If the CFPB Went After Starbucks: Comments of the Week
May 22, 2015 7:30 AM
American Banker readers share their views on the most pressing banking topics of the week. Comments are excerpted from reader response sections of AmericanBanker.com articles and from our social media platforms.
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On the PayPal's $25 million settlement with the Consumer Financial Protection Bureau for allegedly forcing its credit product on customers without their consent:
"Good luck to all the technology companies entering a regulated industry. I am not saying the regulations are good or bad. I do feel level playing fields are good. Can you imagine Starbucks being regulated by Richard Cordray and Liz Warren? The brown goo would be $.45 versus $5.30!"
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On what would happen if Starbucks were regulated like banks:
"Under a Cordray/Warren regulatory regime, Starbucks might not even exist given the crushing expense of regulatory compliance. Those purveyors of fine coffee who did find a way to remain in business would be obligated to convey the following before allowing their customers to order: 'If you would like to have more than one cup of coffee in the future, we must: Determine your ability to pay for the coffee to ensure you spend no more than 5% or your gross monthly income on any coffee company's products including ours and anyone else's; require you to wait 45 days before purchasing another cup; and monitor, record and restrict your consumption to no more than one Grande per period. If you happen to have a loan on your vehicle, by the way, you may not order coffee in any size and must order a bottle of water. Please sign here to certify that you have read and understand these restrictions. Have a nice day."
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On how the case against PayPal refutes claims that fintech companies should be allowed to thrive without heavy regulation:
"How old school. Don't they realize that requiring new-breed companies to get consumer authorization, honor promotions and address disputes stifles innovation?"
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On the argument that regulators should include banks' implicit subsidies in their assessments of which institutions are systemically important:
"Bottom line, it's the markets' perception that really matters in designating SIFIs."
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On whether Sen. Richard Shelby's regulatory relief bill goes too far in its proposed changes to Dodd-Frank (<a href="https://twitter.com/MarkCalabria/status/601135986505056256" target="_blank">via Twitter</a>):
"Correct answer is that's if anything too modest and narrow, but sensible small step in right direction."
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On how to deal with "too big to fail" banks:
"Any bank in excess of $500 billion should be broken up. Should a bank that size fail, its assets can only be acquired by a larger bank, thus exacerbating the concentration of assets. Clearly, these mammoths violate antitrust laws."
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In response to a claim that currencies like Bitcoin that are untethered to central banks or governments tend to be more volatile (<a href="https://twitter.com/lightcoin/status/601051388496334848/photo/1?cn=ZmF2b3JpdGVfbWVudGlvbmVkX3VzZXI%3D&refsrc=email" target="_blank">via Twitter</a>):
"I strongly disagree with the subtle assertion that [government]/central bank currency is inherently stable."
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On a potential pitfall in the design of the Bitcoin blockchain:
"A word of caution however on the 'community of loyal developers' that it's relying on: the reward system has to be rethought, as to date it's been populated by a lot of hopefuls speculating on the get-rich-quick effect of [Bitcoin] (the pretend-currency): that incentive is likely to go away. 'Majority' systems come with the peril of instability."
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In response to the argument that big banks, like big government and big houses, are necessarily riskier than smaller options because it's harder to keep track of problems:
"Comparing the risk at large banks with the size of lawn is ridiculous a large bank can at least afford to fix things by allocating more resources to internal controls and risk management, just like an owner of a large lawn can afford to own a large mower."
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On whether big banks are actually using their vast resources to coordinate and trouble-shoot:
"The banks may be able to afford to fix things, but there is no desire to do so no one wants to pay the bill to do it, and whilst there are plenty of chief data officers, few have the wisdom or the remit to see the global picture. Big banks have disparate systems across continents that don't communicate, they have no software capable of extracting meaningful data, and no proper risk analysis. It's why one of them recently got fined for [anti-money laundering] deficiencies exactly replicating a fine from some years previous, and it's why one major European bank, despite throwing hundreds of millions of dollars at 'compliance' is now subject to Federal Reserve internal monitoring."
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On how improving big banks' technology systems could help prevent future failures:
"The TBTF business model did prove faulty, not because it was wrong to be big, global and diversified that is where the clients were going as well but because the revenue was pouring in faster than systems could be reengineered
Best to place society's bet on slowly reengineering TBTFs. Fixing the plumbing of these financial giants' technology ecosystem should be priority one. Transparency, automated regulatory oversight, efficiency and significantly lowered operational costs and risk would be the outcome."
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On two lawsuits claiming that Wells Fargo employees engaged in high-pressure tactics to cross-sell products and opened accounts for customers without their knowledge:
"This has been going on for a long time at Wells (and, to a lesser extent, at other large banks). How else do you explain reported cross-sell rates 2-3 times industry average, but balances and revenue per household about equal to others? There is intense pressure on front line staff to book multiple products to support Wells' cross sell claims. Executives may believe they create an ethical environment, but goals, incentives, penalties have led many employees to resort to unethical means."
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On whether regulatory efforts to end TBTF actually wind up entrenching the problem:
"Sooooo a TBTF bank needs massive government regulation while operating, then needs special bankruptcy provisions different than any other domestic operating entity along with massive government intervention in the resolution process in the event of failure. What kind of entity does that sound like to you?"
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