THURSDAY DECEMBER 31, 2020 VOL. 185 No. 251 AMERICANBANKER.COM Follow us on Twitter @AmerBanker

OceanFirst chief eyes possible Getting tougher 5 merger of equals next year Chris Maher recently unloaded loans hurt Enforcement activity at the consumer bureau has risen in the two by the coronavirus shock, convinced he years since Kathy Kraninger took the helm of the agency in late was freeing the New Jersey company of 2018, but has yet to return to its Obama-era peak baggage that could impede a large M&A deal. CFPB enforcement actions This assertive move makes him one of our community bankers to watch in 2021. Page 6 See story on page 2 Eleven fintech M&A 60 6 deals that defined 2020 The year 2020 was disruptive and chaotic. 56 50 And while it derailed or delayed some companies’ plans for growth, it also created 40 44 42 opportunities for new combinations — or, at 38 the very least, didn’t slow them down. Page 7 30 32 27 House Dems demand fee 20 22 7 waivers for new stimulus cards Eleven Democrats on the Financial Services 10 11 Committee have asked the heads of the 8 Treasury Department and IRS to eliminate 0 service charges tied to debit cards used to 2012 2013 2014 2015 2016 2017 2018 2019 2020 distribute COVID-19 relief. Page 8 Source: CFPB Chase’s latest deal bets on 8 loyalty over cash rewards The motivation behind JPMorgan Chase’s dailybriefing Stimulus law may put purchase of the rewards company cxLoyalty 3 disputes over PPP agent is clear — travel spending and rewards have fees to rest for banks suffered greatly during the pandemic — but How far left will The new legislation includes a provision another problem Chase is tackling with this 1 CFPB swing in 2021? sparing lenders from having to pay such fees acquisition is the need to wean people off The Consumer Financial Protection Bureau is on Paycheck Protection Program loans, except cash rewards. Page 9 headed for more disruption in the new year in cases where they agree in advance with with a Democratic administration likely to borrower representatives to do so. Page 4 FHFA looks to reverse several GOP-backed policies. More 9 modernize GSE appraisals aggressive relief for mortgage borrowers, a How will SEC complaint The agency’s request for input will shape rollback of Trump-era rulemakings and yet 4 affect banks’ relationships how mortgages underwritten by Fannie Mae another realignment of CFPB offices will all with Ripple? and Freddie Mac handle appraisals and curb be on the table. (See chart above.) Page 2 The Securities and Exchange Commission’s risk. Page 9 accusation that Ripple broke securities laws Fed extends Main Street raises questions about the future of banks’ Remote work gives 2 program to process more loans ties with the company. Page 5 10 ransomware hackers Treasury Secretary Steven Mnuchin a new line of attack approved the extension of the Main Street By upgrading permissions and defining Lending Program, which offers loans access, firms can get ahead of the new to midsize companies affected by the threat, a chief information security officer pandemic, to Jan. 8. Page 3 writes. Page 10 THURSDAY DECEMBER 31, 2020 AMERICANBANKER.COM PAGE 2

some immediate and others more long-term. Freddie’s exemption. ENFORCEMENT ACTIONS Kraninger’s response to the pandemic has The second QM rule allows “seasoned” been to offer regulatory relief to financial loans held on bank balance sheets for an firms. For example, she promised not to issue extended period to receive QM status if they How far left enforcement actions to credit card issuers or meet other criteria. cite them in supervisory exams as long as they But consumer advocates have some will CFPB make good-faith efforts to resolve consumer misgivings about the QM rules and are likely billing disputes during the pandemic. A new to have the new acting director’s ear. It is not acting director would likely reverse such yet clear the extent to which the QM rules will swing in policies. be reassessed, tweaked or further delayed by “Consumer debt is going to be a gigantic a Biden CFPB, experts said. 2021? issue and a lot of work needs to be done around credit reporting,” said Ira Rheingold, More penalties ahead By Kate Berry executive director of the National Association Of all the expected changes, financial firms December 29, 2020 of Consumer Advocates. “A new acting are bracing for increased enforcement and a With a new Democratic president set to director will use the bully pulpit to get out return to stiffer penalties and fines. When take office in January, the biggest question there and tell consumers that the CFPB will Kraninger took over the CFPB two years facing the Consumer Financial Protection protect them in a lot of these areas.” ago, she listed enforcement last among her Bureau entering 2021 is: How far will the A new director would also quickly have to priorities. A new acting or permanent director pendulum shift back? make a decision about whether to preserve could make enforcement a top priority. After three years of Trump-appointed two recent final rules revising the definition Since then, enforcement actions have officials at the bureau undoing much of the of a “qualified mortgage.” The so-called QM been on an upswing, a sign that Kraninger agency’s Obama-era policies, the CFPB’s rule is one of the CFPB’s most consequential is committed to penalizing institutions for focus could boomerang back to tough rulemakings, affecting what types of “safe” violations. In a press release in December, enforcement and aggressive rule writing mortgages can be made by banks and lenders. Kraninger touted the $1.45 billion in total rather quickly, some officials said. The twin QM rulemakings could consumer relief and $270 million in civil Now that a Supreme Court ruling has radically affect the booming housing money penalties resulting from the 66 CFPB made it easier for presidents to install CFPB market by redefining certain underwriting enforcement actions issued in 2019 and 2020 chiefs of their choosing, President-elect Joe qualifications for getting a home loan. combined. Biden is expected to appoint a new acting Of immediate concern is that come July, Even so, Democratic lawmakers accused CFPB director either on or shortly after Jan. Fannie Mae and Freddie Mac will lose an Kraninger year of failing to extract sufficient 20. Current Director Kathy Kraninger is exemption that has allowed them to purchase monetary penalties from bad actors. expected to be fired or resign, although some loans with debt-to-income ratios above 43%, CFPB enforcement had ground to a halt Republicans are pushing for a legal battle a carve-out that the mortgage industry has for a year under former acting Director Mick over who would succeed her. lobbied heavily to keep. The first QM rule Mulvaney, whom the Trump administration With a change in leadership, many predict replaced DTI with a new set of factors based installed in late 2017 to succeed Cordray. the agency’s agenda for the new year could on a loan’s price, which was seen as a way Many of the actions brought by Kraninger — quickly resemble