Happy Sunday,
U.S. payroll growth slows. Bond selloff drives up borrowing costs. Oral arguments on CFPB’s future. Supreme Court agrees to hear interchange case. Good news, bad news for Revolut. Discover agrees to FDIC consent order. Experian launches neobank. Wagestream acquires credit card startup.
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Payroll Growth Slows
U.S. private payrolls rose by just 89,000 last month, in a sign that interest rates may be beginning to slow employment growth. The jobs number was down from 180,000 in August and was the slowest pace of growth since the start of 2021. The slowdown in hiring isn’t going unnoticed. The quit rate, often viewed as an indicator of how easy Americans think it will be to get another position, came in at 2.3% in August for the second month in a row. That’s down from a peak of 3% in April 2022.
Meanwhile, a selloff in government bonds had traders on edge as it drove long-term borrowing costs to the highest level seen in more than 10 years. The benchmark 30-year U.S. Treasury yield posted its largest quarterly jump in more than a decade.
Image: Bloomberg
Oral Arguments on CFPB’s Future
Last week, the Supreme Court heard oral arguments in the CFPB’s appeal of the Fifth Circuit ruling that found its funding structure unconstitutional. The CFPB, rather than be subject to an annual appropriations process in Congress, derives funding from the Federal Reserve System, up to a set cap. The Fed, in turn, is primarily funded from interest on the securities that it owns. This has led critics to describe the CFPB’s funding structure as “double insulated” from Congress. Attorneys for the payday lending trade groups that brought the initial suit argued that Congress inappropriately delegated its authority to the executive branch. But, at least based on last week’s oral arguments, many of the Justices did not seem to be convinced. Justice Kavanaugh notably said that, “If the majority of the Congress said they were not going to fund the agency tomorrow, they could do that.” While it’s premature to draw conclusions from oral arguments alone, last week went about as well as it could have for the Bureau.
Supreme Court Agrees To Hear Interchange Cap Case
In other Supreme Court news, the court has agreed to hear a case from a Corner Post, a convenience store, challenging the Fed’s Regulation II rule, which implements the Durbin Amendment to Dodd-Frank. The matter before the court, however, is whether or not the statute of limitations on filing suit has elapsed. The Administrative Procedure Act allows for a statute of limitations of six years to challenge agency rules. Regulation II was promulgated in 2011. Corner Post didn’t even begin operating until 2018, or some seven years later. Corner Post is arguing the statute of limitations began when the company first suffered injury, rather than the date the rule was finalized.
Good News, Bad News For Revolut
Good news first. Revolut, which has struggled to gain approval for a U.K. banking license, cleared one roadblock last week. One requirement from the Bank of England was that the company simplify its complex share structure, which has six classes of share. SoftBank, Revolut’s largest investor, objected to giving up its preferred share class absent compensation for doing so. Revolut appears to have reached an agreement in principle with SoftBank that doesn’t include additional shares for the investor, nor a financial impact on Revolut. Other hurdles, however, remain. Revolut has struggled to produce accurate and timely accounting statements, and this year looks no different. The company said its accountants for 2022 would not be filed on time.
Now, the bad news. Revolut has been in talks with the Financial Conduct Association regarding control failures that saw the company allow the release of funds in accounts that had been flagged by the National Crime Agency as suspicious. As much as £1.7Mn was moved from flagged accounts, according to the FT. It’s not the first problem Revolut has had with adequate financial crime controls. Gaps in oversight in its U.S. business, which is operated with a partner bank, enabled criminals to steal more than $20Mn.
Discover Appears to Avoid Fines, Penalties in FDIC Consent Order
Discover appears to have put its most recent regulatory issues behind it without incurring any fines or monetary penalties. The FDIC consent order requires Discover to undertake a broad audit and commit to remediating any gaps or issues it finds. The FDIC found that Discover engaged in unsafe or unsound banking practices, including by failing to establish an adequate compliance management system to ensure it meets consumer protection regulations. The company has also faced issues in its student loan servicing operations and for overcharging some merchants for credit card account fees, dating back to the mid-2000s.
Experian Launches Credit Builder Debit Card
Big three credit bureau Experian announced its launching of a neobank-like product. The account, offered through bank partner CFSB, automatically includes Experian’s “Boost” service, which adds recurring bills like rent, utilities, and even streaming services as tradelines to users’ credit reports. More than 14Mn users have connected Experian Boost to external accounts, with those signing up seeing an average FICO score increase of 8-14 points. Still, the timing for a neobank aimed at the lower end of the market is inauspicious, given the struggles other companies in the sector have had. While Experian should have a benefit on the marketing and customer acquisition side, there isn’t much users get with Experian’s offering that they couldn’t get elsewhere.
Wagestream Acquires Credit Card Startup
U.K. earned wage access service Wagestream announced it has acquired challenger credit card startup Keebo. Wagestream already works with popular U.K. employers, including the National Health Service, grocery store Asda, and Pizza Express, to enable employees to choose their own pay cycle, budget, and save money on bills. The addition of Keebo will add a credit option to the existing platform. Keebo leverages bank account transaction data via open banking for underwriting in addition to traditional credit data.
In the News:
Why a US Recession Is Still Likely — and Coming Soon (Bloomberg, 10/2/2023) Six reasons why a recession may still be on the way.
Americans Are Still Spending Like There’s No Tomorrow (Wall Street Journal, 10/1/2023) Despite exhausted pandemic savings, rising interest rates, and resuming student loan payments, Americans are still ready to spend.
Fed’s top regulator calls for discount window readiness by banks (American Banker, 10/2/2023) Fed Vice Chair for Supervision Michael Barr emphasized banks need to be operationally ready to tap the discount window, should they need to.
High Noon for the CFPB at the Supreme Court (Wall Street Journal, 10/1/2023) The CFPB Supreme Court case illustrates diverging opinions about the Constitution and definition of separation of powers.
Open banking led to a fintech boom — as Brite raises $60M, account-to-account payment grows (Techcrunch, 10/4/2023) Open banking and account-to-account payments are having a moment.
Bank earnings to shine spotlight on loan charge-offs (American Banker, 9/29/2023) After a period of stellar performance, loan losses are rising again.
Crypto exchange Coinbase secures Singapore payments licence (Reuters, 10/3/2023) Coinbase has secured a full payments license to operate in Singapore.
Why Visa is investing in artificial intelligence startups (American Banker, 10/3/2023) Visa is making a $100Mn bet on generative AI.
Lighter Fare:
The Spookiest Places to Rent Airbnbs for Halloween (Vice, 10/2/2023) Looking for a unique Halloween activity? Find your own spooky get away on Airbnb.