In-Payments - a bi-weekly: Trump (and Musk..) bring regulatory spotlight for 2025

Starting at the end of last year and continuing into the weeks leading up to the new U.S. presidential administration assuming power, there has been what seems like a flurry of settlements and other regulatory actions targeting payments and fintech companies.  This heightened activity may serve dual purposes: resolving ongoing litigation under the previous administration and setting the stage for potential shifts in regulatory priorities under the new leadership.

The sheer volume of activity in recent months is quite marked relative to what appears to be a more positive investor outlook for the sector based on a “regulation light” Trump administration. It’s fair to question to what extent this is likely or even desirable.

“Delete CFPB,” wrote Elon Musk on X in late November. Abolishing the CFPB (Consumer Financial Protection Bureau in the US) now seems a distinct possibility, for instance, which would have been good for Cash App and Zelle in hindsight (see more below) - though we would argue the CFPB is rather important for consumer protection and, therefore, for the longer-term health of the industry.

The payments and fintech industry has historically flip-flopped between rules and self-regulation. Compliance is tough to resolve. HSBC pulled its cross-border currency, Zing, this week only 12 months after launch referencing managing "evolving regulation" as a factor (a win for WISE). We’ve seen the likes of Wells Fargo backing away from its acquiring partnership with Stripe given onboarding concerns (as reported in The Information) and the current dissolution of the Adyen-Cash App deal. Often investors are unaware of whom is partnering with whom and where and what the regulatory risks really are.

Outcomes of regulation, meanwhile, are often times hard to predict. Proposals to cut interchange “should trickle down to consumers”, though it’s far from clear whether this will play out. Crypto regulation is a whole other discussion; “casino economics” are often polarising, though blockchain’s ability to solve for pain points in the industry are hard to deny.    

We run through recent impactful headlines and revisit ongoing regulatory processes that are expected to take critical steps forward in the first part of this year. We would expect a variety of outcomes, a few headline calls, but ultimately a still difficult path for investors to navigate.

• Block agrees to pay $255M to federal and state regulators for Cash App deficiencies: In Jan-25, Block agreed to pay the CFPB a $55 million penalty and to compensate victims with up to $120 million. The claim from CFPB is that Block employed relatively weak security protocols for CashApp, and as a result, put its users at risk. Separately, Block also agreed to pay an $80 million fine imposed by states that alleged its money transfer service Cash App violated banking laws. As a result of the settlement with states, Block is required to take corrective actions, including hiring a consultant to review “the comprehensiveness and effectiveness” of its programs to comply with the Bank Secrecy Act and related anti-money laundering laws.

With Cash App growth numbers (MAU growth) already seemingly having hit a plateau, these corrective actions will most likely delay initiatives for regaining more aggressive growth metrics.

• CFPB Suing Zelle Banks: In Dec-2024, CFPB sued the operator of Zelle, Early Warning Services, EWS, and three of the nation’s largest banks - Bank of America, JPMorgan Chase, and Wells Fargo - for failing to protect consumers from widespread fraud on America’s most widely available peer-to-peer payment network. CFPB claims Americans have lost more than $870 million over the network’s seven-year existence due to these failures, which include:
  • Leaving the door open to scammers - not having good identification methods that have allowed fraudsters to quickly create accounts
  • Allowing repeat offenders to hop between banks - once criminals were detected on Zelle, they were not prevented from joining a partnering bank
  • Ignoring red flags that could prevent fraud - defendant banks failed to investigate fraud complaints which could have been used to prevent further fraud and they failed to report fraud claims consistently or on-time
  • Abandoning consumers after fraud occurred - the defendant banks failed to properly investigate Zelle customer complaints and take appropriate action for certain types of fraud and errors.

This is very similar to the CFPB action that led to the Cash App settlement listed above. Disbanding the CFPB might bail out Zelle, otherwise we would foresee a similar outcome for Zelle/EWS and its key participating banks.

• Dodd-Frank amendment to debit fees. In Jan-2025, merchants (The Merchants Payments Coalition) and banks (American Bankers Association) continued sparring over Fed’s debit card fee proposal which would reduce the base debit interchange fee card issuers can charge by about 30% to 14.4 cents from 21 cents. While this proposal was put forth in October 2023 (updating the 2009 cost analysis), the Fed’s slow pace in implementing the rule changes may be related to the criticism that followed the proposal.

Interchange regulation remains much debated. Fee reduction proposals are driven by cost considerations (halving since 2009) and issuers are now “over-earning” according to the Fed; issuers can claim rewards have improved over the years to offset. Issuers lose, merchants gain, networks are unimpacted, whilst consumer benefits are unclear.

• CFPB Proposes Payments laws apply to online games. In January 2025, CFPB proposed an interpretive rule that means that video game companies that operate online gaming platforms must comply with the Electronic Fund Transfer Act.

The rule could impose new regulatory obligations on game companies, requiring updates to transaction systems, security measures, and dispute resolution processes, potentially increasing operational costs. The CFPB is seeking public input, including feedback from gamers, on these issues by March 31, 2025, and has established channels for complaints and whistleblower reports. Blockchain game companies are specifically urged to take note due to the focus on stablecoins and crypto assets.