that pursued by former to ease the transition away from Fannie and including lawsuits against Citizens Financial CFPB Director Richard Cordray during the Obama administration. “Everybody is expecting a more aggressive Established 1836 One State Street Plaza, 27th floor, New York, NY 10004 and active CFPB on a number of fronts,” said Phone 212-803-8200 AmericanBanker.com Eamonn Moran, of counsel at the law firm Morgan Lewis and a former attorney in the Editor in Chief Alan Kline 571.403.3846 Copy Editor Neil Cassidy 212.803.8440 CFPB’s Office of Regulations. Managing Editor Dean Anason 770.621.9935 The immediate focus will be on aiding Reporters/Producers consumers who have been harmed Executive Editor Bonnie McGeer 212.803.8430 Laura Alix 860.836.5431, Kate Berry 562.434.5432 financially during the COVID-19 pandemic, Washington Bureau Chief Joe Adler 571.403.3832 observers said. Mortgage servicers, credit Executive Editor, Technology Miriam Cross 571.403.3834 bureaus, debt collectors and auto lenders are Penny Crosman 212.803.8673 Jim Dobbs 605.310.7780 expected to land in the CFPB’s crosshairs. BankThink Editor Rachel Witkowski 571.403.3857 “There will likely be more mortgage- John Heltman 571.403.3847, Allissa Kline 716.243.2679 Community Banking Editor Paul Davis 336.852.9496 related investigations and a laser beam focus Hannah Lang 571.403.3855 on what servicers are doing not to harm Contributing Editor Daniel Wolfe 212.803.8397 John Reosti 571.403.3864, Gary Siegel 212.803.1560 consumers,” Moran said. Digital Managing Editor The year ahead is going to present many Christopher Wood 212.803.8437 Jackie Stewart 571.403.3852, Kevin Wack 626.486.2341 challenges for whoever leads the agency,

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Group and Fifth Third Bancorp — were filed director. Chopra was the CFPB’s former initially under Cordray. student loan ombudsman and, if he gets the MAIN STREET LENDING Tony Alexis, a partner at the law firm job, is likely to reverse Kraninger’s policy of PROGRAM Goodwin who heads the firm’s consumer having that office focus solely on the private financial services enforcement practice, said student loan market. enforcement actions could spike simply as a U.S. consumers owed $1.55 trillion in Fed extends result of the CFPB’s likely focus on mortgage student loan debt in the third quarter, with servicing issues. federal loans making up 90% of the total. Main Street “There are a lot more nonbank mortgage Warren and Sen. Bernie Sanders, I-Vt., want originators than banks within the CFPB’s Biden to forgive up to $50,000 in student loan jurisdiction and historically enforcement debt per borrower. program to agencies take an inflexible line when there “It’s a big issue for Warren, and there has are more entities to enforce perceived not been much from the bureau on student process more violations,” said Alexis, a former CFPB loans, which will be top of mind for a new assistant director who headed the Office of acting CFPB director,” said Moran. Enforcement. “It takes about a full quarter to The CFPB also is expected to work loans start those investigations, and I would think more collaboratively with other regulatory next year will be pretty active.” agencies, including other banking regulators, By Hannah Lang Fair lending and student loans could also the Department of Education and state December 29, 2020 be high on the agenda for a Democratic- attorneys general. The bureau also is expected WASHINGTON—The Federal Reserve appointed director. to partner with state agencies including is extending its middle-market business “Fair lending is going to be a big priority,” California’s recently renamed Department of rescue program to Jan. 8 in an effort to give said Lucy Morris, a partner at Hudson Cook Financial Protection and Innovation. the central bank more time to process loans and former CFPB deputy enforcement that have been submitted leading up to the director. Rulemaking reversals program’s close. Under new leadership, the CFPB could As for rulemakings, consumer advocates The Main Street Lending Program was get an organizational makeover as well. A are pushing for a repeal of both the payday previously set to end Dec. 31, after Treasury new director would be able to hire senior lending and debt collection rules. Secretary Steven Mnuchin requested that the managers. Many expect a changing of the An acting director may seek to reverse Fed return all unused funds appropriated by guard in middle management since some of Kraninger’s final payday rule that eliminated the Coronavirus Aid, Relief and Economic Kraninger’s key hires lack union protection. ability-to-repay standards imposed in a 2017 Security Act to backstop several emergency “The Democrats believe in empowering regulation under Cordray. One complication, lending programs, including Main Street. the staff to do the job and believe in the however, is that the rule continues to be the The Fed initially pushed back on the career public servants and sense of mission,” subject of ongoing litigation in Texas that request, arguing that the programs should Morris said. “It’s been a real struggle to get could hamper an outright repeal. Meanwhile, stay in place until the economy was on a more things done in enforcement.” two recent debt collection rulemakings that certain path to recovery, but later agreed to Under Mulvaney, political appointees were are largely backed by the industry could be return the money. The disagreement drew embedded at the agency. He also realigned reassessed and tweaked. the attention of lawmakers, who passed a certain offices at the agency that resulted “Both of those rulemakings, since they are stimulus package last week that included a in the Office of Fair Lending having less fresh, are probably up for reconsideration,” provision to prevent the Fed from restarting authority — a restructuring that would likely Moran said. any of the CARES Act-funded facilities. be reversed under a Democratic appointee. Among other changes, the CFPB also could Still, Mnuchin approved the Fed extending “They have a bureaucracy in place that look to expand its supervisory authority over the Main Street Lending Program — which has been depressed and demobilized so they additional markets. The Dodd-Frank Act gave offers loans to companies with either up will have to rebuild trust and structure,” said the bureau the authority to supervise “larger to 15,000 employees or up to $5 billion in Rheingold. participants,” and some expect the bureau to annual revenue — for an additional week into A new CFPB acting director would likely move ahead with a rule covering installment 2021. The extension will “allow more time to be picked from a short list of candidates who loans, an area that was shelved under process and fund loans” that were submitted all have the backing of the bureau’s architect, Mulvaney. Such a move would bring fintech to the Fed on or before Dec. 14, the Fed said Sen. Elizabeth Warren, D-Mass. By statute, lenders under the CFPB’s umbrella. in a press release Tuesday. an acting director must have previously been “They can put out a proposal that covers The Federal Reserve Bank of Boston, which Senate-confirmed for a different job or have the largest participants in installment is administering the Main Street program, held a senior position at the bureau for at lending and after a 60-day period of public had previously instructed lenders to submit least 90 days. comment, they finalize it,” said Morris. “It’s loans by Dec. 14, adding that it was unlikely One leading contender is Rohit Chopra, not as hard as a rulemaking because it’s not any loans submitted after that date would be a commissioner on the Federal Trade as controversial and the statute provides for able to be processed in time. Commission and a former CFPB assistant additional supervisory authority.” As of Dec. 23 the Main Street program

