Buried in a roughly 200-page quarterly\u00a0filing\u00a0from\u00a0JPMorgan Chase\u00a0last month were eight words that underscore how contentious the bank\u2019s relationship with the government has become.<\/p>\n
The lender disclosed that the\u00a0Consumer Financial Protection Bureau\u00a0could punish JPMorgan for its role in Zelle, the giant peer-to-peer digital payments network. The bank is accused of failing to kick criminal accounts off its platform and failing to compensate some scam victims,\u00a0according to people who declined to be identified speaking about an ongoing investigation.<\/p>\n
In response, JPMorgan issued a thinly veiled threat: \u201cThe firm is evaluating next steps, including litigation.\u201d<\/p>\n
The prospect of a bank suing its regulator would\u2019ve been unheard of in an earlier era, according to policy experts, mostly because corporations used to fear provoking their overseers. That was especially the case for the American banking industry, which needed hundreds of billions of dollars in taxpayer bailouts to survive after irresponsible lending and trading activities caused the 2008 financial crisis, those experts say.<\/p>\n
But a combination of factors in the intervening years has created an environment where banks and their regulators have never been farther apart.<\/p>\n
Trade groups say that in the aftermath of the financial crisis, banks became easy targets for populist attacks from Democrat-led regulatory agencies. Those on the side of regulators point out that banks and their lobbyists increasingly lean on\u00a0courts\u00a0in Republican-dominated districts to fend off reform and protect billions of dollars in fees at the expense of consumers.<\/p>\n
\u201cIf you go back 15 or 20 years, the view was it\u2019s not particularly smart to antagonize your regulator, that litigating all this stuff is just kicking the hornet\u2019s nest,\u201d said\u00a0Tobin Marcus, head of U.S. policy at Wolfe Research.<\/p>\n
\u201cThe disparity between how ambitious [President Joe] Biden\u2019s regulators have been and how conservative the courts are, at least a subset of the courts, is historically wide,\u201d Marcus said. \u201cThat\u2019s created so many opportunities for successful industry litigation against regulatory proposals.\u201d<\/p>\n
Those forces collided this year, which started out as one of the most consequential for bank regulation since the post-2008 reforms that\u00a0curbed\u00a0Wall Street risk-taking, introduced annual stress\u00a0tests\u00a0and created the industry\u2019s lead antagonist, the CFPB.<\/p>\n
In the final months of the\u00a0Biden\u00a0administration, efforts from a half-dozen government agencies were meant to slash fees on credit card late payments, debit transactions and overdrafts. The industry\u2019s biggest threat was the Basel Endgame, a\u00a0sweeping\u00a0proposal to force big banks to hold tens of billions of dollars more in capital for activities like trading and lending.<\/p>\n
\u201cThe industry is facing an onslaught of regulatory and potential legislative change,\u201d\u00a0Marianne Lake, head of JPMorgan\u2019s consumer bank, warned investors in May.<\/p>\n
JPMorgan\u2019s disclosure about the CFPB probe into Zelle comes after years of\u00a0grilling\u00a0by Democrat lawmakers over financial crimes on the platform. Zelle was launched in 2017 by a bank-owned firm called\u00a0Early Warning Services\u00a0in response to the threat from peer-to-peer networks including\u00a0PayPal.<\/p>\n
The vast majority of Zelle activity is uneventful; of the $806 billion that flowed across the network last year, only $166 million in transactions was disputed as fraud by customers of JPMorgan,\u00a0Bank of America\u00a0and\u00a0Wells Fargo, the three biggest players on the platform.<\/p>\n
But the three banks collectively reimbursed just 38% of those claims, according to a July Senate\u00a0report\u00a0that looked at disputed unauthorized transactions.<\/p>\n
Banks are typically on the hook to reimburse fraudulent Zelle payments that the customer didn\u2019t give permission for, but usually don\u2019t refund losses if the customer is duped into authorizing the payment by a scammer,\u00a0according\u00a0to the Electronic Fund Transfer Act.<\/p>\n
A JPMorgan payments executive\u00a0told\u00a0lawmakers in July that the bank actually reimburses 100% of unauthorized transactions; the discrepancy in the Senate report\u2019s findings is because bank personnel often determine that customers have authorized the transactions.<\/p>\n
Amid the scrutiny, the bank began warning Zelle users on the Chase app to \u201cStay safe from scams\u201d and added disclosures that customers won\u2019t likely be refunded for bogus transactions.<\/p>\n
JPMorgan declined to comment for this article.<\/p>\n
The company, which has grown to become the largest and most profitable American bank in history under CEO\u00a0Jamie Dimon, is at the fore of several other skirmishes with regulators.<\/p>\n
Thanks to his reputation guiding JPMorgan through the 2008 crisis and last year\u2019s regional banking upheaval, Dimon may be one of few CEOs with the standing to openly criticize regulators. That was highlighted this year when Dimon led a campaign, both public and behind\u00a0closed doors, to weaken the Basel proposal.<\/p>\n
