Happy Sunday,

Rate hikes slow, but uncertainty persists. CFPB announces first crypto probe. HELOC repayment fight. Celsius bankruptcy advances. Non-bank lenders still able to raise funds. Intuit acquires SeedFi. JG Wentworth scoops up Stilt. Circle calls off SPAC.

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Rate Hikes Slow, But Uncertainty Persists

Despite the Fed having raised rates this year at the fastest pace since the early 1980s, the fight to cool down inflation persists. As the Fed enters a new phase of its tightening policy, its pace of rate hikes is expected to slow. Fed watchers expect an increase of 50 bps rather than 75 bps at its next meeting, which would bring the Fed funds target rate to 4.25-4.5%.

While there are some signs that inflation is beginning to cool, the robust labor market remains a concern. Data in the most recent BLS report shows the U.S. economy added more jobs than expected in November. Normally, this would be a good thing, but amid fears of a wage-price spiral, it’s anything but.

CFPB Announces First Crypto Probe; Nexo Exits U.S. Market

Last week, the CFPB disclosed an ongoing investigation into crypto lender Nexo Financial. It is the first such probe the consumer protection agency has disclosed into a cryptocurrency company. According to the agency, it is evaluating whether Nexo has made false or misleading representations about its “earn interest product.”

For its part, Nexo argues the CFPB has no authority, as the offering is subject to oversight by the SEC. However, the CFPB responded that Nexo and its earn product are not actually registered with the SEC. CFPB Director Chopra has ordered Nexo to appear for oral testimony later this month.

Nexo has decided to exit the U.S. market after facing increasing regulatory scrutiny. Besides the CFPB matter, regulators in eight states filed cease and desist orders against the company earlier this year for offering unregistered securities. Nexo currently operates in 200 jurisdictions worldwide and claims to have assets in excess of its customer liabilities of $2.6Bn.

HELOC Repayment Fight

The CFPB has weighed in in a dispute between PNC and one of its HELOC borrowers. The borrower sued when, after falling behind on payments, PNC pulled about $3,000 from their checking account to offset the amounts owed. The borrower is arguing PNC should have undertaken a separate debt collection process, as would be the case with a typical credit card.

In an amicus brief filing in federal court last week, the CFPB agreed. Bureau lawyers argued that the lower court “ignored regulatory text, history and context” in ruling against the borrower. If the plaintiff and CFPB’s position prevails, it’s likely to necessitate banks revisiting how they structure certain aspects of HELOC agreements and their repayment terms.

Celsius Ponzi Probe Advances

While all eyes have been on FTX and BlockFi in recent weeks, Celsius’ bankruptcy case is slowly proceeding. It’s worth paying attention to, as it’s likely to lead to some precedents that could apply to FTX and BlockFi in the future. Last month, the judge instructed a court-appointed examiner and the creditors’ committee to confer and determine who would lead an investigation into whether Celsius used some customer funds to meet its financial obligations to others.

In more recent developments, the judge heard arguments about whether or not depositors legally gave up ownership of their cryptocurrency to the platform in return for interest payments. The issue has been muddled by ambiguous language in terms and conditions that users agreed to and user agreements that changed over time. The issue came to the forefront as lawyers for Celsius requested permission to sell some $18Mn worth of crypto the company is still holding in order to pay its bills.

Ultimately, the court ruled that Celsius must return assets to customers whose crypto was in non-interest bearing accounts and thus not commingled with other Celsius funds.

Non-Bank Lenders Still Able to Raise Funds

Despite continued economic uncertainty and normalizing delinquencies and charge offs at many lenders, non-bank lenders are still able to access capital markets.

Sunbit, which offers credit card and point-of-sale loans through partner TAB Bank, announced a new $250Mn revolving debt facility. The debt funding was led by Credit Suisse and Waterfall Asset Management. Sunbit intends to use the facility to continue scaling its lending products through merchant-led distribution.

Curve, an “all-in-one” card has announced a new $1Bn credit line provided by Credit Suisse to help fund lending through its Curve “Flex” product. Flex enables users to split any transaction, at any merchant, with any card into three, six, nine, or 12 monthly installments. While Curve calls the U.K. home, it also operates in the U.S. and across the E.U. With the additional debt funding secured, the company plans to continue scaling its existing product and develop new offerings, such as a direct line of credit and ability to refinance existing credit lines.

