November 14, 2025 • 27 mins
Key takeaways from the end of the US government shutdown led this week’s episode of Bloomberg Intelligence’s Votes and Verdicts podcast. Nathan Dean and Duane Wright discussed the terms of the agreement and what they mean for the future of Affordable Care Act subsidies and companies like Centene and UnitedHealth. BI’s litigation and policy analysts also discussed other key developments, including the Consumer Financial Protection Bureau’s Nov. 11 notice that it can’t draw funds from the Federal Reserve while the central bank operates at a loss. Justin Teresi reviewed a Nov. 10 proposed class settlement between Visa, Mastercard and merchants involving about $38 billion in interchange-fee concessions and related policy changes.
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Episode Transcript
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Speaker 1 (00:15):
Hello, and welcome to the Votes and Verdicts podcast, hosted
by the Litigation and policy team at Bloomberg Intelligence, the
investment research platform of Bloomberg LP on the Bloomberg Terminal.
Bloomberg Intelligence has five hundred analysts and strategists working across
the globe and focused on all major markets. Our coverage
includes over two thousand equities and credits, and we have
(00:36):
outlooks on more than ninety industries and one hundred market industries,
currencies and commodities. This podcast series examines the intersection of
business policy and law, and today is our weekly look
at their litigation and policy catalysts that we're currently watching
and that we think will impact companies across a number
of different sectors. My name's Elliott Stein. I'm an analyst
(00:57):
with Bloomberg Intelligence covering litigation in the financial sector, and
I'm delighted today to be joined by several of my
Bloomberg Intelligence colleagues. As always, you can find all of
our research on the Bloomberg terminal at BI go. You
can find most of our litigation and policy research on
our dashboard which is available at DII laws go and
(01:19):
just the time stamp this because things do you always
seem to move pretty quickly, especially at least something's in Washington.
It is Thursday, November thirteenth. It is three eight pm
here in New York and in Washington. All right, let's
kick it off with a discussion about the shutdown, what
has happened, and what to be looking towards.
Speaker 2 (01:41):
Next.
Speaker 1 (01:42):
Let me bring in two of my colleagues down in Washington, DC,
Nathan Dean and Dwayne Wright. Nathan, Dwayne, how you guys
doing surviving?
Speaker 2 (01:51):
Actually, you know, the shutdowns over and traffic coming into
the city today was absolutely horrid.
Speaker 1 (01:57):
Wow. Okay, so there was a noticeable effects. I remember
when the shutdown started you said there was still a
fair amount of traffic.
Speaker 2 (02:03):
Yeah, you know, it wasn't like you know, it was
heavy for a Thursday, So you know, but we'll see
what happens. Opm ohpm were around nine o'clock this morning,
ordered everybody back to the office, so you know, start
I think traffic tomorrow will be pretty heavy as well.
Speaker 1 (02:19):
Yeah. So, Nathan, I mean this shutdown, I mean, you know,
a lot of questions come to mind. You know, maybe
first while, among other things, explain what the logic was
by the Democrats to sort of agree to this now
when they seem to be having so much momentum after
their election victory. But then I'm also sort of curious
what the terms of the deal are. What the terms
(02:41):
are of the deal, because it seems like something's got
funded for a whole year, but other things only until
the end of January. So why wouldn't we be back
here in the same position with another potential shutdown at
the end of January.
Speaker 2 (02:57):
Yeah, So what the deal was was there are twelve
appropriation bills that Congress has to fund every year, and
the deal was to fund three of those through the
rest of the fiscal year, so through September thirtieth, twenty
twenty six. And that's the USDA, so the agg Department
that is Veteran Affairs, and that's specifically the Congressional Operation.
(03:17):
So the salaries for congressional.
Speaker 1 (03:20):
Staffers and for congress people themselves, I assume.
Speaker 2 (03:23):
Well, congress folks got paid. Yeah, they were getting paid
during the shutdown.
Speaker 3 (03:26):
And that's why write the laws.