For up to date and complete coverage go to AmericanBanker.com THURSDAY DECEMBER 31, 2020 AMERICANBANKER.COM PAGE 4 had purchased almost $15 billion in loans, have repeatedly ruled against the agents, the lender’s consent. according to the Fed’s weekly balance litigation has persisted, according to Richard “We ... want to make sure there is a clear sheet. Though a far cry from the $600 billion Gottlieb and Brett Natarelli, attorneys at the understanding of how the lender-agent- allocated for the program, activity picked law firm Manatt who blogged on the issue last borrower relationship works and that it is up in recent weeks. Data the Fed released week. being acted on in good faith,” the American earlier this month showed that as of Dec. 2 “It’s still being litigated,” Gregory Cook, a Bankers Association wrote July 31 in a letter to the program had purchased about $6 billion partner at Balch & Bingham in Birmingham, the SBA and the Treasury Department. in loans. Ala., said in an interview. “It has not been “It’s good to bring clarity to this matter,” abandoned by plantiffs’ counsel.” John Asbury, president and CEO of the $20 In one of the most recent decisions, Radix billion-asset Atlantic Union Bankshares in LITIGATION Law PLC v. Silicon Valley Bank, a federal Richmond, Va., said Tuesday. “In our mind, judge in Arizona on Dec. 15 dismissed a what [the stimulus package] really does is Scottsdale, Ariz.-based law firm’s claim for it simply avoid frivolous lawsuits. The last Stimulus a 1% fee for helping arrange a $291,000 PPP thing the industry needs is a crisis of frivolous loan. A member of the firm had signed the lawsuits being filed.” law may put application, identifying himself as a borrower “It really wasn’t a factor for us. We saw very representative. few instances of so-called agents raising their Even so, Judge Dominic Lanza of the U.S. hands saying, ‘You owe us,’ “ Asbury added. disputes over District Court for the District of Arizona noted Judge Lanza’s decision mirrored one in Radix neglected to enter into an agreement August, when U.S. District Judge T. Kent PPP agent with the $97 billion-asset Silicon Valley before Wetherell II ruled four banks were not required the close of the PPP loan in question. to pay agent fees to a Florida accounting firm “This is not the first case addressing whether that sued them. fees to rest PPP lenders have a mandatory obligation That same month, a federal judicial panel to pay fees to agents,” Lanza wrote. “To date, rejected an application to consolidate 62 class for banks every court to have addressed this question actions involving PPP fees. has concluded that no such obligation exists.” Now, the new stimulus package seems By John Reosti Jonathan Frutkin, Radix’s principal, said likely to settle the issue once and for all. December 29, 2020 his firm would forgo attempts to collect the “The amendment plainly undermines The new stimulus package may finally put fee it sought, but added that many agents plaintiffs’… legal theories that somehow placed an end to a class of litigation that has pestered might be forced to turn to their clients to seek on lenders the onus to pay undisclosed agents banks for months. compensation. or, even where disclosed, those that assisted A provision in the law signed this week by The roots of the disputes between banks borrowers without seeking an agreement from President Trump states explicitly that the only and the professional firms that sought agent the lender to pay,” Gottlieb and Natarelli wrote. agent fees that Paycheck Protection Program fees can be traced back to PPP’s early days, “We expect courts to apply the language lenders are required to pay are those “which when both groups were struggling to process with full retroactive effect because Congress the lender directly contracts with the agent.” an avalanche of applications from desperate said so expressly. Likewise, we expect the The provision, moreover, is backdated to borrowers. In the program’s first phase, statute will survive the usual constitutional March 27, potentially driving a final nail in between April 3 and April 16, the SBA, which challenges,” Gottlieb and Natarelli added. the coffin of dozens of lawsuits that borrower is administering the Paycheck Protection Cook reached a similar conclusion. agents have filed seeking a cut of banks’ PPP Program as part of its 7(a) program, approved “My opinion is the [agents] will walk away” fees. nearly 1.7 million loans for $342 billion. from their lawsuits, Cook said. That revenue stream is significant. The Radix submitted the loan at the heart of Their attorneys will likely opt for a similar stimulus legislation directs the Small Business its lawsuit with Silicon Valley, of Santa Clara, course. Administration to pay lenders the lesser of Calif., on April 5. “Plaintiffs’ counsel are persistent capable $2,500 or 50% of proceeds on loans under “A lot of agents like us put a lot of time into lawyers, but because they are persistent and $50,000, 5% on loans between $50,000 and this,” Frutkin said in an interview. “Banks capable I think they will analyze the situation $350,000, 3% on loans between $350,000 and wanted agents to do the work. “They were correctly” and realize pursuing the litigation is $2 million, and 1% on loans greater than $2 getting tons of applications. Having them probably fruitless, Cook said. million. arrive well organized and with the proper A spokesman for the American Institute Borrower agents, many of them small documents was valuable to them.” of Certified Public Accountants declined to accounting firms, have filed more than 60 suits Many banks paid agent fees without comment. involving more than 100 banks — including question, Frutkin said. Besides clarifying the fee issue, the new JPMorgan Chase, Citigroup, Truist Financial Banking advocates, however, argued stimulus law includes a $284.5 billion and other major banks — seeking payment many of the lawsuits were not on the level, appropriation for renewed PPP lending and from lenders for assistance they provided involving agents who did little work and expands streamlined forgiveness for PPP clients who received PPP loans. Though courts often claimed a role in a transaction without loans up to $150,000.

