always has to be considered as an option,” he said. Powell posted a spreadsheet to a companywide Slack channel showing accounts in Iran and other sanctioned countries.

Bank, Credit Union Trades: Credit Routing Bill Would Put Customers at Risk of Fraud

A Senate bill sponsored by Sens. Dick Durbin (D-IL) and Roger Marshall (R-KS) to create new credit routing mandates would jeopardize fraud protection and pose risks to consumers, a group of bank and credit union associations including BPI said in a joint letter and press statement. Merchants want to cut costs by routing credit card transactions through the cheapest networks, but those networks’ underinvestment in security safeguards would increase consumers’ vulnerability to fraud. The bill would impose costs on consumers while padding the profits of big-box retailers and e-commerce giants.

Banking and Climate: BPI’s Lauren Anderson Joins Banking with Interest Podcast

Lauren Anderson, BPI SVP and Senior Associate General Counsel, joined a recent episode of Rob Blackwell’s “Banking With Interest” podcast to discuss how banks and global policymakers are addressing climate risk. Banks want to figure out how they can help their clients with transition financing, Anderson said. “Right now, the vast majority of energy needs are met by fossil fuels globally,” she said. “To move from a fossil fuel-based economy to something that is more sustainable is going to take decades and trillions of dollars in investment, and that’s something that has to be done in a thoughtful and planned manner so that we don’t have sharp disruptions either in fuel supply or in pricing.” Moving from today’s economy to a more energy-efficient economy will involve “shades of green.” Regulators should consider the unintended consequences of measures like capital surcharges in the climate risk context, Anderson said. She also discussed the approaches of European and U.S. regulators. “The U.S. bank regulators have been very clear that they are not in the business of allocating capital across the economy,” she said. “They’ve tried to stay much more in the risk management space.”

The Crypto Ledger

Crypto platforms like Celsius and Voyager pitched themselves as bank-like and safe, but many customers learned otherwise in recent crashes, the Wall Street Journal reported. The Federal Reserve and FDIC ordered Voyager to remove misleading language from its platform suggesting Voyager is FDIC-insured, according to the agencies’ letter. Here’s what else is going on in crypto this week.

  • SEC probes Coinbase: Coinbase faces an SEC investigation over whether it improperly allowed American customers to trade digital assets that should have been registered as securities, according to Bloomberg.
  • Tether “reserves”: Tether claimed the “reserves” backing its stablecoins do not include any Chinese commercial paper. The assets do include $3.7 billion in commercial paper – see this BPI op-ed on why that’s a problem.
  • Token transfer timing: In the hours before the startup behind video game Axie Infinity announced a major hack, its chief executive allegedly moved about $3 million worth of Axie’s main digital toxen, AXS, from its own blockchain to the crypto exchange Binance, according to Bloomberg
  • Europe needs crypto experts: European Banking Authority Chair Jose Manuel Campa said in a recent Financial Times piece that the ability to hire specialized staff to oversee crypto markets is a “major concern.”
  • No stablecoin bill for now: The House Financial Services Committee will delay consideration of a stablecoin bill until after the congressional recess, according to POLITICO.

In Case You Missed It

‘Systemically Important Entities’ Label Would Add Complexity, Undermine Cyber Defense Focus

Creating a designation for “Systemically Important Entities” would add another layer of reporting requirements that would detract from the financial sector’s important work of defending against cyber threats, BPI and the American Bankers Association said in a letter to two Senate committees this week. The letter urges the Senate Committee on Homeland Security & Governmental Affairs and the Committee on Armed Services to oppose language creating such a designation as the Senate considers the National Defense Authorization Act for the 2023 fiscal year. 
Banks “have decades of experience meeting the requirements of existing systemic designations and have complied with rigorous legal and regulatory requirements for the security and resilience of their operations for decades,” BPI and ABA wrote in the letter. “We have significant concerns with the SIE provision and encourage much greater dialogue and consideration of its impact on financial institutions given the complexities of our sector and myriad regulatory requirements.”

Truist Hires New Diversity, Equity and Inclusion Chief

Truist tapped Dominica Groom Williams as its new head of diversity, equity and inclusion. Williams most recently served as chief culture, inclusion and diversity officer at the consultancy Guidehouse.

How JPMorgan is Developing an Internet of Money

An American Banker article this week profiles the JPMorgan “Onyx” team working on innovative blockchain and digital assets products. The team’s work on distributed ledger technology “reimagines many of the things the bank does for its clients, including deposits, cross-border payments, check processing and securities trading.”

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The views expressed do not necessarily reflect those of the Bank Policy Institute’s member banks, and are not intended to be, and should not be construed as, legal advice of any kind.