August 24, 2014 at 2:54 pm ET
Top Finance Stories of the Summer
This summer started off with a bang in the financial world, as Wall Street lost one of its biggest congressional allies in the surprise primary defeat of former House Majority Leader Eric Cantor of Virginia. Things didn’t cool down from there, with headlines on issues as varied as subprime auto loans, payday lending and settlements between big banks and the Justice Department. Ongoing battles over which firms the government considers to be “systemically important” also simmered in the background. Below we’ve made your end-of-summer reading easy, breaking down the top eight issues in financial regulation this summer. You’ll find links to some of the top-clicked and best stories highlighting significant developments in those areas, and learn where these issues might go in the fall.
8) Payday Lending
Compared with other states, New York has taken the lead on pursuing enforcement actions against payday lenders, with both big and small fines. The CFPB’s focus, however, has been on debt collection practices, not that these enterprises are lending money. With state and federal regulators pursuing charges on both business fronts, the industry is looking to some state legislatures for relief. In recognition of the fact that demand has led to the proliferation of payday lenders, two proposals have emerged as possible alternatives to the lending structure that appeals to low-income customers. One focuses on changes to the traditional pay cycle, allowing employees to access portions of their paycheck that they have already earned. The other calls for a return to postal banking, what some have called the “public option” for small loans. The former is starting to find an audience with businesses, while the latter has some supporters in Congress who face the uphill battle of selling fellow lawmakers and voters on the importance of a waning institution: the U.S. Postal Service.
American Banker: Battle Over Postal Banking Reignites
Forbes: CFPB Moves Against Payday Loan Industry, Orders Ace Cash Express to Pay $10 Million
New York Times: New York Prosecutors Charge Payday Lenders with Usury
American Banker: Can Reengineering the Pay Cycle Disrupt Payday Lending?
Slate: Postal Banking Already Worked in the USA and It Will Work Again
7) Bitcoin Regulations
As confused as many Americans may be about what exactly Bitcoin is and how it’s used, most government regulators and retailers are still deciding how best to approach the virtual currency. The Internal Revenue Service fired the opening salvo by classifying Bitcoin as property, not currency. Then, as more retailers announced they’ll accept Bitcoin for purchases, state regulatory agencies found themselves needing to craft policies for the crypto currency. Some in the Bitcoin community see those policies as validation that the virtual currency is gaining mainstream acceptance, while others would prefer the a hands-off approach from the state. Bitcoin experts note that regulators are still in a holding pattern, one that’s unlikely to budge in the absence of a catastrophic Bitcoin market event. Congress has been largely silent on this issue, even as many lawmakers are now accepting campaign contributions in the form of Bitcoin.
Morning Consult: Americans Don’t Know Much About Bitcoin, But Their Government Is Learning More
National Journal: Federal Consumer Advocate: Bitcoin Users, You’re ‘On Your Own’
New York Times: Proposed Rules Expose Rifts Among Bitcoin Enthusiasts
Morning Consult: Hispanics As Bitcoin’s Biggest Fans
6) Subprime Auto Loans
On the heels of several multibillion-dollar settlements with major U.S. banks for subprime-lending practices comes a regulatory crackdown on similar loans for automobiles. While the fines and settlements so far are nowhere near the dollar amount of the ones in the mortgage industry, a variety of agencies are already involved, from the Consumer Financial Protection Bureau to the Justice Department to the Office of the Comptroller of the Currency. Reporting by the New York Times brought the issue to the fore this summer, prompting a backlash from the National Automobile Dealers Association, which say the attention is focused on a few bad apples. Advocacy groups contend that the problem is widespread. Either way, the issue is gaining momentum, and lawmakers may weigh in on it next month or on the campaign trail. Auto dealers were left untouched by Dodd-Frank thanks to a legislative carve-out, so the regulatory action that’s expected in the coming months will likely focus on the lenders who finance the loans and not the dealers themselves.
New York Times: Focusing on G.M. Unit, U.S. Starts Civil Inquiry of Subprime Car Lending
New York Times: U.S. Finds Fresh Use for Seldom-Used Statute in Subprime Cases
Morning Consult: The Next Consumer Protection Target: Auto Loans
New York Times: Texas Car Lender Is Accused of Distortion in Subprime Inquiry
5) Wall Street and the Midterm Elections
Regardless of which party controls the Senate in the 114th Congress, Wall Street isn’t keen on the prospect of who’s likely to wield the Banking Committee gavel starting next year. With Committee Chairman Tim Johnson (D-S.D.) retiring at the end of this year, Sen. Sherrod Brown (D-Ohio) is a strong contender to replace him should the Democrats maintain a majority in the chamber. If the Republicans win, Sen. Richard Shelby (R-Ala.) is expected to become chairman. Neither Brown nor Shelby is considered a Wall Street ally. But Republicans are already looking to 2016 by aiming to loosen up SEC restrictions on Wall Street cash for campaign contributions. That effort could gain momentum if the upcoming midterm elections put Congress under GOP control.
