This week, lawmakers and regulators announced that they are working on new rules and legislation in the crypto space. Federal agencies are also poised to step up their enforcement actions to protect consumers and investors. The Securities and Exchange Commission (SEC) and the Commodity Futures Trading Commission (CFTC) are still defending that they are the right agency to supervise some crypto assets, but a senator announced a new bill could shed light on the issue. The CFPB wants to make sure other regulators coherently apply consumer financial protection rules, and it will issue new circulars to explain how to do it. The Fed published a final rule that may allow banks to delay certain instant payments when they use FedNow services to combat fraudulent activities.
Federal Agencies Have Something to Say About Crypto
SEC Chair Steps up Crypto Crusade, Sends Message to CFTC
On Monday (May 16), Securities and Exchange Commission (SEC) Chair Gary Gensler told an audience during the 2022 FINRA annual conference that until there is better regulation on the crypto space, the agency will “continue to be a cop on the beat.” The chairman also used this platform to reiterate that certain tokens, at least the ones he was referring to, are securities. The key difference between a commodity and security when it comes to digital tokens is the raising of money by a third party, Gensler argued.
SEC’s Gensler Asks Congress to Fund Crypto and AI Enforcement
Monday was not the only day Gensler talked about crypto. On Tuesday, in two different events, he explained first the need for the SEC to continue monitoring markets and enforcing securities laws, and second the additional funds necessary to cover these efforts.
Before a House Committee, Gensler requested an 8% increase of the SEC’s budget over FY22. This would mean around 400 new staff, 90 of those to be assigned to the enforcement and examination divisions.
CFTC’s Chair Signals More Crypto Enforcement and Oversight
Rostin Behnam, chairman of the Commodity Futures Trading Commission (CFTC), participated in several events this week where he reclaimed the position of his agency in the cryptocurrency space and suggested more enforcement actions are likely. Following the steps of the SEC, which is increasing its resources in the Crypto Unit, Behnam said that the CFTC will also look to prioritize the use of its existing authority to deter and combat fraud and manipulation in the crypto markets and will continue to add resources in this area.
US Sens to Release Long-Awaited Crypto Legislation Next Week
On Tuesday, Sen. Cynthia Lummis told an audience at an American Enterprise Institution forum that she is planning to release a long-sought crypto bill for discussion next week — and the formal bill could be introduced in Congress as soon as 30 days afterward. The proposed bill is long-awaited by the crypto community because, as the senator confirmed, it will include some provisions defining whether a certain crypto asset is a security or a commodity and which agency will have oversight, either the SEC or the CFTC.
FinCEN Official Also Raises Voice Against Crypto Firms
On Thursday, Alessio Evangelista, associate director of the Financial Crimes Enforcement Network (FinCEN) enforcement and compliance division, urged cryptocurrency companies not to bury their heads in the sand when faced with red flags. Cryptocurrency firms should be “vigilant” about illicit activity on their platforms and take a compliance-first approach to developing new tools.
CFPB and Fed Want to Protect Consumers and Prevent Fraud
CFPB Wants Other Agencies to Follow Its Enforcement Views
On Tuesday, the Consumer Financial Protection Bureau (CFPB) announced that it will issue Consumer Financial Protection Circulars to government agencies and other enforcers to explain how the CFPB intends to enforce federal consumer financial law. The CFPB is concerned that, given the broad variety of agencies responsible for enforcing federal consumer financial law, there is a risk that companies might encounter inconsistent enforcement strategies and approaches.
FedNow Will Let Banks Delay Instant Payments to Prevent Fraud
On Thursday, the Federal Reserve finalized a rule that governs funds transfer over the Federal Reserve Bank’s FedNow services. The final rule is substantially similar to the proposal from last year, but some of the clarifications provided by the Fed will allow banks to have extra time to process instant payments if they believe funds may have a fraudulent origin.
