The Green Sheet Online Edition
April 4, 2025 • 25:04:02
Winds of change sweep through Washington
If there is one constant in life, it's that everything is subject to change. It's now fair to say that Americans – individuals and businesses – are getting an abject lesson in that fact with the change in governance ushered in by the 2024 election.
Approval of the acquisition of Discover Financial Services by Capital One Financial Corp. is one example. Then there is the plan for the Department of the Treasury to have a more active role in banking regulation. And there is the gutting of the Consumer Financial Protection Bureau and rules it adopted that would have put nonbank financial services providers on a more equal footing with their regulated competitors.
Capital One gets go-ahead to acquire Discover
The most noteworthy change, the green light for Capital One's acquisition of Discover, came when the Department of Justice disclosed it would not object to the plan. Approvals by the Office of the Comptroller of the Currency and the Federal Reserve, the two federal regulators with oversight responsibilities for Capital One, swiftly followed.
When the acquisition was announced last year, during the Biden Administration, the DOJ raised concerns regarding the impact on consumers who had no credit. Antitrust considerations were also voiced, since the $35 billion acquisition would create the largest credit card issuer in the nation, with roughly $250 billion in card balances.
After receiving approval, in a joint press release dated April 18, 2025, the companies said there will be no immediate changes to Capital One and Discover customer accounts and relationships. But Capital One's management has big plans, including, potentially, a push to end what has been seen as the Visa-Mastercard duopoly.
For years, merchants have complained that Mastercard and Visa, as the two major credit card networks, have moved in lockstep on fees. After the acquisition, competition from Discover could change that.
Richard Fairbank, founder, CEO and chairman of the board of Capital One, seemed to hint at that in a video accompanying the April press release. "This deal accelerates our long-standing journey to work directly with merchants to leverage our customer base, technology and our data to drive more sales for merchants, and greater deals for consumers and small businesses," he said.
Merchants, though, aren't convinced the deal will make a whit of difference. "Capital One-Discover combined will only be 3.5 percent of the credit card network market after the merger is done," said Doug Kantor, general counsel of the National Association of Convenience Stores.
"Nothing there helps with the swipe fee [interchange] problem."
Breathing life into Credit Card Competition Act?
Also, in September 2023, Kantor, an executive committee member of the Merchants Payments Coalition, called for passage of the Credit Card Competition Act.
Crafted by Senator Richard Durbin, D-Ill., and introduced in the last Congress with bipartisan support, the legislation would require card issuers to program credit cards to support merchant choice in processing. Specifically, cards issued by financial institutions with at least $100 million in assets would need to enable merchants to choose from two unaffiliated networks over which their card payments get processed, and only one of those networks could be owned by Visa or Mastercard.
J.D. Vance, then the junior Senator from Ohio, was one of two Republicans in the Senate to sign on as a cosponsor of the legislation. The other was Josh Hawley, R-Mo. Identical legislation introduced in the House also had two Republican cosponsors.
The legislation has yet to be introduced in the current session of Congress, although Sen. Durbin suggested he would do so. Passage would be difficult because it pits several important constituencies against each other: big banks, merchants and consumers.
Fed debit haircut may get sidelined
While the Federal Reserve generally is considered an apolitical part of government, it, too, could land in a political quagmire over a plan to reduce the cap on debit card interchange.
The current cap on debit interchange was ushered in by the Durbin Amendment to the Dodd-Frank Act, an omnibus law passed in response to the financial crisis of 2008. The cap – 21 cents plus 5 basis points (0.05 percent) of the ticket, plus up to 1 cent to cover investments in fraud prevention techniques/technologies – applies to financial institutions with more than $10 billion in assets that issue debit cards. It was adopted in 2011.
In November 2023, the Fed proposed lowering the cap to 14.4 cents plus 4 basis points and 1.3 cents to cover fraud prevention costs.
When the plan was submitted for public comment, the Fed said that going forward changes to the cap would be approved by the Board of Governors without public comment. More than 2,500 comments were submitted on the proposal. Financial institutions generally were opposed, arguing it was too great of a reduction. Merchants, while supportive of the reduction, generally commented that it did not go far enough.
Here's where politics comes in. Michelle Bowman, a former community banker and state bank regulator, was nominated by President Trump as Fed vice chair for supervision, where she would oversee Fed decisions relative to regulations. As a governor on the Fed Board, Bowman was the lone dissenter in 2023 to lowering the cap.
At the Fed, staff cannot present a proposal to the full Board without approval from the vice chair for supervision, Bowman – assuming her appointment to the position is approved by the Senate, which at this writing has not yet occurred.
Turmoil at CFPB
Where the bulk of the political turmoil relative to our industry is apt to occur is at the Consumer Financial Protection Bureau. Created by the Dodd-Frank Act, CFPB has few if any allies within the Republican party.