This effectively would put video game companies under the same scrutiny as financial institutions. The 1978 Electronic Fund Transfer Act established rights for consumers who transfer money electronically, and includes the rights to refunds in some instances and the right to dispute transactions.

Operators of virtual gaming worlds don’t seem to offer the same protections as traditional financial institutions and this has led to theft, scams, fraud and money laundering. The implications for the already battered video game industry could be significant.

• CFPB considers broader ban on declined payment fees: In Jan-25, the CFPB decided to withdraw a rule proposal barring bank fees on certain declined transactions and instead plans to develop a more comprehensive approach that may involve restricting other “Non-Sufficient-Funds”/”NSF” fees. This rule was part of a broader push by the Biden administration to restrict so-called “junk fees” charged by various industries. Regarding the insufficient funds rules proposal, the CFPB had decided to bar the bank fees when consumers’ payments are “instantaneously declined” because it considered the toll an “abusive practice” under the Consumer Financial Protection Act.

The CFPB’s role is in question and Trump’s team has suggested it will be less restrictive in its approach to regulation. The above support for consumers seems well intended.

• ATM Fee Settlement: In November 2024, Visa and MasterCard, V/MC, settled a total $264.24 million class-action lawsuit for overcharging consumers with surcharges or swipe fees when they withdrew money from ATMs using their Visa or Mastercard debit cards specifically. The lawsuit alleges Visa and MasterCard, along with member banks, took the following unlawful actions:
  • 1) set interchange fees (also called "swipe fees") at artificially high levels
  • 2) imposed and enforced rules that limited merchants from steering customers to other payment methods
  • 3) insulated themselves from competitive pressures to lower interchange rates, thereby making money from consumers

Visa, MasterCard and the banks involved in this ATM fee class action lawsuit deny these allegations and have not admitted guilt, while the court has not decided who is right. However, the class action settlement was open to claims through Jan 22, 2025.

Though the settlement amount is not going to have any material financial impact on V/MC, coupled with the other regulatory actions targeting the networks it can definitely be seen as part of an increased scrutiny of its market practices and overall role in the payments ecosystem.

• Amex pays $230M to resolve DOJ allegations: In January 2025, Amex paid this hefty sum to resolve the allegations that, from 2014 to 2021, it entered “dummy” account information on behalf of businesses applying for credit cards and engaged in deceptive marketing. The latter included misrepresenting the rewards and fees attached to those cards and not being upfront about whether credit checks would be conducted without a customer’s consent. Additionally, American Express incorrectly told customers that fees on the wire service were tax deductible. In settling, American Express acknowledged the settlements and said it had ended the practices years ago.

We don’t see any material impact on Amex and its core business as a result of this.

In addition to the above recent headlines, we also want to check in on some of the more significant ongoing regulatory actions that made the news earlier in 2024 and most likely will move into new phases in the first half of 2025.

• Credit Card Competition Act (CCCA) Update: In Nov-2024, amid growing bipartisan support for CCCA), card executives spoke at a US Senate hearing titled, “titled “Breaking the Visa-Mastercard Duopoly: Bringing Competition and Lower Fees to the Credit Card System”. CCCA is a legislation that would require larger issuing banks (with $100 billion or more in assets) to offer a card network to merchants beyond Visa or Mastercard, all in an effort to bring down interchange costs. Chairman Dick Durbin (D-Ill.) and others in favor of the bill have argued that CCCA would introduce price competition in the market for interchange fees as a result of the routing alternatives. Meanwhile, Visa and MasterCard execs claim that interchange rates in the Act would “eradicate” the competitive dynamics of the marketplace “in favor of helping American Express”.

Regardless of its chances to get enough support to move forward, the key question for CCCA  is which player realistically could become a viable routing alternative to actually “break a V/MC duopoly”. 

Visa/MC interchange Settlement Update: In Mar-2024, it was announced that Visa and Mastercard had reached a $30+ billion settlement that would cover how interchange fees would be handled in the coming years. In June, a federal judge denied preliminary approval of that settlement. Meanwhile, a 2023 (sub) settlement for a $5.5 billion class action was given an extension until February 4th, 2025 to file claims.

Per previous commentary and notes, we believe a more punitive version of the $30B settlement will be reached in 2025, including the easing up of existing restrictions for “tender steering” by merchants.

DOJ targets Visa’s debit monopoly/dominance: On September 24, 2024 the Justice Department filed a civil antitrust lawsuit against Visa for monopolization and other unlawful conduct in debit network markets.

We think even under a new administration there’s a good likelihood of this moving forward given this is the culmination of a multi-year process and given firmly held views at the DoJ that Visa’s dominance is so egregious. 

• Visa lawsuit & Capital One / Discover Merger update: CapitalOne announced their intention to purchase Discover in February 2024 and this deal is expected to close in early 2025. The combined entity would be a viable alternative to Visa and Mastercard. There are seen to be clear parallels with the DoJ case here: if the DOJ blocks the Capital One-Discover deal while also going after Visa, “they’d be intellectually inconsistent,” said Todd Zywicki, professor of law at the Antonin Scalia Law School at George Mason University.

It feels like a more supportive anti-trust environment could sweep this one along providing a credible threat, over time, to the networks (and specifically the loss of Capital One Mastercard traffic to the new network).