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is respectable,” he said. “And I believe that Citi, predicted that very few banks will use CRYPTOCURRENCIES there is a need.” cryptocurrencies like XRP in international But Wan, who is now a digital advisory payments because of the market risk that board member to the technology company cryptocurrencies carry. How will SEC Box, had reservations about XRP even then. The SEC’s complaint seems to bear out “At the time it was still a huge unknown,” banks’ cautious stance on XRP. complaint Wan said. “I would argue that it’s still a huge According to the complaint, Ripple unknown.” has made its money not through selling The SEC case will affect Ripple’s software, but through the sale of XRP. affect banks’ relationships with banks, he said. In 2019, for example, Ripple earned $23 “Banks are built on the notion of trust,” million through sales of its xCurrent and relationships Wan said. “Banks are incredibly sensitive to xVia software, but it raised $200 million by a perceived lack of trust for any technology selling XRP to investors. platform that is being used for money “In other words, the overwhelming with Ripple? movement.” majority of Ripple’s revenue came from its An ATB spokesperson said the bank has sales of XRP, and Ripple relied on those sales By Penny Crosman not engaged with Ripple since 2016. to fund its operations,” the complaint states. December 29, 2020 BBVA conducted a similar pilot with In addition, according to the complaint, Banks that use Ripple’s software for cross- Ripple in 2017 but also did not push it one of Ripple’s original founders, Chris border payments, including PNC Financial forward. The bank declined to comment on Larsen, made $450 million from sales of Services Group, Bank of America and Banco the SEC’s case. XRP he gifted to himself when he and his Santander, got some unwelcome news last Santander, a large Spanish bank, has been co-founders created the initial 100 billion. week when the Securities and Exchange using Ripple’s xCurrent software for cross- From April 2017 through December 2019, Commission slapped Ripple with a 71-page border payments since 2018. The bank does Ripple CEO Brad Garlinghouse has sold complaint. not use XRP. PNC went live with xCurrent more than 321 million of the XRP he was The complaint casts a harsh light on how at the end of 2019. Bank of America has given when he joined the company and has the company raises money through the sale partnered with Ripple since 2016. All three netted $150 million. of digital tokens called XRP. declined requests for comment. Ripple did According to the SEC, Ripple executives not respond to a request for comment. Ripple’s potential defense have sold 14.6 billion units of XRP for more Jay Dubow, a partner at Troutman Pepper The accusations leveled by the SEC have than $1.38 billion to fund the company’s who formerly worked at the SEC, pointed been swirling around Ripple for years, in operations and acquire personal wealth out that Ripple’s software is separate from multiple class actions brought by investors without registering their offers and sales of the company’s XRP sales. and in off-the-record conversations among XRP with the SEC. Those actions have broken “So long as the company has the ability people who follow the business. several securities laws, the complaint says. to handle support for the software, there Ripple and Brad Garlinghouse are The SEC seeks to permanently ban Ripple shouldn’t be any issues,” Dubow said. likely to argue in court, as they have in and its leaders from selling unregistered public comments in the past, that XRP is a XRP, make defendants “disgorge all ill- U.S. banks have steered clear of XRP decentralized digital currency. gotten gains” from the transactions and Ripple has long urged banks to use XRP In a blog posted last week, Garlinghouse impose unspecified civil money penalties. as a mechanism for moving money around argued that XRP is not a security because What does this mean for the banks that the world. “XRP is not an ‘investment contract.’ XRP work with the San Francisco company? Using Ripple’s xRapid software, banks holders do not share in the profits of Ripple In the early days of Ripple and XRP, some could use their own local currency (say, or receive dividends, nor do they have voting banks were bullish on both. U.S. dollars) to buy XRP. Then they could rights or other corporate rights. Purchasers The capital markets division of Royal buy the currency of the foreign country with receive nothing from their purchase of XRP Bank of Canada, a former Ripple partner, that XRP and use that to make the payment, except the asset. In fact the vast majority enthusiastically endorsed Ripple and XRP in instead of using a network of correspondent of XRP holders have no connection or a 2018 report called “Imagine 2025.“ banks. relationship with Ripple whatsoever.” ATB Financial in Edmonton started Euro Exim Bank, which is based in St. Brian Klein, a partner at Baker Marquart piloting Ripple’s xCurrent software for Lucia and London, said last year that it who has represented cryptocurrency cross-border payments in 2016. Tim Wan, planned to start using XRP for cross-border companies in similar cases in the past but who at the time was director of innovation payments. The company did not respond to is not involved in this case, said the SEC’s at the $43 billion-asset ATB, saw Ripple a request for comment. allegations are untested. as a software company that was trying to No U.S. bank uses XRP in this way yet, at “There’s obviously a complete other side replace the current methods of international least not publicly. of this story that hasn’t been told yet and money movement (basically, Swift) with a In an interview last year, Manish Kohli, deserves to be heard,” he said. “The case more efficient and cheaper way — “which global head of payments and receivables at could represent an existential threat to

