🧑⚖️ TECH REGULATION

The Bloom May Be Coming Off Silicon Valley's Rose

Is the era of free reign over for Silicon Valley over? Well, maybe.

The European Union levied a fine against Apple this week for "thwarting competition among music streaming rivals", notes the New York Times. The $2 billion fine is another sign, increasingly among many, that the tech behemoths are coming under more regulation and scrutiny.

In 2022, the European Union passed both the landmark Digital Markets Act (DMA), which regulates the large tech companies, and the Digital Services Act, which helps limit data collection on minors. “This represents a sea change in how we regulate the tech sector,” Greg Taylor of Oxford University told the Times. “Although the E.U. is the first out of the gate, other jurisdictions around the world are trying to do similar things.”

Meanwhile, in the United States, Amazon, Meta, and Alphabet all currently face or have recently faced anti-trust lawsuits by the DOJ. Proposed legislation by a bipartisan group of Senators has sought to prevent further anticompetitive behavior by tech companies. The American Online Innovation and Choice Act ultimately never passed, but has woken Silicon Valley up to the reality that Congress has an appetite for regulation.

Advocating for a metered approach, the Harvard Business Review writes of such regulation and antitrust lawsuits that they "may inadvertently tip the scales in favor of second- and third-place players who focus more on efficiency than innovation. …So before regulators intervene, they should think carefully about what exactly the desired outcome of antitrust action is and behave accordingly. On its own, a hobbled giant doesn’t create a thriving marketplace."

The Supreme Court

What's left to see is how the SCOTUS will deal with Silicon Valley. Late last month, the high court heard arguments for two cases addressing the issue of free speech on social media sites.

At the core of both Florida and Texas's laws prohibiting the restriction of speech by users on Facebook, TikTok, Instagram, X, and other large sites, is whether these platforms are similar to newspapers which exercise editorial control, or phone lines which operate as a common carrier.

According to the New York Times, Judge Andrew Oldham of the Fifth Circuit Court of Appeals, differentiated the two laws by writing that "'To generalize just a bit,' …the Florida law 'prohibits all censorship of some speakers,' while the one from Texas 'prohibits some censorship of all speakers' when based on the views they express."

“I wonder, since we’re talking about the First Amendment, whether our first concern should be with the state regulating what, you know, we have called the modern public square,” Chief Justice Roberts asked during the arguments.

THE VERDICT:

Two decades into the reign of Silicon Valley as the main growth engine of America's economy, it seems reasonable and rational that legislators are waking up to the need for regulation. If Silicon Valley is set on fighting it, they should instead embrace it as a sign of their industry’s maturation.

🏦 BANKING

Uncapping Late Fees

One man's credit card late fee is another man's profit center. Or so goes the argument by some of Wall Street's biggest banks who are gearing up to fight the Consumer Financial Protection Bureau's new rule capping credit card late fees at $8.

"For over a decade, credit card giants have been exploiting a loophole to harvest billions of dollars in junk fees from American consumers. …Today's rule ends the era of big credit card companies hiding behind the excuse of inflation when they hike fees on borrowers and boost their own bottom lines," Rohit Chopra, the agency's director, said in a statement.

But the banks and the US Chamber of Commerce are pushing back. According to Bloomberg Law, "the rule threatens to cut back on late-fee profits for big banks such as Capital One Financial Corp., JPMorgan Chase & Co., and Bank of America Corp. that have at least 1 million open accounts…" and the Chamber of Commerce said it will be filing a lawsuit "imminently".

The CFPB's rule is part of the Biden Administration's larger campaign against so-called "junk fees". Last year, the White House pushed for Congress to pass the Junk Fee Prevention Act that, in addition to credit card fees, took aim at "surprise fees" from hotels, excessive airline fees, and even early termination fees from utility providers. The bill will "provide millions of Americans with fast relief from these frustrating and costly fees," the White House stated. "This will not only save Americans billions a year, but make our markets more competitive—creating a more even playing field so that businesses that price in a fair and transparent manner no longer lose sales to companies that disguise their actual prices with hidden fees."

"On the surface, this is undoubtedly a good thing for credit cardholders," Matt Schulz of LendingTree told NPR of the new credit card rule. "However, the reality is that it will also increase the likelihood that banks raise other types of fees to make up for the lost revenue."

And its already affecting some financial services firms. Synchrony Financial, who partners with retailers and other companies on branded credit cards, told investors that "its late fee revenue could drop by $800 million from its fourth quarter 2023 levels should the rule take effect," reports Bloomberg. The company further warned that earnings per share could drop $0.15 to $0.25.

Regional Banking

Wall Street's anti-regulation push is playing out against the backdrop of yet another regional bank's collapse. New York Community Bancorp is on the verge of insolvency just one year after Silicon Valley Bank and First Republic saw their swift and spectacular implosions. In both last year's banking mini-crisis and the one playing out now, tighter regulations on financial institutions has been hailed as the solution.

“Today’s capital proposal could give the impression that undercapitalization of large banks is a major vulnerability in the U.S. banking system, or that higher capital levels would have addressed the management and supervisory shortcomings that contributed to the recent bank failures earlier this year,” Michelle Bowman, a member of the Federal Reserve Board of Governors, wrote in July 2023. “While there is more to learn about the recent bank failures, it seems apparent that these failures were caused primarily by poor risk management and deficient supervision, not by a lack of capital.”

THE VERDICT:

Amid record profits, it's hard to justify that late fees are essential to a bank’s business model. However, if it’s true, then a compromise of the capped amount should be a workable solution. Regardless, Wall Street’s allergy to any regulation at all seems to breed only more backlash and harsher regulations.