No surprise, perhaps, but the biggest news to emanate out of the payments realm in terms of regulations and legal impact, came from the Consumer Financial Protection Bureau (CFPB).
The Bureau, of course, handed down a rule last week that stated that firms can no longer force the consumers they do business with from joining class action lawsuits. The rule is aimed at banks and credit card companies, as their agreements typically mandate arbitration in lieu of such suits.
As noted in this space, the announcement from the CFPB can be seen as a sea change in the way that companies interact with their customers and may, in fact, stymie innovation, with a bonanza coming only for trial lawyers. The new rule does not eliminate arbitration clauses but neither does it stop individuals from joining class action lawsuits if they choose. The trial lawyers can get huge windfalls in class action suits, and the consumers themselves, of course, tend to wind up with fewer dollars in their pockets with a win in the courtroom.
Separately, Republicans in Congress have said they will use the Congressional Review Act to overturn that arbitration rule.
In addition, the Trump administration also made moves to nominate Randal Quarles to fill the position of banking system regulator at the Federal Reserve. The vice chair of supervision role had never been filled officially during the Obama administration. Should he be confirmed by the Senate, Quarles could conceivably start to change some of the rules put in place by the Dodd-Frank legislation that established regulations that govern capital requirements and other operational issues and banks and financial institutions.
In the United Kingdom, the Bank of England has told financial firms, particularly lenders, to “steer clear” of what it defines as financial loopholes and has said that all firms should respect the “intention” of industry regulation, according to The Belfast Telegraph.
Sam Woods, who serves as the deputy governor of the bank and also oversees regulation, stated that the “coming phase” of U.K. regulation would mean that oversight should extend to companies meeting both the intention and the spirit of the law. He warned that some companies would try to skirt some of that intent with the use of “special purpose vehicles,” such as derivatives. Some firms have sought to offer relatively risky loans, or work with off-balance sheet vehicles to extend more loans, in an effort to attract more borrowers.
Barclays took a step toward ring-fencing this past week, part of efforts that are mandated by regulators to sweep the industry, beginning in 2019. As part of ring-fencing, banks with more than £25 billion in deposits have to separate their retail and investment banking operations. Banks must also set up, as Barclays did with its investment banking business, separate boards governing each operation.
Separately in Europe, and related to PSD2, that coming sea change in open banking has been termed a “headache for everyone” — as noted by Alan Lockhart, the head of Royal Bank of Scotland’s open banking and FinTech solutions operations. The fact remains, he told an industry conference last week, that there is a “change of mindset” that is necessary for banks, and those same banks have been unwilling to change their ways of addressing the innovations offered up by FinTech firms.
Elsewhere, India’s finance ministry is, according to The Financial Express, about to introduce a host of bills aimed at curbing unlawful banking activity. The legislation will include the Banking Regulation (Amendment) Bill, which in part allows the Reserve Bank of India, and banks, to initiate bankruptcy proceedings against chronic defaulters.