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Ripple because of the penalties the SEC is to take aggressive action on credit. Hancock seeking. Unfortunately, just the filing of this COMMUNITY BANKING Whitney in New Orleans reported a sizable case could also permanently damage XRP. loss in the second quarter after deciding to That mere allegations by the SEC could be sell most of its energy loans. the death blow to a cryptocurrency is very OceanFirst But it has been Maher’s comments about unfortunate.” pursuing an MOE that have drawn more The SEC has settled two cases similar to chief eyes attention to OceanFirst. It shouldn’t be a big this one, Klein said. surprise, though, since the company had In June, the U.S. District Court for the developed a reputation as a serial acquirer Southern District of New York approved possible before the pandemic. It bought two banks in a settlement with the messaging software January. company Telegram, whose unregistered merger of Maher said community banks must offering of digital tokens called Grams become even more efficient to free up violated securities laws, according to the funds to invest in digital services and the SEC. Telegram agreed to stop selling equals next cybersecurity so they can compete with Grams, to return more than $1.2 billion to bigger lenders — a need that has been investors and to pay an $18.5 million civil year highlighted by the ongoing pandemic. penalty. In May, the company shut down its A merger with an institution of roughly cryptocurrency operation. By Jim Dobbs the same size would help OceanFirst meet In October, a federal district court December 29, 2020 that challenge at a time when relatively weak agreed with the SEC that Kik Interactive’s OceanFirst Financial in Red Bank, N.J., valuations are precluding midsize banks unregistered offering of digital tokens called was among a handful of banking companies from making more traditional acquisitions. Kins in 2017 violated federal securities laws. that took aggressive steps to stay ahead of Maher’s reasoning is sound since an MOE Kik was banned from offering unregistered coronavirus-related credit shocks — and would let two banks essentially swap shares in tokens and will pay a $5 million penalty. CEO Chris Maher is hoping the effort pays off a low-premium deal, said Scott Carmelitano, “The SEC has been bringing a lot of in 2021. banking and capital markets deals leader at actions against cryptocurrency companies The $11.7 billion-asset OceanFirst recently PwC. That factor could lead to more deals for a number of years now,” Klein said. “I sold $81 million of loans at a nearly 20% among like-sized banks. Doing so would free think the SEC has unfortunately chosen discount in a move that contributed to a large up a combined company to make long-term to use enforcement as a tool for regulating third-quarter loss. Most banks have so far investments. rather than issuing clear guidance.” opted to hold onto their loans as they come Mergers of equals “will play an important He would prefer to see regulators like the out of their initial deferral periods. role as banks strive for critical mass,” SEC work with Congress to create laws to While the effort spooked investors — Carmelitano said. “To do digital well, it’s govern cryptocurrency. OceanFirst’s stock fell by 11% in the week very expensive. From that perspective, scale “Cases can take years to work themselves after it reported the loss — Maher, who is becomes hugely important.” through the courts,” Klein said. “And even also the company’s chairman, said it was the For OceanFirst, Maher said he is looking when the SEC notches wins, as it did with right thing to do to clear the decks so his team for profitable banks with operations outside Telegram and Kik, the district court rulings could take advantage of opportunities next its current footprint, which stretches from are not binding on other circuits or even year. He has made it clear that one possibility Philadelphia to New York. A deal is more other courts in that same circuit. What you is pursuit of a merger of equals. likely in the second half of the year. have is a tea-leaf-reading process instead of “No question we were out ahead of the “Our operating assumption is that it clear guidance.” pack,” Maher said of the loan sale and will take until around Memorial Day to get quarterly loss. enough people vaccinated to end this and “We are absolutely open to anything that bring on a new normal,” Maher said. “We will create a path to greater shareholder hope to see a brisk pickup in activity from value,” he added. “Scale and tech matter. We there — with pent-up demand unleashed all see it. If we find a like-minded strategic and increased opportunities” for organic partner, potentially of a similar size, we will growth and consolidation. explore it and see if we could get it done.” While OceanFirst’s shares have recovered from the recent shock, Maher must still prove to investors that his aggressive moves were the right ones to gain enough leverage for a potential merger. For that reason, he is one of American Banker’s community bankers to watch in 2021. To be sure, OceanFirst isn’t the only bank

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Visa spent much of the year fighting to with NBQ Corporate SLU to acquire Pagantis FINTECH complete its $5.3 billion purchase of Plaid, a SAU and PMT Technology SLU for €50 data aggregator that had sometimes run afoul million (about $59 million) to expand into of major banks. Its latest battle is with the France, Italy and Spain — a direct challenge 11 fintech Justice Department, which raised antitrust to Klarna, one of the dominant European buy concerns. now, pay later providers. M&A deals Visa claims the Justice Department has But the instant credit market also had one “gerrymandered” its assessment of the or two blemishes, such as Klarna needing to payments market to artificially inflate Visa’s explain marketing emails that surprised and that defined market share and power. According to Visa, angered consumers who did not intend to the Justice Department bases its theory sign up for them. 2020 on the idea that buying Plaid would be anticompetitive because of Visa’s dominance Digital payments’ global growth By Daniel Wolfe in the online debit market. Visa notes in the Amid the global explosion of e-commerce December 29, 2020 filing that online debit payments are only and demand for digital money transfers, Visa The year 2020 was disruptive and chaotic. one category of a broad range of payment announced in October that it is acquiring And while it derailed or delayed some types available to consumers making online YellowPepper to help drive tokenization and companies’ plans for growth, it also created purchases, including credit cards, PayPal, real-time payments in Latin America. opportunities for new combinations — or, at Apple Pay, Google Pay and ACH transfers. YellowPepper’s platform enables financial the very least, didn’t slow them down. Suspicions about Plaid’s motives in institutions to launch account-agnostic Digital payments, instant credit and other leveraging consumer banking data surfaced solutions that include tokenization, virtual pockets of the payments industry proved over the last year from banks including PNC, cards and push payments. Demand for more ripe for consolidation. But the payment which expressed concern with the way Plaid secure mobile commerce solutions is being companies that sought to consolidate also collects data through “screen