Speaker 2 (03:28):
Yeah, you know that, It's why some of the policymakers
will say that, you know, if I refuse to accept
this check, even though the check still has to come.
But anyway, so they funded three of those out of
the twelve through the rest of the fiscal year. But
the bulk of what we care about outside of the
farm aspect, the bulk of what we care about from
the investing angle, that's only funded through January thirty. First. Now,
(03:51):
the deal was essentially was to have a vote on
ACA subsidies in the Senate. I'll let Dwayne talk about that, yep,
because you know, Dwayne had a great note they put
out yesterday or the day before talking about his preview
of that. But you know, in addition here there were
eight Democrats that ultimately supported this deal, which got it
to across the sixty that you needed for the filbuster. Now,
(04:13):
the big question was is that why would the Democrats
do this? Well, the bulk of the party did not
agree to this, you know, the bulk of the party.
If you watched the Daily Show with John Stewart, there
was a lot of blasting and Democrats for this. If
there were a lot of anger amongst progressives for doing this.
And the question was that was, well, why should we
be the ones that are agreeing to a deal? If Virginia,
(04:34):
New Jersey and New York City come out so strongly
in favor of the Democrats. I mean here in Virginia
there were Trump districts that Trump won by twenty twenty
five points that ultimately swang for the Democrats. Look at Georgia.
The Public Safety commissioner elections down in Georgia. You know,
Democrats took both of those seats. So the question is
(04:55):
why are the Democrats and ones making the deal here? Well,
I view it is as way of cashing in chips
after the election, because what essentially happened here is that
the deal. And Dwayne can correct me if he feels differently,
but I always thought the deal was going to be
a vote on ACCH subsidies. It wasn't going to be
a vote on the actual subsidies themselves. And when that
(05:19):
is what your endgame was, and you've had a shutdown
where the Republicans were the ones that independents blamed slightly
more than Democrats, and the Republicans were ultimately getting to
blame here. Bloomberg News had some reporting that President Trump
even told the private Republican caucuses that Virginia New Jersey
could have been because of the shutdown. I think these
(05:40):
eight moderate Democrats, none of which are off for reelection
and none of them several of them are retiring, ultimately
supported this deal as a way of cashing in their
chips and saying, you know what, we're going to have
a vote on ACA subsidies and if we don't succeed
in that, the Republicans owned that issue. And as Dwayne
said a couple of days ago, now that is your
messaging for twenty twenty six. And you know the Democrats,
(06:04):
you know, they don't get what they want in terms
of the subsidies, but they get messaging.
Speaker 1 (06:09):
So Dwayne, let's let's bring you in. I mean, do
you agree for the most part with what Nathan said
about you know, why the Democrats agreed to this at
this point and you know what does this look like
when it comes up again in terms of ACA subsidies
at the end of January.
Speaker 4 (06:26):
Yeah, so I think Nathan's got it right. You know,
keep in mind where the Democratic Party was after the
last shutdown, which is pretty angry at leadership and generally
a call for finding ways to motivate the base. And
you know, last time around, Schumer on the one hand,
(06:49):
said they were going to shut down the government. Then
within twenty four hours said he was not going to
do that, and we saw what happened. So the key
here was trying to light a fire for the Democratic base,
but also on an issue that can really resonate with
folks because it has resonated in the past. If you
(07:11):
go back to twenty eighteen, one of the biggest issues
or headwinds for Republicans was the whole Obamacare repeal push,
and we saw what happened with midterms, and here we
are again Democrats trying to pick an issue that has
worked in the past and revisiting it again, especially with
(07:31):
an election an eye on these off year elections, which
I think served its purpose. I do think at the
end of the day, there were a handful of Democrats
that were not interested in he shut down at all,
just I think they think it has bad governance and
basically held their fire as long as they could. And
(07:56):
when you think about what was happening over the weekend
with flight cancelations, I think there was a risk that
Democrats can very well lose the narrative if we go
too close to Thanksgiving in we have a lot of
flights delayed, so we're canceled. So as it relates to ACA.
