Convenience has consequences – POLITICO | marketrealtime.com


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Democratic lawmakers are planning to grill the nation’s top bank CEOs this week over claims that they’ve failed to adequately protect consumers who’ve lost money to scams on Zelle — a consortium-owned instant payments app that ballooned in popularity during the pandemic.

Washington’s drubbings of Wall Street’s bosses have always offered lawmakers a plum opportunity to kick dirt on the banking industry’s — we’ll politely say — complicated history when it comes to consumer protection.

And even with big banks bracing for an economic downturn, trade associations and Hill lobbyists say they expect Democrats on the Senate Banking and House Financial Services committees to focus on how peer-to-peer payment systems have made it easier for scammers to fraudulently induce unsuspecting customers into making irreversible payments.

Key Democrats on those committees have already made it abundantly clear that Zelle is among their major concerns.

Sens. Bob Menendez of New Jersey and Elizabeth Warren of Massachusetts earlier this year fired off letters to Zelle’s parent, Early Warning Services — along with its owners, Bank of America, Capital One, JPMorgan Chase, PNC, Truist, U.S. Bank and Wells Fargo — hammering the companies for abdicating their “responsibility for fraudulent transactions, leaving consumers with no way to get back their funds.”

Meanwhile, the House Financial Services Committee’s majority staff produced a memo for Wednesday’s hearing that name checks Zelle and cites a New York Times story that alleged “fraud has flourished on the platform.” The Senate Banking Committee’s Democratic staff on Monday released a pair of “snapshots” on PNC and Truist that linked to a similar report.

Banking trade associations are preemptively mounting a defense in background briefings with reporters, arguing that proposals to require banks to cover losses incurred via instant payments would do little to stamp out fraud. They’re also producing research that could shift the focus toward fintechs and other non-bank payments businesses.

The Bank Policy Institute, which represents the largest U.S. financial firms, released data showing that Zelle has a lower share of disputed transactions than its nonbank competitors, including PayPal, Venmo and Cash App, according to a survey of eight BPI member banks. Just 0.06 percent of Zelle transactions are disputed on average — three times higher than PayPal and six times higher than Cash App, the group said.

They also pointed to an August Morning Consult survey showing 89 percent of adults who have been victims of fraud were satisfied with their bank’s response.

“The primary focus of policymakers should be to reduce fraud, not to reallocate the resulting losses while fraudsters keep their gains,” they said.

But consumer advocates argued that the banks are just trying to change the conversation.

“If big banks are going to compare themselves to the worst offenders in payments, then they are already losing the argument,” said Renita Marcellin, senior policy analyst at Americans for Financial Reform.

“Their entire argument is built around trying to distract us from their responsibility for fraud in services that they themselves offer their own customers,” she added. They attack CFPB almost daily for wanting to update Reg E [the federal rule that covers electronic transfers] to shield consumers from unauthorized transactions. That change would give big banks a real incentive to fight fraud, just as they do with credit cards.”

IT’S TUESDAY — Remember, this week is a marathon, not a sprint. And today is the day to carb load, my friends. Also, send us your tips, story ideas and feedback to [email protected] and [email protected].

Housing starts and building permits data released at 8:30 a.m. … Senate Banking hearings on tightening Russian sanctions at 9 a.m. … House Financial Services hearings on alternative payment systems at 10 a.m.

Tune in to POLITICO Live at 4 p.m. today to watch Sam interview Rep. Patrick McHenry (R-N.C.), Electronic Frontier Foundation Special Counsel Marta Belcher, Healthy Markets Association President and CEO Tyler Gellasch and Peter Van Valkenburgh of Coin Center at our “Writing the Rules of Crypto” event.

ADMIT IT — Our Declan Harty: “A top Wall Street cop is calling on regulators to cut down on the practice of routinely allowing corporate wrongdoers and fraudsters to settle charges without admitting guilt. In the latest salvo against the ‘neither-admit-nor-deny’ practice that is common in financial settlements, CFTC Commissioner Christy Goldsmith Romero said Monday that regulators need to force more defendants to publicly acknowledge their misdeeds, calling it an “important enforcement tool” that “has become dull with disuse.”