scraping” fueled by a strong growth in smartphone encountered economic, regulatory and other methods when it sued Plaid. TD Bank recently ownership in Latin America, as well as hurdles. filed a trademark lawsuit against Plaid. fears over shopping in stores as COVID-19 This story was compiled from reporting is experiencing a spike in new cases across by PaymentsSource writers including John Buyers pick up Wirecard’s pieces South America. Adams, Kate Fitzgerald, David Heun, Michael Wirecard AG was awash in scandal and The acquisition of YellowPepper builds on Moeser and Daniel Wolfe. financial stress that followed months of a prior 2018 investment of $12.5 million by reports of more than $2 billion in accounting Visa in YellowPepper’s Series D round. Can you buy loyalty? irregularities, questions about whether Travel spending was hit hard during the clients actually were clients, the resignation Amex’s recipe for Kabbage pandemic, and many travel loyalty cards and arrest of its CEO, a move to insolvency In August, American Express said it expanded their rewards options in a bid to and the prospect of Visa and Mastercard would buy “substantially all” of the online keep customers engaged even when they cutting ties with the Munich company. lender Kabbage, but not its loan portfolio, can’t redeem their miles for airfare. In the aftermath of this scandal, many in a deal that instead focused on technology This trend has spilled over into the M&A companies picked up choice pieces of and talent. By October, Amex’s plan for the realm: JPMorgan Chase announced in the Wirecard’s global business: Spain’s Banco company was clear. final week of December that it is buying Santander acquired technology assets of “Kabbage is going to accelerate our Stamford, Conn.-based cxLoyalty, a major Wirecard’s European merchant payments efforts in small business, from a platform credit card loyalty platform, in a bid to enrich business in November; Railsbank, an open perspective, and will help us create an its own card loyalty programs when travel banking and payments technology firm, SME digital banking platform, which is all resumes after the global pandemic. struck a deal in August to buy the U.K.-based inclusive,” Stephen J. Squeri, the chairman Chase will gain a full-service travel agency Wirecard Card Solutions unit; and Wirecard and CEO of American Express, said during an plus the gift card, merchandise and points- North America, the former Citi Prepaid Card earnings call. bank operations of cxLoyalty Group Holdings, Services, went up for sale in June (in October, Through Kabbage, Amex will offer more which will operate as a new Chase business Wirecard North America rebranded itself as cash-flow management tools to small- unit. Financial terms of the acquisition, North Lane Technologies). business clients, while also encouraging which is expected to close imminently, mom-and-pop operations to borrow money weren’t disclosed. Signs of consolidation in instant credit for working capital products. This focus on The deal means that over time users of As 2020 put pressure on individuals’ cash small businesses is part of Amex’s strategy to Chase’s Ultimate Rewards loyalty program flow, installment lending grew in popularity ride out the pandemic, which has had a stark will have access to enhanced travel around the world. Notable deals included impact on its earnings. Amex reported third- experiences through cxLoyalty’s platform. Alliance Data’s October agreement to quarter net income fell 40% to $1.1 billion, purchase the point of sale installment lender from $1.8 billion a year earlier. Visa faces pushback over Plaid Bread for $450 million and Afterpay’s deal

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Elavon’s well-timed digital deal companies related to the pandemic. This have asked the Trump administration to Payment processor Elavon purchased Sage move led to lawsuits by shareholders of both waive fees and simplify the terms on debit Pay on March 11. Two days later, Elavon’s companies, but WEX also obtained a $400 cards for the upcoming round of stimulus entire workforce was operating remotely as million investment from Warbug Pincus in payments. the coronavirus forced it into lockdown. June to free up cash flow. In a letter sent on Tuesday to the Treasury Though many companies would see this Department and the Internal Revenue as disruptive, for Elavon it demonstrated Square deals Service, Reps. Cindy Axne of Iowa, Rashida the importance and timeliness of bringing Square has long been an acquisitive Tlaib of Michigan and nine other members of on a company that specializes in digital company, and 2020 didn’t slow it down. In the panel said changes are needed to make it commerce. February, Square bought Dessa, a Toronto- easier to use the cards if they are to be sent Elavon, a unit of U.S. Bancorp, bought based machine learning startup that out again. Dublin-based Sage Pay — now called specializes in advanced risk management. Congress approved a new round of $600 Opayo — to gain a stronger small-business In November, Square bought the tax payments, which was signed into law on presence in the U.K., specifically in helping business o fCredit Karma with the goal of Sunday. The House has since passed a convert customers to digital technology. The enhancing Square’s Cash App, which had measure to increase the payments to $2,000, coronavirus pandemic put Opayo in high performed well for Square throughout which has some support in the Republican- demand throughout England, Scotland and the pandemic. Square’s $50 million deal controlled Senate, but it’s unclear whether Ireland during a growing pandemic. for Credit Karma’s do-it-yourself tax filing the bill will be approved. capabilities also cleared the way for the About 4 million prepaid debit cards were Apple’s next big idea for payments Department of Justice to approve Intuit’s $7 sent out in May for the last round of payments. With its midyear acquisition of Montreal- billion acquisition of the rest of Credit Karma. MetaBank, which has served as the Treasury based Mobeewave, Apple placed a long-term Department’s financial agent for its U.S. debit bet on where it sees the payments industry Worldline buys Ingenico card program since 2016, mailed out those headed. 