(08:17):
I don't think we've ever thought that there was a
chance that this would get extended. The wild card here
is always Trump. He has not said he wants to
support an extension, but if he puts out a true
social posts then it gets extended. There'll be a vote
in December. But it feels like those parties are miles apart,
(08:42):
with Democrats looking for or at least willing to entertain
a modified extension based on income and making the substies
less generous, and seems like Republicans want to focus on
really redirecting that money to other avenues, whether it's flexible
any accounts or health savings accounts, which is a non
(09:04):
starter for most Democrats because of the impact on the
risk pool and the dislike or just concerns about skimpy
benefits and putting more of the costs onto the individual.
So at the end of the day, it's what middle
of November, and one side's entertaining reform ideas while the
(09:26):
other side just wants an extension. So they're very far apart,
and I have a hard time seeing them get to
some middle ground in the next couple of weeks. But
again with Trump, anything is possible, but I still lean
against these subsidies getting extended. Now in terms of January,
I'd be surprised if we get or see another shutdown,
(09:48):
even as Democrats are talking about, even as Democrats are
talking about revisiting this, if they don't get extended in December,
largely because we haven't seen an election year shut down.
Speaker 1 (10:03):
We never have, we never had We've never had a
shutdown in an election year, is that right?
Speaker 4 (10:07):
We've only had one start the year prior and then
extend into a new year or the election year. So
by and large, Democrats have their talking points if it
doesn't get extended, and you run the risk, especially when
you saw Republicans hold their ground, that it just is
(10:28):
too much, too much pain on the average American, and
they already have the political I think, the political benefit
and the political talking point.
Speaker 1 (10:38):
So when when do premiums actually go up? Will that
be after January thirty first? And then related to that,
what does this all mean for you know, companies that
you cover, I guess particularly health insurance.
Speaker 4 (10:47):
Well, the premiums are for January one, twenty twenty six,
so that's when they all start, and these consumers have
been notified of their premium increases, So this is already
baked in, and these plans have set their premiums based
on the fact that they think or based on the
(11:09):
assumption that substas won't get extended and certain people won't
re enroll, which changes the risk pool. So when we
think about companies like centeen, they are twenty five percent
of the AC enrollment and they've forecasted a drop an enrollment,
as well as United Health, So those are the two
(11:30):
big players in the space. So it's anticipated and if
there's a surprise extension, that's a pretty good tail went
for these companies.
Speaker 1 (11:40):
Got it all right? That's really interesting stuff, and I
guess we'll see what happens over the next few weeks.
That's why I have you, Nathan, speaking of shutdowns on
the CFPB, the Consumer Financial Protection Bureau. The acting director,
Russ Vote, who also heads up the Office of Management
and Budget essentially, you know, is telling the court where
(12:06):
there's litigation ongoing, and Congress as well, that he doesn't
think they can draw funds. The CFPB can't draw funds
from the Federal Reserve because the Federal Reserve is operating
at a loss and the statute says you can the
CFPB can only draw funding from the combined earnings of
the FED, and the Justice Department's Office of Legal Counsel
(12:32):
recently put out a memo saying that that means that
that term combined earnings means profit. So I mean I so,
you know, vote says they probably have enough money to operate.
The CFPB has enough money to operate through the end
of the year, but you know, who knows what happens
after that. This issue will get litigated. It could take
a while to play out. I don't have a call
(12:53):
yet on whose on which side is right. It's it's
pretty good arguments on both sides. But let's say there's
no fund. Let's say, you know, they don't draw funding
from the Federal Reserve, which means they don't they can't
operate the CFPB. What happens to things like the open
banking rule? Right like that that's a rule that they're
supposed to be working on that that you know, the
(13:14):
FinTechs really want because they don't want to be charged
fees by the banks in order to you know, get
data from them and transfer data to different companies. So
what does that look like?
Speaker 2 (13:26):
You know, I'm thankful that you didn't ask me to
appine in the legality of the case, because I was
just thinking, I'm the only non lawyer on this conversation
at the moment, So I appreciate you not asking me
about the legality.
