CFPB Goes To Court, BoA Goes Cardless And TSYS Goes Omnichannel

CFPB regulation

As American poet, entrepreneur and scholar Sean “P. Diddy/Puff Daddy/Puffy” Combs famously observed in his 1998 classic, “it’s all about the Benjamins (baby).”

And at no time is that more clear than during quarterly earnings season and last week had a veritable buffet on order. EBay, PayPal, Visa, MasterCard, Facebook, Alibaba, Samsung, Apple and Amazon all reported the good, the bad and the ugly.

There are some slight refinements one could make to the Sean Combs rule. Amazon and Apple, for example, handily demonstrated that it’s not just about the current Benjamins but also being able to produce ever-increasing numbers of them, in perpetuity. But, more or less, the rule held. If it wasn’t earnings per share, revenue or the bright mobile future, it was hard to pay attention to.

Lucky for you, we have it all here — all the non-earnings news the smart payments peeps will keep their eyes on going forward.

Like what?

So glad you asked.

CFPB’s Big Court Challenge

The longstanding complaint about the Consumer Financial Protection Bureau (CFPB) is that its power is almost unlimited and its oversight is almost nonexistent. Once the fine comes down, there is little a firm can do but grin (grimace more like), take it and open their checkbooks.

Unless one is New Jersey-based PHH Corp., as it has decided to take option B: sue the CFPB.

At issue is a decision by CFPB Director Richard Cordray to overrule an in-house judge’s decision to fine PHH Corp. $6 million for taking illicit “kickbacks” from mortgage insurers that led to a rise in cost for borrowers. PHH complains that Cordray disregarded the judge’s stance on what constituted PHH’s alleged wrongdoing and revised the fine to $109 million.

The CFPB argued that the actions of PHH led to a rise of consumer costs by, first, steering new borrowers to particular mortgage insurance companies and, then, pressuring those companies to buy a PHH affiliate’s reinsurance.

All in, 40 percent of those insurance premiums (kickbacks), or hundreds of millions of dollars, flowed into PHH’s coffers, which the consumer watchdog argues increased the costs for consumers over the years.

“This brazen disregard for judicial authority, agency precedent and fair notice is a symptom of the larger constitutional problems,” PHH argued in a court filing. “The CFPB places legislative, executive and judicial power all ‘in the same hands’ of a single person — what James Madison called ‘the very definition of tyranny.’”

PHH’s statement in the filing refers to CFPB’s single director structure, which lays all power in the hands of a single director in order to make swift, extensive changes.

“The PHH lawsuit is the first serious test of the CFPB’s enforcement authority,” said Isaac Boltansky, a Compass Point Research & Trading analyst, in an interview with The Wall Street Journal. “If the court rules against the bureau, the calls for a change to its leadership structure will intensify.”

The CFPB justifies the legitimacy of its actions by citing its continued compliance with the 2010 Dodd-Frank law and its effectiveness at resolving over 770,000 complaints since its inception, as well as handing over $11 billion in compensation for damages to 25 million consumers.

In ways, the CFPB may have actually done more harm than good to consumer interests, argued MPD CEO Karen Webster.

“Having a virtual dictator protecting consumers might be just fine (although it seems more like something they’d do in China or Russia) if that dictator looked at the bigger picture, understood the law of unintended consequences and generally did things that helped consumers and sanctioned the truly bad actors.”

“The problem is that the CFPB never seems to think beyond its immediate objective of slaying anyone who makes money from selling financial products to consumers,” she added.

While the CFPB has been inundated with a slew of cases questioning its authority over matters, most of them couldn’t hold against the bureau in court. And given the setup and structure, wherein appeals of Cordray’s decision go to an administrative law judge appointed by him, most parties don’t bother. They pay the fine. As Jaime Dimon said not long ago, he’s done fighting, since either way, it costs him money. What he didn’t say is that, most of the time, fighting just costs more money — lawyers plus a fine; as we see in the PHH case, costs could get higher — egregiously so.