During President Trump's first term in office, the agency was effectively mothballed, and in early February 2025, the president fired the agency's director, Rohit Chopra. Since then, major rules that were awaiting implementation were scuttled, the agency's budget and staff were scaled back dramatically, and a new set of marching orders was put in place.
The CFPB's funding is controversial because, unlike most federal agencies, it does not get money from congressional appropriations. It is funded from the Federal Reserve, through the U.S. Treasury Department.
Although the CFPB is an independent agency of the Fed, the Secretary of the Treasury, currently Scott Bessent, can be appointed as acting director – a position Bessent held for a time earlier this year. Currently Russ Vought is acting director, a position he holds in tandem with Director of the Office of Management and Budget.
The Fed's operating budget comes from fees it charges banks for payment services and regulatory oversight. In Fiscal Year 2015, the CFPB received a $823 million budget from the Fed, and as of late last year it had about 1,700 employees. Most of those employees were let go under a February 2025 reduction in force.
At the time of this writing that reduction (to 200 workers) is mired in a legal battle. Still, the agency's fiscal year 2026 budget is expected to be much smaller than previously.
Several consequential rules adopted by the CFPB during the Biden Administration have been rescinded. In April, a judge for the U.S. District Court for the Northern District of Texas voided a CFPB rule that capped at $8 late fees that can be collected by credit card issuers.
The decision to cap late fees was controversial, and several groups representing businesses and banks had sued to stop it from going into effect. The CFPB had planned to fight the suit but declined to do so after Chopra's departure.
Since Chopra left the CFPB, it has also dropped a lawsuit filed against JPMorgan Chase, Bank of America, Well Fargo and Zelle, a peer-to-peer payment network owned by those three and other banks, and operated by Early Warning Services. The group was accused of failing to protect Zelle users from "widespread fraud." That lawsuit was filed in a U.S. District Court in Arizona, where EWS is headquartered.
The bureau also has backed off an interpretive ruling that would have subjected buy now, pay later transactions to Regulation Z. Reg Z is the federal rule set that covers consumer credit extensions. It includes requirements for account opening disclosures, billing statements, changes in terms and treatment of credit balances. That ruling was challenged by the Financial Technology Association in the U.S. District Court for the District of Columbia.
Big tech gets a pass on payments
Meanwhile, the Republican-led Congress put the kibosh on a CFPB rule to supervise big tech companies' payment apps. The rule was to apply to companies with apps handling at least 50 million transactions a year. As such, it would have applied to Apple Pay, Google Pay, PayPal, Square, and potentially X. (The social media platform that has made clear its plans to get into the payments businesses.)
The consumer watchdog agency, in approving the rule, estimated the most widely used among covered apps collectively were processing over 13 billion consumer payments a year.
The plan was for the CFPB to have supervisory authority over these companies, not regulatory authority. Thus, it would have been responsible for ensuring the companies complied with consumer protection laws, also ensuring that consumers were protected from fraud, that their sensitive personal information was adequately protected, and that they were protected from prolonged freezes and unnecessary deactivation (debanking).
The CFPB has similar authority over regulated financial institutions. Supervisory authority differs from regulatory authority. Agencies typically are assigned regulatory authority through lawmaking, and they create and enforce regulations over specific industries, like banks. The CFPB's proposed supervisory rule was hotly contested by big tech companies, and the law banishing the rule was authored by a pair of Republican lawmakers from Nebraska, Senator Pete Ricketts and Representative Mike Flood.
Giving big tech companies a pass on federal oversight of their payment apps would seem to give them an advantage over financial institutions bound by consumer protection laws. I reached out to Ken Musante, a long-time merchant sales professional and consultant for his take, and he seemed to agree.
"To the extent big tech wants to act like a big bank, the same rules should apply," Musante said. Noting that the rule would have applied only to apps handling 50 million transactions or more a year, he added "Companies processing this many transactions per year are effectively banking institutions, regardless of their designation." CFPB gets new marching orders
An April 16 memo from Mark Paoletta, chief legal officer at the CFPB, sets out the CFPB's priorities under the Trump Administration.
"To avoid the ever-increasing number of supervisory exams, which are multiplying the cost of running businesses and raising consumer prices, supervision shall decrease the overall number of events by 50 percent," Paoletta wrote in an internal memo that got posted to X.
Paoletta noted that the bureau's "focus will shift back to depository institutions, as opposed to non-depository institutions." And, he added, "actual fraud against consumers where there are identifiable victims with material and measurable consumer damages" and not just the "perception" that consumers made "wrong choices."
The memo listed several specific priorities. These include mortgages (top priority), fraudulent overcharges and fees, and providing redress to service members and their families. It also stated that the focus will be on getting money back for and returning it to consumers, rather than imposing penalties. 
Patti Murphy, senior editor at the Green Sheet, is president of ProScribes Ink. Her insights involving payments are a regular feature of the Merchant Sales Podcast.
Notice to readers: These are archived articles. Contact information, links and other details may be out of date. We regret any inconvenience.