Speaker 1 (13:37):
Say that for the next episode.
Speaker 2 (13:38):
Yeah, but I do look forward to your call when
you put it out there. You know, this is the
big question that we've had about the Consumer Financial Protection
Bureau because you have russ vote. And what I would
just coin is the Washingtonian view, and that is the
CFPB needs to go away, and we're just going to
(13:58):
have it go away and wave a metric want and
it's gone. But then you have the company view, and
the company view is is that like, look, there are
proposals out there, and there are rules out there that
we still have to abide by. It's not like, you know,
unless you take steps undo the rule, rules still on
the books. And so a future Democratic White House could
come in and say, see, I FPB's back magic wand oh,
by the way, we appreciate you companies that you haven't
(14:22):
been following these regulations. Oh, here's an enforcement action for
your trouble. Now, I don't. Obviously, that enforcement action would
then go to Elliott, who would then say, you know
there's you know, there's actually some risk there or not
risk there. But again that's not something as a company
that you want to deal with. So I think what
happens here is that you have the argument of the
(14:42):
policy versus the argument of reality, and from the company perspective,
they're going to continue to push the White House and
they're going to continue to push folks to say you
need to change the open banking rule, or if you're
in the mortgage servicing space, the CEE it FPB does
a weekly calculation that many companies, I think all companies
use in terms of calculating mortgage mortgage rates. So I
(15:06):
think what ultimately plays out here is that the White
House tries, meaning Roussveolte, tries to go away with the
CPB and they deal with the unattended consequences when they
come up. And as a results, maybe there's this theory
out there that if the CFPB can't operate, maybe the
OMB can do it on behalf of them or something
like that. I don't know, I'm just making stuff up here.
Speaker 1 (15:27):
Yeah maybe, yeah, yeah, who knows. Another agency takes up
the rolemaking you.
Speaker 2 (15:33):
Know, we'd have to go back to dot frank and
look at the statutory language there. And but that's the
type of thinking that's driving the White House at the
moment because for the last thirty forty fifty years in Washington,
here's the statute. You got to follow the statute, And
the White House is looking at the statute saying, okay, well,
what if we don't follow the statute? Is there another
(15:54):
way that we can legally do it? And they're opening
up boxes that people haven't even considered. And so it's
a lot of times when the White House responds to this,
or when the White House does that, folks like you
and me and Justin and Matt and Dwayne have to
go back and look at it and say, okay, there
is some there there or there's not some there there.
So we're just gonna have to wait and see what
(16:14):
rosvote does.
Speaker 1 (16:15):
Yeah, I mean, you know, most FOE would say they
are following the statute because the term in dot frank
is combined earnings that the CFPB can only draw funds
from the fed's combined earnings, which the OLLC now says,
you know, refers to profits and if there's no profits there,
CFPB can't draw funds.
Speaker 3 (16:36):
You know, the I guess one.
Speaker 1 (16:37):
Irony is that that argument and that outcome is only
only as good as will only last as long as
the FED is not operated at a profit. At some point,
especially if interest rates go down, which is what the
administration wants. You know, they may turn around and become
profitable because they're not paying out as much interest to
(16:59):
resis of balances. So that could be one high you know,
Trump gets his way and lower his interest rates, the
c IFB can get its funding again.
Speaker 2 (17:07):
And then at that point russ Vote will then submit
a letter to the Fed saying requesting one dollar exactly.
McK mulvaney, the first guest of votes and verdicts, said
that he wanted to.
Speaker 1 (17:17):
Do thought him donuts and requested a dollar.
Speaker 2 (17:19):
For Yeah, request one dollar and just say look, but
at the end of the day, you know, the CFB
is a diminishing agency, you know, enforcement risk Obviously, there's
no CFPB examiners out there. There's nobody out there saying
like we're policed. You know, Elizabeth Warren used to call
the CFP be the cop on the beat. There's no
cop on the beat anymore. But the law still remains
(17:40):
the law, and there are other cops out there states,
you know, a future CFPB, and so you know. Our
view is, and this is the note that Elliott and
I put out all the time when these things come up,
is is that the law remains the law, and regulations
remain real regulations until they're undone.