Morning Consult: Fundraising Signals Uncertainty in Senate, Status Quo in House
The Hill: Wall Street Braces for Gavel Handoff
American Banker: Banking SuperPAC Aims at Senate Races
The Hill: Wall Street Spending $1.5M a Day on Lobbying
Politico Pro: GOP Looks to Shake Loose Wall Street Cash
4) High-Frequency Trading and Dark Pools
Michael Lewis’s book “Flash Boys: A Wall Street Revolt” brought high-speed trading and dark pools to the attention of lawmakers and the general public. More importantly, it caught the eyes of regulators, some of whom announced investigations and fines at both the state and national level. One major bank even said the SEC has been investigating their private trading platforms since 2012. Now, alternative trading venues that operate with more transparency are gaining support from industry players, even as regulatory actions have had mixed results in terms of company profits. Some firms have had the financial equivalent of a slap on the wrist, while others have seen decreased revenue as a result of investigations. With Sen. Carl Levin (D-Mich.) retiring at the end of this Congress, in turn giving up his gavel as chairman of the Senate subcommittee examining the issue, his successor may determine whether the matter deserves further congressional attention.
Bloomberg News: Levin Hearing Ups Volume in High Frequency Call to Action
Morning Consult: Levin’s Swan Song Could Be Reining In High-Speed Traders
Reuters: New York Attorney General Accuses Barclays of ‘Dark Pool’ Fraud
Reuters: Goldman Sachs Fined Over Trade Rule Violations in Dark Pool
New York Times: SEC Says Citigroup Unit Failed to Protect Customer Trading Data
Bloomberg News: UBS Says SEC Has Been Investigating Its Dark Pool Since 2012
Reuters: Upstart Trading Venue IEX May Prompt US Market Rule Change
3) Short-term Wholesale Funding
The Federal Reserve and the Securities and Exchange Commission are at odds over how to regulate money markets. Two Fed officials sounded the alarm on the same day over what they said are shortcomings in the SEC’s final rule for money funds, saying a re-examination of wholesale funding rules are needed. The public spat is likely to continue, with the ball now in the SEC’s court following criticism from economists on the Fed’s website.
Politico Pro: SEC Approves Money Fund rules, Focus Now on FSOC
Reuters: Fed Officials Urge Changes to Still-Risky U.S. Funding Markets
Wall Street Journal: Fed Economists Criticize SEC Money-Fund Restrictions
2) Mortgage-related Fines and Settlements for Financial Firms
Federal fines and lawsuits continue to plague big banks, with most stemming from mortgage-lending practices before, during and after the housing crisis last decade. The settlements pertain to both allegations of predatory lending and the securitization process that followed. This latest round follows the multi-state settlement with state attorneys general offices for banks that were robo-signing foreclosure documents a few years ago. The recent Bank of America settlement, a record $16.65 billion, puts the firm in the company of JPMorgan and Citigroup for multibillion-dollar agreements with the Justice Department. The lawsuits show little sign of abating, though, as municipalities are now alleging civil rights violations, saying banks failed to maintain foreclosed properties in predominantly black and Latino neighborhoods, compared with upkeep in white communities. Many advocacy groups are calling for jail time for Wall Street executives, instead of civil suits and settlements, while banks just want to put the issue behind them.
Morning Consult: Local Mortgage Lawsuits Could Pile Up For Banks
Wall Street Journal: SunTrust Mortgage Agrees to $320 Million Settlement
Wall Street Journal: Citigroup to Pay $7 Billion in Mortgage Probe
New York Times: Morgan Stanley to Pay $275 Million in Mortgage Case
Washington Post: Bank of America Ordered to Pay Damages of $127 Billion for Countrywide Fraud
Bloomberg: Citigroup’s $285 Million Settlement with SEC Approved by Judge
Wall Street Journal: Record Bank of America Settlement Latest in Government Crusade
1) Systemically Important Financial Institutions
The process and criteria by which the Financial Stability Oversight Council labels a financial firm a Systemically Important Financial Institution, or SIFI, has drawn sharp criticism in the past 18 months, particularly since FSOC broadened the label’s scope to include in the insurance industry. The government panel this month took a step closer to having MetLife join Prudential Financial Inc. and American International Group Inc. as SIFIs, meaning they’re subject to regulatory oversight by the Federal Reserve. Concern that FSOC may be zeroing in on asset management firms has prompted a bipartisan group of lawmakers to craft legislation that would require FSOC, which was established under Dodd-Frank, to give a company advance notice if it’s facing a SIFI designation. While most congressional Democrats are reluctant to make any significant changes to Dodd-Frank, tweaks to the SIFI-designation process may becoming more palatable to some lawmakers.
Morning Consult: The Fed and Figuring Out Insurance
American Banker: SEC Fights Back Against Asset Manager SIFI Label
Bloomberg News: Secrecy of Dodd-Frank’s ‘Too Big to Fail’ Panel Targeted
Bloomberg News: BlackRock’s Fink Sees U.S. Regulators Shifting Systemic Focus
Bloomberg News: U.S. Poised to Label MetLife a Potential Threat to the Financial System
Wall Street Journal: MetLife Is Closer to Possible ‘Systematically Important’ Designation