Key Takeaways:
– The Consumer Financial Protection Bureau (CFPB) could punish JPMorgan for its role in Zelle, according to a recent quarterly filing.
– JPMorgan has hinted at evaluating possible next steps, including litigation against the regulator.
– Punitive measures relate to the bank’s alleged failure to remove criminal accounts from Zelle and inadequate compensation for scam victims.
– Against this backdrop, banks and regulators are drifting apart due to a host of factors.
– The threat of litigation has already influenced the Federal Reserve to modify the Basel Endgame proposal.
JPMorgan Chase, a leading international banking institution, has shown signs of considering legal action against a U.S. regulator over its role in Zelle, a major digital payment network. This development marks a significant shift in the bank-government relationship, usually characterized by cautious cooperation, not legal antagonism.
Growing Chasm Between Banks and Regulators
In a roughly 200-page quarterly filing last month, JPMorgan disclosed that the Consumer Financial Protection Bureau (CFPB) might penalize it due to its involvement with Zelle. The bank stands accused of both neglecting to oust criminal accounts from its network and failing to compensate certain scam victims.
Responding to this potential punishment, JPMorgan divulged, “The firm is evaluating next steps, including litigation.” This bold stance hints at a widening gulf between banks and their regulators, a notion echoed by policy experts who remember an era when litigation against one’s regulator would have been unthinkable.
Industry insiders attribute this unique situation to a variety of factors. Following the 2008 financial crisis that necessitated colossal bailouts, banks became popular targets for populist attacks from Democratic-led regulatory agencies. Nowadays, banks typically employ legal defenses in Republican-leaning districts to ward off reform attempts and protect billions in revenue generated through fees. Tobin Marcus, head of U.S. policy at Wolfe Research, labeled this trend as “kicking the hornet’s nest.”
Potential Impact on Consumers
Earlier this year, government agencies proposed numerous regulations aimed at cutting fees on credit card payments, debit transactions, and overdrafts. This action alarmed JPMorgan’s consumer bank head, Marianne Lake, who issued a warning about an “onslaught of regulatory and potential legislative change.”
The most significant regulatory threat was the Basel Endgame proposal, compelling massive banks to hold increased capital reserves. JPMorgan countered these proposed regulations, arguing that such moves would eventually harm consumers more than protect them. The bank warned that persistent regulatory pressure could raise mortgage expenses by $500 annually and jack up credit card rates by 2%. Moreover, it might force two-thirds of consumers to pay for checking accounts.
Legalities Around Zelle
Zelle, launched by a bank-owned firm called Early Warning Services in 2017, faced years of scrutiny from Democratic lawmakers over financial crimes executed on the platform. Of the $806 billion that flowed through the network, merely $166 million worth of transactions were disputed as fraudulent across JPMorgan, Bank of America, and Wells Fargo – the platform’s three biggest participants. However, the three banks collectively compensated for only 38% of those claims.
Conclusion and JPMorgan’s Future Moves
Amid growing contention, the threat of lawsuit persuaded the Federal Reserve to revise the Basel Endgame proposal this month. The new proposal significantly reduces the additional capital that the biggest banks would be obligated to hold. Nonetheless, implementation of this moderated proposal remains uncertain, given the upcoming U.S. elections.
Regardless of the election results, the industry may challenge the regulation in court, consistent with its approach towards the CFPB credit card rule. A method that banks frequently utilize is to file cases in conservative jurisdictions where they are more likely to win, a tactical move known as “venue shopping.”
In conclusion, this polarized environment, featuring enfeebled federal agencies and conservative courts, appears to preserve the dominant status of the biggest corporations in the long run.