WHY WALL STREET LOVES RAILROADS — NYT’s Niraj Chokshi and Peter Eavis: “In recent years, some of the biggest names on Wall Street have made significant investments in railroads, reaping big stock gains as railroads reported higher profits. But the underlying strategies that strengthened railroads’ bottom lines have caused friction with customers, regulators and particularly workers — giving rise to a contract dispute that threatened a nationwide shutdown of the railway system.”

CALPERS WOES — FT’s Josephine Cumbo: “Calpers, the biggest public pension plan in the US, admitted a decision to put its private equity programme on hold for 10 years had cost it up to $18bn of returns as it announced an overhaul of its governance. In a frank assessment of past failings at the $440bn retirement system, chief investment officer Nicole Musicco said the scheme serving 2mn Californians had suffered from ‘frequent changes’ to its strategy that had ‘detracted’ from its return profile.”

BONDS ON BALANCE — WSJ’s Akane Otani: “When interest rates were at rock bottom, as they were after the 2008 financial crisis and then again after the pandemic, it was easy for investors to justify putting money in the relatively risky stock market. The returns they would get from stocks would almost always beat what they could get from government bonds yielding close to nothing—leading Wall Street to declare ‘there is no alternative’ to stocks. That dynamic has been upended this year.”

ERIC ADAMS CELEBRATES? — WSJ’s Peter Grant: “Workers are returning to U.S. offices at the highest rate since the pandemic forced most workplaces to temporarily close in 2020, as infection rates continue to fall and more companies intensify efforts to bring employees back.”

ACTUALLY, I TAKE THAT BACK — POLITICO’S Erin Durkin: “Mayor Eric Adams said a looming ‘financial typhoon’ is leading him to slash the budgets of city agencies across the board. ‘Every expert said that we are getting ready to enter a financial typhoon. Every expert. Not just my budget director,’ Adams told reporters when asked about the latest round to cuts. ‘We have a potential $10 billion budget deficit in the out years. Just think about that: $10 billion.’”

POWELL’S INFLATION WHISPERER — WSJ’s Nick Timiraos: “[Fed Chair Jerome] Powell lauds [former Fed Chair Paul] Volcker’s legacy not because of the precise tactics he used, but because ‘he had the courage to do what he thought was the right thing,’ he said this spring at a news conference. ‘If you read his last autobiography, that really comes through.’”

WHEN RATES GO UP — From Bloomberg’s Joe Weisenthal, here’s how much a new monthly mortgage payment has surged in 10 U.S. Metros.

PERILOUS — Bloomberg’s Rich Miller: “Central banks are intent on driving the world economy perilously close to a recession. Late to see the worst inflation in four decades coming, and then slow to crack down on it, the Federal Reserve and its peers around the globe now make no secret about their determination to win the fight against soaring prices — even at the cost of seeing their economies expand more slowly or even shrink.”

AnnaLou Tirol, former deputy director of Treasury’s Financial Crimes Enforcement Network, is joining O’Melveny on Oct. 3 as a partner in its white collar defense and corporate investigations practice, and in the firm’s fintech and national security groups. She previously served as acting chief of the public integrity section in the Justice Department’s criminal division.

Anya Coverman has been named the new president and CEO of the Institute for Portfolio Alternatives. Coverman has served since 2017 as IPA’s senior vice president of government affairs and general counsel. She was previously deputy director of policy and associate general counsel at the North American Securities Administrators Association.

High energy prices are lashing European industry, forcing factories to cut production quickly and put tens of thousands of employees on furlough. The cutbacks, though expected to be temporary, are raising the risks of a painful recession in Europe. — NYT’s Liz Alderman

Turkish lender Denizbank said on Monday it was not able to provide service in the Russian payments system Mir, becoming the second lender to suspend such business after a U.S. crackdown on those accused of helping Moscow skirt sanctions. — Reuters’ Ebru Tuncay

Investors expected sticky inflation to lift gold prices this year. Instead, the opposite happened. — WSJ’s Hardika Singh



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