Speaker 1 (17:57):
Yep.
Speaker 2 (17:58):
And until the CFB does and does not, a company
can look at it and say, do you want to
take the risk of following the regulation or do you
think we can take the risk of not. And most
companies that are publicly traded will take the more conservative
point of view. Yep.
Speaker 1 (18:13):
I think that's fair. All right, good stuff, Thanks Nathan,
and thanks Wayne. All Right, Justin Teresi, let's bring you in.
Justin covers antitrust for us along with Jenry. Justin, you
have been covering this litigation involving Visa and MasterCard and
interchange fees. The litigation is almost as old as we are, right,
(18:35):
I don't know if I go that far. Yeah, it's
twenty years old.
Speaker 3 (18:39):
Years old. Yeah, that's pretty old.
Speaker 5 (18:41):
I wish it was as old as I am, right, Okay, yeah, no, no,
you were as young as the litigation, Yeah right, as
do I All right, but why don't you come in
and sort of tell us, you know what that case
is about and what the settlement looks like.
Speaker 3 (18:59):
Yeah, yeah, definitely a lot of folks really aren't aren't
aware of this. But every time you swipe your credit card,
there's a fee associated with that swipe, right, And it's
not the issuing banks that pays that fee in most
cases right now anyway, it's not the consumer that pays
that fee. It's the merchant who's getting hit paying that fee,
and that can really range wildly. Cards without a lot
(19:19):
of rewards attached to them, they're typically going to be
one percent of the transaction. But you know, as I'm
sure you're aware, right, the world has really grown here
to a place where everyone just loves their cash back cards,
they love their travel rewards cards. You know, the points
add up. These cards are just something that I've kind
of become a steeple in the consumer's wallet. The problem
for merchants here, they have really high swipe fees on them.
(19:40):
We're talking three or four percent in some circumstances for
the entire transaction. When you're paying something from a merchant.
So what's the case about. Basically, the allegation twenty years
ago continuing through today is that these card issuers, the
banks like JP Morgan, Bank of America, et cetera, and
Visa mass Card basically got together and said, hey, what
should these white phase fees b So this settlement, it's
(20:03):
the second second try at reaching a deal. It's not
about the damages, right, It's not about the money that
the Visa MasterCard owe the merchants for the past harm
that's already been settled as part of a twenty nineteen resolution.
There was a few large merchants who opted out of
that case. They're going to trial over all the money
stuff next year. But this is the just the OPT's
(20:23):
that's right.
Speaker 1 (20:24):
I'd like the six and a half billion dollars settlement exactly.
Speaker 3 (20:27):
Yeah, so the settlement in twenty nineteen, it was about
five and a half billion that they held a little
back to kind of handle these opt out issues that
you know, for the future. So yeah, it's probably looking.
I think they're going to see all of those go
away for about another one and a half to two
billion dollars I think from Visa MasterCard between now and
next spring. But this here, this is about what things
(20:47):
look like in the future, right, And really there's feet
concessions involved with the settlement to the tune of about
thirty eight billion dollars over the course of five years.
But I think really importantly looking at what this looks
like in the future for consumers is card companies are
would have to relax with what's called an honor all
cards rule. And what that means is that you, let's
(21:08):
say on Walmart, for example, if I accept a Visa
a master card, I don't have to accept all Visa
and Master cards anymore from customers. There'd be bucketing involved, right,
so lower tiered cards would just be called these standard
consumer cards for Visa and MasterCard. There'd be commercial cards
in one bucket, but there's another bucket for quote unquote
premium cards, and those are those cards that come with
(21:29):
things like miles, that come with things like hotel points,
come with cash back rewards, and those cards in that bucket.
A merchant could now say I don't want to take
those anymore because of the fees associated with them. That's
a big change from present policy and how things roll out.
