Cross River IQ

Supreme Court Swipe Fee Case; Thread Bank Enforcement Action; Synapse Saga Con’t

Cole Gottlieb, Research Analyst

July 8, 2024

6 min read

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.

New here? Subscribe here to get our newsletter each Sunday.



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.


Image: Bloomberg


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.




All content is original and has been researched and produced by Cross River Bank (“Cross River”) unless otherwise stated herein. No part of this content may be reproduced in any form, or referred to in any other publication, without the express written consent of Cross River.

Cross River is not a broker-dealer or investment adviser and as such, this information should not be relied upon as research, investment advice, or a recommendation regarding any products, strategies, or any investment in particular. This material is strictly for illustrative, educational, or informational purposes and is subject to change. This content does not constitute an offer to sell or the solicitation of an offer to sell or buy any security in any jurisdiction where such an offer or solicitation would be illegal. There is not enough information contained in this content to make an investment decision and any information contained herein should not be used as a basis for this purpose.

This content does not constitute a recommendation or take into account the particular investment objectives, financial situations, or needs of investors.

Investors are not to construe this content as legal, tax or investment advice, and should consult their own advisors concerning an investment in any instrument. The price and value of assets referred to in this content and the income from them may fluctuate. Past performance is not indicative of the future performance of any instruments referred to herein. Fluctuations in exchange rates could have adverse effects on the value or price of, or income derived from, certain investments.

Certain of the statements contained herein may be statements of future expectations and other forward-looking statements that are based on Cross River’s views and assumptions and involve known and unknown risks and uncertainties that could cause actual results, performance, or events to differ materially from those expressed or implied in such statements. In addition to statements that are forward-looking by reason of context, the words “may, will, should, could, can, expects, plans, intends, anticipates, believes, estimates, predicts, potential, projected, or continue” and similar expressions identify forward-looking statements. Cross River assumes no obligation to update any forward-looking statements contained herein and you should not place undue reliance on such statements, which speak only as of the date hereof.

Although Cross River has taken reasonable care to ensure that the information contained herein is accurate, no representation or warranty (including liability towards third parties), expressed or implied, is made by Cross River as to its accuracy, reliability, or completeness. You should not make any investment decisions based on these estimates and forward-looking statements.

There is no guarantee that the market conditions during the past period will be present in the future. Rather, it is most likely that the future market conditions will differ significantly from those of this past period, which could have a materially adverse impact on future returns.

NO REPRESENTATION IS BEING MADE THAT ANY INVESTOR WILL OR IS LIKELY TO ACHIEVE PROFITS OR LOSSES SIMILAR TO THOSE SHOWN. PAST PERFORMANCE IS NOT INDICATIVE OF FUTURE RESULTS. We selected the timeframe for our analysis because we believe it broadly constitutes the most complete historical dataset for the industry or company that we have chosen to analyze.