Happy Sunday,
Fed minutes say “higher for longer.” CFPB survives court challenge, issues BNPL guidance, sues SoLo Funds. FDIC Chair to resign. Yendo, Footprint, and Majority announce funding rounds. PayActiv looking to sell minority stake. Synapse meltdown continues.
Keep your eye out this week for our Q1 Consumer Lending Review, keeping you up-to-date on what’s happening in marketplace lending and consumer credit.
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Fed Still Messaging “Higher For Longer”
Minutes of the latest Fed meeting show officials expect they’ll need to hold rates higher for longer in order to get inflation under control. Some members indicated they were open to further rate hikes, if inflation re-accelerates. Several Fed officials emphasized the need to see additional data to show that inflation is under control, before considering any rate cut.
CFPB Survives Court Challenge, Issues BNPL Guidance
The CFPB took a victory lap, after the Supreme Court ruled 7-2 that its funding structure is constitutional. The decision puts to bed a years-long dispute that called the Bureau’s very existence into question. CFPB Director Chopra told reporters after the ruling, “The CFPB is here to stay. Here’s what will happen next: The CFPB will be able to forge ahead with our law enforcement work.” Industry watchers expect an uptick in CFPB enforcement actions, now that it has put the court challenge behind it. But the payday lending trade group that originated the challenge said it will continue its fight, now focused on the remaining portions of the Bureau’s small-dollar lending rule that led to the court challenge. The focus now is on the rule’s prohibition on lenders attempting to debit borrowers’ accounts more than two times.
In other CFPB news, the Bureau released interpretative guidance that, it says, will treat pay-in-four buy now pay later products like “credit cards.” Specifically, the guidance says that BNPL users should enjoy the same protections around disputes and refunds that credit card users have. The interpretative guidance does not require BNPL providers to assess users’ ability to pay nor does it require furnishing data to the credit bureaus.
FDIC Chair to Resign, Pending a Replacement
FDIC Chair Martin Gruenberg announced he is willing to resign – if a replacement is confirmed by the narrowly divided Senate. The news comes after escalating pressure on Gruenberg, following the release of a damning report about a “toxic” workplace culture, including harassment and discrimination, at the FDIC. Pressure on Gruenberg to step down increased after two days of hearings last week, with Sen. Sherrod Brown (D-OH) saying the FDIC needed new leadership and “fundamental changes.” The White House said it would move quickly to nominate a replacement for Chair Gruenberg.
CFPB Sues SoLo Funds
The CFPB filed suit against lending platform SoLo Funds, alleging the company deceives borrowers about the cost of the loans it facilitates by using “dark patterns” and charging “tips” and “donations.” SoLo Funds itself isn’t a lender, but is a peer-to-peer platform that connects borrowers with investors who fund small-dollar, short-term loans. According to the Bureau’s complaint, although SoLo Funds markets its loans as “0% APR,” in reality, only 0.5% of loans on the platform carried no “tip” or “donation.” The CFPB suit also alleges SoLo Funds made false threats of reporting negative user data to credit bureaus and created a “social credit” score without adequate safe guards. SoLo Funds has also been the subject of several state enforcement actions, including in California and Connecticut.
SoLo Funds fired back, claiming it was “blindsided” by the suit and vowing to fight the Bureau. SoLo Funds cofounder and CEO Travis Holoway told PYMNTS in a statement, “As a new model, SoLo has diligently followed the rules, engaging with leading legal counsel and approaching regulators requesting collaboration since its inception.”
Fintech Funding: Yendo, Footprint, Majority, PayActiv
There was some GOOD news in fintech last week, believe it or not. Several fintechs reported new funding rounds. Yendo, which offers a credit card backed by users’ vehicles, raised a fresh $15Mn in equity and $150Mn debt facility. The debt capital is from i80 Group. Majority, a neobank for immigrants, announced it raised an additional $12.5Mn in equity and $7.5Mn in debt. The company says it has reached $40Mn in annual recurring revenue. Footprint, a KYC and onboarding automation platform, announced it has raised a $13Mn Series A, with the round led by fintech VC stalwart QED. Finally, earned wage access firm PayActiv is reportedly exploring the sale of a minority stake in the company, which was valued at over $500Mn in 2020.
Synapse Meltdown Continues, With End Users Caught in The Middle
Banking-as-a-service platform Synapse’s bankruptcy case continued last week, with Synapse and Evolve trading filings effectively pointing fingers at each other. According to Synapse’s filings, about 100 fintech programs and as many as 10Mn end users may be impacted, though some media outlets are reporting the number of impacted accounts may be significantly lower. End users of fintech programs powered by Synapse haven’t had access to their funds since May 11th, when Evolve Bank & Trust lost access to a key Synapse system and froze funds and payment processing as a result. Numerous fintechs have impacted, with teen investing and banking app Copper already shutting down its banking features, and crowdfunding platform Mainvest closing up shop altogether.
In the News:
Parents Are Feeling the Pain of Inflation and Child-Care Costs (Wall Street Journal, 5/21/2024) American parents are struggling with the high cost of child care.
CFPB calls out “price gouging” in credit reporting (American Banker, 5/20/2024) Director Chopra criticized price increases by FICO.
JPMorgan’s Consumer Business Is Doing Great. Its Customers Are Just OK. (Wall Street Journal, 5/21/2024) Chase’s customers are still spending, despite challenging conditions.
Will Stripe, Plaid and Klarna IPO this year? (Fintech Brainfood, 5/19/2024) Some fintech stalwarts give signs they’re prepping to go public.
JPMorgan borrows from First Republic playbook to add affluent clients (American Banker, 5/20/2024) JPMorgan looks to attract more affluent customers.
Marqeta, MoneyLion and Verituity: Adapting to the fintech downturn (American Banker, 5/21/2024) How the fintech downturn is playing out for three companies.
Lighter Fare:
Can Music Make Your Food Taste Better? (Atlas Obscura, 5/20/2024) What music pairs well with fish, anyway?