Chicago-based Avant, a near-prime lender that offers personal loans and credit cards, announced it has raised $250Mn in corporate debt and redeemable preferred equity from Ares Capital management. The news follows a successful $250Mn securitization in September, which brought the company’s total amount of asset-backed securitizations to date to $1.1Bn.

Fintech M&A News

Financial software giant Intuit is taking advantage of the fintech funding slowdown. The company, which acquired Credit Karma some years back, has announced it will acquire SeedFi, which offers consumer credit builder products. Intuit has said it plans to combine the offering with Credit Karma, which currently offers credit monitoring, credit card and loan comparison and shopping tools, and a neobank-like product, Credit Karma Money. The addition of credit building alongside its mainstay free credit score product is a logical extension.

In other M&A news, structured settlement lender JG Wentworth has announced it will acquire the digital lending platform of specialty lender Stilt, which focuses on lending for immigrants to the United States. It sounds like JG Wentworth intends to use the acquisition to move into the personal lending space. According to its press release, “The Stilt platform will provide industry-leading digital capabilities to JG Wentworth’s customers with a user-friendly experience and rapid underwriting decisions.”

Circle Calls Off SPAC Amid Broader Pullback

Circle, the issuer of the USDC stablecoin, revealed that it no longer intends to go public via its pending SPAC deal. The company and the blank check vehicle it was supposed to combine with, Concord Acquisition Corp., agreed to the “mutual” termination after some 18 months of discussion around the terms of the deal. SPAC vehicles eventually expire and must return funds to investors if they are unable to complete a merger within the allotted time frame. The original terms would have valued Circle at $4.5Bn, though this was later revised upward to some $9Bn.

Circle is hardly alone. So far this year, 55 SPAC transactions have been canceled, as SEC scrutiny of the transactions has increased and appetite for speculative investments has dropped significantly.

Image: Bloomberg

In the News:

Judge Sides with CFPB as it Seeks Information on Block’s Cash App (American Banker, 12/5/2022) A judge has ordered Block to comply promptly with investigative demands made by the CFPB as part of a probe into fraud involving Cash App.

Fed Calls for Closer Monitoring of Climate Risks in Proposed Guidelines (American Banker, 12/2/2022) The Fed is seeking public comment on proposed new guidelines for how banks with over $100Bn of assets should manage climate-related financial risks.

Newtek gets OCC Green Light to Acquire NBNYC (Banking Dive, 12/6/2022) The transaction would give a banking charter to the third-largest lender in the SBA 7(a) program.

FTX Effort to Save Itself Failed on Questionable Assets (Wall Street Journal, 12/5/2022) Tokens held as collateral were likely worth far less than the $6.4Bn marked on the balance sheet FTX was shopping to investors.

J.P. Morgan and Mastercard Come Together to Bring Pay-by-Bank (Fintech Nexus, 12/2/2022) The payment solution authorizes consumers to allow their financial data to be shared between trusted parties to pay bills directly from their bank accounts.

Five Types of Risks that Threaten Bank-Fintech Partnerships (American Banker, 12/2/2022) Risks to consider as banks have been increasingly teaming up with financial technology companies.

What Will the Recession Mean for BNPL? (Finextra, 11/30/2022) The recession may lead to credit tightening, improved credit reporting, and the need for BNPL companies to adapt.

Galileo Debuts BNPL Service for Banks and FinTechs (PYMNTS, 12/6/2022) Clients and banks that provide BNPL will be offered financing through their bank or a sponsoring bank partner.

Goldman Sachs Reportedly Looking to Buy Crypto Firms After FTX Collapse (CoinTelegraph, 12/6/2022) Executive Mathew McDermott said big banks are seeing opportunities in the space.

Buddy System: Why BNY Mellon is Giving Fintechs a Bigger Audience (American Banker, 12/6/2022) BNY Mellon has chosen to collaborate with fintech firms, instead of fighting them.

How Hard Will it be for Zelle to Refund for Fraud? (American Banker, 12/7/2022) The plan could require the receiving bank to cover at least part of the cost of return.

Lighter Fare:

Oldest DNA Reveals Life in Greenland 2 Million Years Ago (NBC, 12/7/2022) Scientists discover the oldest known DNA on the planet.