As for the case of “PHH Corporation, et al. v. CFPB,” the crux of the case is Cordray’s decision to overrule the judge and increase the fine by 18 times based off of his interpretation of the Department of Housing and Urban Development’s (HUD) Real Estate Settlement Procedure Act (RESPA), which was enforced to control artificial inflation of home sale transaction costs by realtors and lenders.

Cordray wrote that HUD’s interpretation of RESPA had been ““inconsistent with my textual and structural interpretation … I reject it.”

And since he is judge, jury and executioner…

The case will get a hearing in the District of Columbia Circuit Court of Appeals on April 12.

Bank Of America Joins The Cardless ATM Party

Not about to let JPMC get that far out in front in the war for the hearts and minds of the American banking customer, just 24 hours after Chase announced its move into cardless ATMs, BoA made a cardless announcement of its own.

According to CNBC, Bank of America’s cardless ATMs are expected to start popping up in four cities — Sunnyvale, CA; Charlotte, NC; Boston, MA; and New York, NY — as soon as next month, with a larger expansion planned for later this year.

The new cardless ATMs will allow consumers to use their smartphones to withdraw cash, pay bills, cash checks, pay off credit card bills and request funds.

BMO Harris, Avidia Bank and Salem Five Bancorp have also made similar moves.

The cardless move comes as BoA is pushing more of its services into the digital realm in the hopes of catching onto rapidly shifting consumer sentiment.

In 2015, it shuttered 2.65 percent of its locations, for a total of less than 4,800 physical locations today. In the same span, Bank of America increased its ATM count by 1 percent for a total of 16,038 terminals.

Last year, mobile banking and online banking were each identified as a top priority by 14 percent of U.S. banks. As MPD CEO Karen Webster wrote in a column last August: “Online and mobile channels are how consumers want to engage with their banks. Mobile engagement is up 52 percent from just a few years ago, according to the Fed’s study on mobile financial services. And almost as many consumers used online banking as ATMs last year, and more consumers used mobile banking than telephone call centers that year, too.”

Some in the payments space are pegging 2016 as the year that digital banking will “get real,” but if recent moves are any indication, it’s not a race that big banks are taking lightly.

TSYS Joins The Omnichannel Party

Payments solutions giant TSYS will buy TransFirst from Vista Equity Partners for roughly $2.4 billion.

TransFirst specializes in merchant solutions — particularly around omnichannel — for a base of about 235,000 small and midsized business throughout the United States. The deal will help TSYS level up into omnichannel and with scale and size enough to become the sixth-largest acquirer in the United States, as measured by top line. As a combined business, TSYS’ client base will expand to 645,000 merchant outlets. Key areas of focus will include prepaid programs, issuer processing and merchant services.

TSYS said that the acquisition is expected to boost earnings per share in the low double digits, as measured through the 12-month period projected to follow closing.

John Shlonsky, currently TransFirst president and chief executive officer, will succeed Mark Pyke in the latter’s function as senior executive VP and president of the TSYS merchant unit. The deal is expected to close within the second quarter of this year and is being conducted as an all-cash transaction. One thousand TransFirst staffers will now swell TSYS’ current roster of 10,500.

The entity, post-acquisition, will process about 1.2 billion transactions every year, with a consolidated $117 billion top line annually.

The $2.4 billion deal eclipses, by size, the $1.4 billion TSYS dropped on NetSpend, a firm best known for its prepaid card products.


So, what did we learn this week? The CFPB might have some oversight of its own to worry about soon, BoA is clearly worried about losing its customers to the digital age (and Chase) and TSYS’ omnichannel worries are no more after its $2.4 billion investment in omnichannel peace of mind.

Stay tuned. It’s getting interesting out there, and we are just 31 days into 2016.


New PYMNTS Report: The CFO’s Guide To Digitizing B2B Payments – August 2020 

The CFO’s Guide To Digitizing B2B Payments, a PYMNTS and Comdata collaboration, examines how companies are updating their AP approaches to protect their cash flows, support their vendors and enable their financial departments to operate remotely.