CFPB Warns Businesses Not to Misrepresent FDIC Insurance
The CFPB is looking out for consumers at risk of succumbing to false advertising stemming from misusing the Federal Deposit Insurance Corporation (FDIC) name or logo, a CFPB press release said Tuesday (May 17). The CFPB has released an enforcement memorandum saying firms can’t misuse the FDIC’s name or logo, or make deceptive representations for deposit insurance, which is meant to promote confidence in banking.
Big Firms Still Under Scrutiny
Bill Could Force Google to Break up Ad Business
On Thursday, Sen. Mike Lee, jointed by senators Amy Klobuchar, Richard Blumenthan and Ted Cruz introduced the Competition and Transparency in Digital Advertising Act. If it becomes law, it will force Google to sell a big portion of its advertising business.
The bill aims at eliminating conflicts of interest in the digital advertising business, and given the position that Google enjoys in the different parts of the online advertising value chain, it will be the company most affected by the bill. Facebook and Amazon could also be required to divest parts of their advertising businesses.
DOJ to Increase Antitrust Scrutiny Over Buyout Deals
Jonathan Kanter, head of the Department of Justice (DOJ) Antitrust Division, warned buyout firms that they may be subject to tougher regulatory review if future deals have the potential to harm the American economy.
The role of buyout groups has been “extremely important” for the enforcement program of the agency, Kanter said. Historically, these groups have been key to acquiring parts of a business when other companies had to divest assets as a result of a merger investigation. The problem now is that some of the largest private equity groups remember the industrial conglomerates they used to help break apart.
Capital One’s fourth quarter results, released after the market closed on Tuesday (Jan. 21), indicated that consumers continue to spend on their cards, and stripping out one-time items, credit performance was flat along several metrics.
The company’s earnings supplementals revealed that card purchase volumes surged by 7% to $172.9 billion.
The reported net charge-off rate was 6%, where that ratio had been 5.3% a year ago.
CEO Richard Fairbank said on the call that the domestic card business “delivered another quarter of steady top-line growth, strong margins and stable credit.” Average loans were 6% higher and net charge-off rate was bumped 0.4% higher as a result of the end of the company’s Walmart card partnership and a loss sharing agreement with that company.
Fairbank added that Capital One’s 30-day-plus delinquency rate crossed into actual year-over-year improvement. The 30-day-plus delinquency rate at the end of December was 4.53%, down 0.08% basis points from the prior year.
Elsewhere, in the consumer banking business, auto originations were up 53% from the prior year quarter.
“A portion of this growth can be attributed to overall market growth, while the remainder is the result of our strong position to pursue resilient growth in the current marketplace,” Fairbank said.
“As a reminder, our choices to tighten credit and pull back in anticipation of credit score inflation and declining vehicle values were still in effect in the fourth quarter of 2023, resulting in relatively low originations.”
Overall, within the consumer banking portfolio, ending loans were up 4% year over year. Consumer deposits were up 7% at the end of the quarter to $318.3 billion.
Later in the call, Fairbank said that “consumer credit trends remain stable.”
Shares in Capital One were down about 1% after hours on Tuesday.
Elsewhere during the call, Fairbank said that the acquisition of Discover Financial Services remains on track and is slated to close early this year.
Asked on the call about consumer spending, Fairbank said, “The U.S. consumer continues to be a source of strength in the overall economy. The labor market remains strong, and we saw signs of softening in the first half 2024, but in the second half of the year, the unemployment rate has been stable and job creation data has shown renewed strength. Incomes are growing steadily in real terms as inflation … settles a bit.
“Consumer debt servicing burdens are stable, near pre-pandemic levels. Consumers have higher bank account balances than before the pandemic.” There have been “pockets of pressure” on consumers whose incomes have not kept up with inflation, he said, which may lead to some “delayed charge-offs” among some consumers.
He observed, “The proportion of customers making just the minimum payment is also running somewhat above pre-pandemic levels. … We’re seeing this minimum payment effect across this credit spectrum. I’m not making a point here about the low end of the market or even about subprime. In fact, if anything, the lower end appears to be doing relatively better at the moment.”