2020 kicked off with a multibillion- cards. The Sioux Falls, S.D., bank was the Mobeewave’s technology uses NFC to dollar fintech deal: Worldline’s $8.6 billion issuer and Money Network Financial was the turn iPhones into mobile card acceptance agreement to purchase Ingenico. The dea, service provider. terminals without a hardware dongle announced in February, would create the While the cards were intended to get funds popularized by the likes of Square, Clover fourth-largest payments company and a to those with no access to a bank account and iZettle. With Apple now set to pack this juggernaut in merchant services. faster than paper checks, critics said the cards capability into the iPhone alongside P2P The news echoed earlier deals in the came with fees and complicated language payments through Apple Pay Cash and credit market, such as Fiserv’s acquisition of First that need to be changed this time around. services introduced last year with Apple Card, Data, FIS’s purchase of Worldpay and Global A Treasury spokesperson did not Apple is rapidly developing a formidable Payments merger with TSYS. Over the course immediately comment on the letter. payments stack that should raise concerns of 2020, these companies emphasized that No fees were charged on the first out- among both mobile point of sale providers their M&A activity gave them the diversity of-network ATM withdrawals, but $2 were and larger processors. they needed to endure the pandemic. charged for each additional one. A fee of The timing is ideal, as Apple is now 25 cents was charged each time a recipient positioned to become the payments checked the balance. Another $7.50 was service for a new generation of iPhone- STIMULUS BILL charged to anyone who threw the card away based micromerchants climbing out of the thinking it was fraudulent and asked for a pandemic. Many smaller shops that didn’t replacement. sell online or didn’t accept digital payments House Dems The lawmakers asked “to remove all costs are adding the capability as a way to not only to use these cards” or to ease restrictions to survive the pandemic but to serve a growing demand fee make it easier to transfer the entire balance population of digital-first consumers. to a checking account if a recipient has access to one. WEX’s canceled M&A waivers for “These cards are intended to provide B2B payments — especially business support for Americans during COVID-19, travel — were hit particularly hard by the new stimulus and any fees are likely to simply add insult to coronavirus pandemic. WEX, a company injury,” the lawmakers said in their letter. active in fleet, corporate and health care The debit cards also carried additional payments, was set to grow its B2B payments cards fees for merchants processing the cards for business in January with a $1.7 billion pair of transactions. Though the lawmakers did not acquisitions. By Jon Prior specifically mention these fees in the letter, By June, WEX had backed out of both deals December 29, 2020 the surge in remote purchases has reignited — Australia’s Optal and Singapore-based Nearly a dozen Democratic lawmakers a fight among merchants, card issuers and eNett — because of negative effects on those on the House Financial Services Committee the Federal Reserve over whether rules

For up to date and complete coverage go to AmericanBanker.com THURSDAY DECEMBER 31, 2020 AMERICANBANKER.COM PAGE 9 governing debit card processing fees are practice that can drive more engagement than being sidestepped during the pandemic. cash or gift cards. FHFA The lawmakers also asked that mandatory PayPal in recent years has begun accepting arbitration clauses in the terms of the original credit card rewards points from major issuers, cards be removed to make a potential class- exponentially expanding consumers’ options FHFA looks action complaint “a more efficient way to for redeeming points. Retailers like Amazon resolve disputes.” The lawmakers argued that also accept reward points at checkout. to modernize many recipients will likely run into problems “Using credit card rewards for purchases given the number of cards expected to be sent is a trend that’s here to stay, because it out. provides an ongoing shopping opportunity GSE and tends to keep the consumer connected to the rewards program,” Covello said, noting appraisals LOYALTY AND REWARDS that e-commerce is the dominant purchase channel for pay-with-points programs. By Paul Centopani The broad shift to digital commerce during December 29, 2020 Chase’s latest COVID-19 will also benefit pay-with-points The Federal Housing Finance Agency has card rewards programs, Covello predicts. opened a 60-day request for input on possible deal bets on “Even when we move back to shopping in adjustments to the government-sponsored stores, the lines will stay blurred and people enterprises’ appraisal practices. will expect to be able to pay for all kinds of Announced Monday, the request seeks loyalty over things with credit card rewards points via comments on appraisal form design and mobile devices too,” he said. the Uniform Appraisal Dataset, automated cash rewards But pay-with-points programs used alone models and waivers, fair and unbiased could run the risk of making credit card rewards valuations, and the overall modernization of By Kate Fitzgerald seem too generic and interchangeable, the process. The end goal is to skirt risk while December 29, 2020 weakening the connection to the company improving originations and loan quality for The motivation behind JPMorgan Chase’s providing the rewards, Covello said. Fannie Mae and Freddie Mac. purchase of rewards company cxLoyalty is “The most impactful rewards programs “Modernizing the appraisal process has clear — travel spending and rewards have offer consumers choices, and doing that well the potential to create a more streamlined suffered greatly during the pandemic — but is the best way to keep credit card customers and accurate collateral valuation process. another problem Chase is tackling with this engaged,” he said. But if modernization is not properly acquisition is the need to wean people off cash The assets Chase is purchasing from adopted, it could have negative unintended rewards. cxLoyalty Group Holdings include a full- consequences,” FHFA Director Mark Calabria Cash is perennially the most popular service travel agency, along with a central said in a press release. “Today’s RFI will redemption option with consumers, but it platform to manage points for gift cards, improve FHFA’s understanding of how doesn’t engage and retain them as well as merchandise and cash back, building on the enterprises can improve the appraisal other perks, according to loyalty experts. services Chase already offers through its process while at the same time ensuring they “Consumers like cash rewards because Ultimate Rewards loyalty program for its credit don’t take on unintended or inappropriate they’re transparent, but cash is generic and and debit cards. Chase did not respond to levels of risk.” doesn’t foster a long-term connection with any inquiries for this story by deadline. In adherence to social distancing particular card brand or company,” said Len CxLoyalty will