In May, at JPMorgan\u2019s investor day, Dimon\u2019s deputies made the case that Basel and other regulations would end up harming consumers instead of protecting them.<\/p>\n
The cumulative effect of pending regulation would boost the cost of mortgages by at least $500 a year and credit card rates by 2%; it would also force banks to charge two-thirds of consumers for checking accounts, according to JPMorgan.<\/p>\n
The message: banks won\u2019t just eat the extra costs from regulation, but instead pass them on to consumers.<\/p>\n
While all of these battles are ongoing, the financial industry has racked up several victories so far.<\/p>\n
Some contend the threat of litigation helped convince the Federal Reserve to\u00a0offer a new\u00a0Basel Endgame proposal this month that roughly cuts in half the extra capital that the largest institutions would be forced to hold, among other industry-friendly changes.<\/p>\n
It\u2019s not even clear if the watered-down version of the proposal, a long-in-the-making response to the 2008 crisis, will ever be implemented because it won\u2019t be finalized until well after U.S. elections.<\/p>\n
If Republican candidate\u00a0Donald Trump\u00a0wins, the rules might be further weakened or killed outright, and even under a Kamala Harris administration, the industry could fight the regulation in court.<\/p>\n
That\u2019s been banks\u2019 approach to the CFPB credit card rule, which aimed to cap late fees at $8 per incident and was set to go into effect in May.<\/p>\n
A last-ditch effort from the\u00a0U.S. Chamber of Commerce\u00a0and bank trade groups successfully delayed its implementation when\u00a0Judge Mark Pittman\u00a0of the Northern District of Texas sided with the industry, granting a\u00a0freeze\u00a0of the rule.<\/p>\n
A key playbook for banks has been to file cases in conservative jurisdictions where they are likely to prevail, according to\u00a0Lori Yue, a Columbia Business School associate professor who has studied the interplay between corporations and the judicial system.<\/p>\n
The Northern District of Texas feeds into the\u00a05th Circuit\u00a0Court of Appeals, which is \u201cwell-known for its friendliness to industry lawsuits against regulators,\u201d Yue said.<\/p>\n
\u201cVenue-shopping like this has become well-established corporate strategy,\u201d Yue said. \u201cThe financial industry has been particularly active this year in suing regulators.\u201d<\/p>\n
Since 2017, nearly\u00a0two-thirds\u00a0of the lawsuits filed by the U.S. Chamber of Commerce challenging federal regulations have been in courts under the\u00a05th Circuit, according to an analysis by\u00a0Accountable US.<\/p>\n
Industries dominated by a few large players \u2014 from banks to airlines, pharmaceutical companies and energy firms \u2014 tend to have well-funded trade organizations that are more likely to resist regulators, Yue added.<\/p>\n
The polarized environment, where\u00a0weakened\u00a0federal agencies are undermined by conservative courts, ultimately preserves the advantages of the largest corporations, according to\u00a0Brian Graham, co-founder of bank consulting firm Klaros.<\/p>\n
\u201cIt\u2019s really bad in the long run, because it locks in place whatever the regulations have been, while the reality is that the world is changing,\u201d Graham said. \u201cIt\u2019s what happens when you can\u2019t adopt new regulations because you\u2019re terrified that you\u2019ll get sued.\u201d<\/p>\n
\u2014 With data visualizations by CNBC\u2019s Gabriel Cortes.<\/em><\/p>\n<\/p>\n Buried in a roughly 200-page quarterly\u00a0filing\u00a0from\u00a0JPMorgan Chase\u00a0last month were eight words that underscore how contentious the bank\u2019s relationship with the government has become. The lender disclosed that the\u00a0Consumer Financial Protection Bureau\u00a0could punish JPMorgan for its role in Zelle, the giant peer-to-peer digital payments network. The bank is accused of failing to kick criminal accounts off […]<\/p>\n","protected":false},"author":0,"featured_media":10308,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[4],"tags":[],"class_list":["post-10307","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-business"],"_links":{"self":[{"href":"https:\/\/businesstriumphs.com\/index.php\/wp-json\/wp\/v2\/posts\/10307","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/businesstriumphs.com\/index.php\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/businesstriumphs.com\/index.php\/wp-json\/wp\/v2\/types\/post"}],"replies":[{"embeddable":true,"href":"https:\/\/businesstriumphs.com\/index.php\/wp-json\/wp\/v2\/comments?post=10307"}],"version-history":[{"count":0,"href":"https:\/\/businesstriumphs.com\/index.php\/wp-json\/wp\/v2\/posts\/10307\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/businesstriumphs.com\/index.php\/wp-json\/wp\/v2\/media\/10308"}],"wp:attachment":[{"href":"https:\/\/businesstriumphs.com\/index.php\/wp-json\/wp\/v2\/media?parent=10307"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/businesstriumphs.com\/index.php\/wp-json\/wp\/v2\/categories?post=10307"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/businesstriumphs.com\/index.php\/wp-json\/wp\/v2\/tags?post=10307"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}