Supreme Court Swipe Fee Case; Thread Bank Enforcement Action; Synapse Saga Con’t
Mixed economic indicators. Fed pleased with improving inflation data points. Supreme Court allows swipe fee challenge to proceed. Thread Bank latest to receive enforcement action. Synapse saga continues.
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Goolsbee Says Fed Should Prepare for Rate Cuts
Job vacancies unexpectedly jumped in May, per the latest JOLTS survey. Openings increased to 8.14Mn vs. an expected 7.95Mn. Openings per unemployed worker was steady at 12. ADP private payroll data, however, showed signs of the job market slowing. Private payrolls rose at a more modest pace and recurring unemployment claims hit their highest number since November 2021. In June, activity in the services sector contracted at the fastest pace in four years. Fed Chair Powell welcomed recent data points that suggest inflation is cooling, but said the Fed needs more confidence before it cuts rates. Chicago Fed President Goolsbee, though, said the Fed should prepare to cut rates, saying that holding rates steady as inflation falls is, effectively, a decision to tighten.
Supreme Court Allows Swipe Fee Challenge
The Supreme Court ruled that a North Dakota convenience store, Corner Post, can proceed with its challenge to the Fed’s 2011 rule governing debit card “swipe fees.” In a 6-3 ruling along ideological lines, the conservative justices ruled that the six-year statute of limitations didn’t apply, as the business did not begin operating until 2018. While the immediate question centers on the Fed’s rule implementing the Durbin amendment, the potential implications are wide reaching. The majority wrote that a claim accrues when a plaintiff is injured by a final agency action. The decision is likely to open the door to litigation to long standing rules, within and beyond financial services, formulated under the Administrative Procedures Act. Together with the court’s decision overturning “Chevron deference,” the two decisions are likely to shift substantial decision making from executive branch agencies to the judicial branch.
Thread Bank Receives Enforcement Action
Thread Bank, a popular fintech partner bank that supports direct programs and works with BaaS platform Unit, was the latest bank to get hit with a regulatory action. Like other BaaS banks, Thread’s order focused primarily on BSA/AML and third-party risk management issues. The order was notable as it appears to be the first time the terms “banking-as-a-service” and “loan-as-a-service” were explicitly used in a regulatory action. The order also went beyond the typical third-party risk to reference fourth- and fifth-party risk, reflecting regulators’ expectations that banks exercise oversight over their customers, regardless of how many intermediaries sit between the bank and end users. The order also requires Thread to address its struggles with profitability by formulating a plan including specific financial goals.
Synapse Saga Continues
The Synapse/Evolve situation has, somehow, become even stranger. It’s unclear if the Russia-linked hack of Evolve Bank, which began as early as February but wasn’t detected until late May, has anything to do with the collapse of Synapse and the freeze of end-user funds. In last week’s bankruptcy hearing, a lawyer representing database firm MongoDB protested the expectation that the company continue hosting Synapse’s data without payment, as it has done since Synapse filed for bankruptcy in April. MongoDB has asked the trustee for the Synapse estate, former FDIC Chair Jelena McWilliams, to arrange to copy that data no later than July 7th. The judge, however, was unamused at the prospect of losing critical data necessary to untangle the mess, telling MongoDB’s lawyer that he was “playing with fire.”
Meanwhile, a group of Democratic Senators on the Senate Banking Committee, including Sherrod Brown and Ron Wyden, sent a letter to Synapse, the four banks, a number of the fintech platforms, and venture investors Andreessen Horowitz, Core Innovation Capital, and Trinity Ventures, urging the recipients to pool the necessary funds to make end users whole immediately. And, in yet another strange turn, Evolve Bank & Trust sent Fintech Business Weekly author Jason Mikula a cease and desist letter, demanding that he not share any information stemming from the data breach.