operate as a new company measures, the FHFA relaxed appraisal Covello, CTO with Engage People, a Canadian within Chase, and over time its rewards guidelines for GSE underwriting back in firm supporting loyalty rewards programs for platform and tools will be available to Chase’s March. In further reaction to COVID-19, the major retailers and financial institutions. Ultimate Rewards users. This gives Chase enterprises suspended bulk sales along with For the last several years, banks and significantly more resources to compete with limiting representation and warranty relief merchants have been trying to encourage American Express and other major issuers, for appraisals in May. consumers to redeem card rewards points each of which offers rewards programs The potential appraisal modifications from for merchandise, travel and experiences to spanning cash back to high-end travel and the RFI would ensure updated valuation create longer-range points-earning goals that entertainment experiences. procedures for handling the coronavirus are most closely connected to the company Chase previously used cxLoyalty for help in 2021. Additionally, the changes will help providing the rewards, Covello said. with travel rewards and booking services, but the housing finance system adapt to the Offering gift cards for specific merchants in 2018 the card giant switched to Expedia, increasingly digitized post-pandemic world. is better than cash, because there’s greater CNBC reported. Several other major credit The FHFA has been busy in the lead-up to opportunity to personalize the reward, card issuers including Citi, Capital One, U.S. the year’s end. Notably, the agency extended according to Covello. And another strategy Bancorp and Mastercard have also used the end date for multifamily forbearances, gaining momentum is enabling consumers cxLoyalty’s services for aspects of managing proposed Fannie Mae and Freddie Mac to directly make purchases with points, a their rewards programs. have living wills along with bank-like

For up to date and complete coverage go to AmericanBanker.com THURSDAY DECEMBER 31, 2020 AMERICANBANKER.COM PAGE 10 liquidity rules, and extended its foreclosure considering a more distributed workforce to to ensure that employees’ relationships moratorium all in the past four weeks. provide resilience, agility, and a far broader to critical company systems are better The GSE appraisal questions will be open reach in the battle for talent. understood and permissions reduced using to feedback in the Federal Register until Feb. However, this change has impacted the the principles of least privilege. 26, 2021. attack surface of financial institutions in a Identity and access management has long less obvious manner that is reflected in an been a general weakness within financial uptick in targeted ransomware campaigns. services, which was accepted due to the PAYTHINK To understand what is happening, we need to complexities involved in managing access consider the human aspect. over time. In a world where the attack surface We know hacker teams leveraging is now extended to thousands of homes, we Remote ransomware are highly aware of the way require better visibility, governance and that human behavior can make an attack relationship management to reduce the work gives more successful as evidenced by the high paths through which malware can propagate proportion of ransom triggers (the final stage to our critical systems and datastores. of the attack) being launched on weekends ransomware when staff are least able to respond. Marc Woolward is chief technology officer Ransomware is not just about the technology, and chief information security officer for hackers a but also about deployment tactics. vArmour. This article originally appeared in Let’s think about how the threat model PaymentsSource. q changes for a financial institution with a newly new line of distributed workforce. Instead of accessing a © 2020 Arizent and American Banker. firm’s critical systems and customer data from All rights reserved. attack a small number of secure corporate offices, the attack surface now extends to the private By Marc Woolward residences of thousands of employees. December 24, 2020 Putting aside the network and endpoint The move to a more distributed workforce security challenges, we need to think about has brought many blessings and is likely to the differences between the focus we become normal within financial services observed in the workplace compared with and payments. However, when it comes to our lives at home surrounded by our loved addressing the challenges of the “human ones, social media and constant news about attack surface,” prevention is better than the developing pandemic and economic the cure or submitting to double extortion situation. attempts. In such a scenario, the human attack 2020 has been transformational to the way surface extends to employees who aren’t we live and work. And those changes to our necessarily in the same state of mind as working patterns must not be underestimated they would be at the office where focus in terms of changing cyber risk, including how can be more intense and the atmosphere we protect ourselves against ransomware, more professional. And this change in the which is making another resurgence — human attack surface is what hacker groups particularly in targeted attacks from highly are targeting with phishing emails that organized hacker groups. constitute the initial penetration phase of When authorities first advised people the ransomware attack. They are relying on to stay home during the pandemic, many a momentary lack of focus in order to begin organizations’ infrastructure, cloud and a successful attack, which is all they require. security teams swung into action to Financial institutions in particular are accommodate remote work across the entire addressing this challenge in two major workforce, with thousands of employees ways. Since this is a people problem, there and contractors connecting through is a need to develop better home working their ordinary enterprise identities and practices and ensure they are shared across permissions via VPN, remote desktops and the organization. cloud access security brokers, or CASBs. Practices such as drawing boundaries The ability of these teams demonstrated between personal and professional are vital with their businesses and the flexibility in this respect, for example ensuring that they showed in modifying long-established employees do not begin to conduct personal working practices was remarkable. Many business on company email accounts. financial institutions, in particular, are Next, organizations are adopting methods

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