CFPB Set to End Mandatory Arbitration for Consumers

New York Times

The Times has a curtain-raiser on the Consumer Financial Protection Bureau's proposal to let consumers bring class-action lawsuits against banks and other financial-services companies, rather than be forced into mandatory arbitration. Read a concise account of the CFPB's proposal by American Banker's Kate Berry here. The proposal, if approved, would be a "major setback for banks, credit unions, credit card companies and many other financial firms," AB reports. In fact, the proposal would cover about 50,000 different firms.

The Times piece posits that the proposal is almost certain to take effect, since it doesn't require congressional approval. Alan Kaplinsky, a lawyer at Ballard Spahr who represents financial-services companies in arbitration disputes, said it will "spell the end of arbitration … and take away a benefit to consumers." Class-action lawsuits benefit primarily plaintiffs' lawyers, while the arbitration system is more efficient, Kaplinsky said.

A federal judge who has been critical of arbitration said the change is needed. "Class actions are the only way that companies can be brought to heel," said Berle Schiller, senior judge in U.S. District Court for the Eastern District of Pennsylvania.

Wall Street Journal

Has the banking industry's M&A tidal wave finally begun? Two deals announced this week — WesBanco's agreement to buy Your Community Bank and Investors Bancorp's proposed acquisition of Bank of Princeton — led "Heard on the Street" to speculate on the question. Investment banks and attorneys, hoping to generate a fee bonanza from an uptick in dealmaking, may see reason for hope from "the growing regulatory burden on small banks and the low-interest rate environment," the column said. These reasons are not new, but now might be the time for M&A dealmaking to take off because rates appear set to remain low for some time, "Heard on the Street" said.

Change may be forthcoming in the government's approach to auditing the auditors. The U.S. Public Company Accounting Oversight Board may shift to assessing an audit firm's overall performance, rather than trying to prevent deficiencies in the auditing process, according to PCAOB board member Jeanette Franzel. She is expected to release additional details during a presentation Thursday at Baruch College in New York. The Center for Audit Quality, which represents auditors, said it will wait for the details before responding.

Is it worth it to hire a consultant to help juice a crowdfunding campaign? A new study suggests the extra cost doesn't pay for itself. Campaigns launched using Kickstarter and Indiegogo, the two biggest sites, typically receive unsolicited offers of consulting services ranging from media relations to advice on using social media for promotion.

Many individuals who hired outside help for their campaigns said the services provided little, if any benefit. An academic study by a University of Pennsylvania researcher concurred.

Financial Times

Hong Kong has a "name and shame list" and JPMorgan Chase is on it. JPMorgan Securities was the financial adviser to Chinese pharmaceuticals concern Shenhua Health Holdings on its IPO. But JPMorgan's work on the deal ran afoul of the Hong Kong stock market's rules, for unknown reasons, and Shenhua's IPO application was rejected by the stock market.

Hong Kong's Securities and Futures Commission has warned investment banks they can't just check the boxes when filling out an IPO application, and IPO sponsors like JPMorgan are now legally liable for claims made in prospectuses. The "name and shame list" moniker comes from the fact that the Hong Kong stock market publishes a list of "returned" applications on its website, which includes the names of the sponsors. JPMorgan is the first global bank to appear on the list.

"You don't want to be publicly featured as a sponsor on this list," an unnamed lawyer told the FT. "Competitors will inevitably use this against them."

Washington Post

Goldman Sachs' attempt to infiltrate the low-dollar consumer loan market is the truest test of "whether or not the stigma ... of Wall Street's too-big-to-fail banks has faded," said Dennis Kelleher, president of Better Markets. After all, Bernie Sanders frequently name-drops Goldman Sachs in his rants against Wall Street.

Give it a few months and Goldman Sachs may decide it wants nothing to do with Joe Lunchpail. "Investing the funds of someone with $10 million or $20 million is very different than someone with a small savings account," said University of Pennsylvania finance professor David Becher.

Elsewhere ...

Crain's Chicago Business: Illinois Service Federal Savings & Loan in Chicago has obtained a $9 million equity investment from a Ghanian-American family. The $101 million-asset bank's transaction was approved by federal regulators on April 28. The Nduom family includes Paa Kwesi Nduom, a former partner at Deloitte & Touche.

Illinois Service was founded in 1934 to provide financial services to black migrants from the southern U.S. The bank remains a minority-owned financial institution. Illinois Service has suffered loan losses in recent years and it remains subject to a federal consent order that requires it to raise capital.