Merchant also now gets the option to stir charge those
fees onto the customer if they're going to accept those
(21:49):
cards at their location. So either way, there's some big
changes there with how things roll out. But got to say,
the deal not sure it has all the buy and
it needs right now from large merchants who are concerned
with what this looks like.
Speaker 1 (22:00):
Why do you say that?
Speaker 3 (22:02):
So last year's deal really was blown up because you know,
the smaller merchants here, I think they're the ones who
are most aggravated by the fees because there's less of
an ability for them to absorb them, right, so they
really want this right to serve charge cards on, you know,
the fees on to consumers, I think large merchants. And
really we see we've already seen the National Retail Federation
out and kind of opposed to this second attempt to
(22:24):
the deal, saying, you know, what kind of a business
practice is this. We're not going to accept some cards
and not accept other types of cards. So for us,
it's kind of irrelevant here, you know, in terms of
relaxing that onor all cards rule. And they also feel
like the feed concessions for thirty eight billion dollars over
five years, it's really just you know, it's kind of
chump change. It's really not addressing the massive amount of
(22:45):
swipe fees that have been collected by the card companies,
So the tune of one hundred and eleven billion dollars
last year by Visa MasterCard alone. So that's kind of
what we're looking at here from an objection standpoint moving forward.
Speaker 1 (22:58):
So has the National Retail Federation already lot I mean,
have they found something in court objected to this or
is this just a statement that they put out.
Speaker 3 (23:07):
Yeah, not yet, not yet. We haven't seen any filed
objections with the court yet on the settlement. There have
been comments made publicly by smokespersons at NRF already commenting
on negative aspects of the deal, So I should definitely
clarify that point while we're talking right now. But you know,
if it's any indicator of how things rolled out last time,
it's a big problem for the deal because we're not
(23:28):
talking about a damage's class where someone can just opt
out of the deal. It's a mandatory equitable relief class, right,
So if it's going to actually be approved by the
by the court, it's going to apply to everyone. And
I think that really weighed on the judge last time
and her considerations as well.
Speaker 1 (23:43):
Wow, So what's the timing looking like for you know,
this approval process.
Speaker 3 (23:48):
Yeah, so I think, you know, we'll probably see a
preliminary hearings approval hearing sometime in the first quarter of
twenty twenty six. And you know, for now, look, I
think you know consumers and the effect on consumers. They're
not party to this litigation, so I think it's on
the judge's mind. But you know, it's insofar as you
know the parties here are involved. You know, that's probably
not going to be the crux of appeals. I think
(24:10):
probably we have a sixty percent chance right now there's
enough changes here to maybe get the deal over the line.
But I really think it's going to depend on what
the merchants have to say about it out of hearing.
Probably sometime in January February last year. The judge ruled
from the bench at the preliminary approval hearing. It said, sorry, guys,
this just isn't enough to get the deal done. So wow,
we'll see how that rolls out this time.
Speaker 1 (24:31):
Who's the judge.
Speaker 3 (24:32):
It's Judge Margot Brody in the Eastern Districtive but you
actually was the chief judge until recently over there, so
I've been there a long time.
Speaker 1 (24:38):
And what are you looking at in terms of timing
for the opt out litigation?
Speaker 3 (24:43):
Yeah, so I think lined up right now there's a
trial scheduled. The first of three trials is scheduled for
the opt outs from the damages deal for next April. Look,
they've already been making a lot of one off deals
here to try to make those go away. There's a
huge amount of risk I think evolved for both the
card companies and for the plaintiffs here trying to present
(25:04):
this case to a jury. It's incredibly complicated talking about
these fees. Percentage is what it looks like. So they've
kind of been picking off the plaintiffs here. The remaining
plaintiffs one by one. Starbucks is settled, Target is settled,
a lot of the big merchants have already settled. I
think they probably continue to do that in large groups
between now and the spring to avoid any trial on it.
Speaker 1 (25:23):
And you mentioned obviously Visa and MasterCard AMX is not.
American Express is not part of this litigation.
Speaker 3 (25:30):
They are not. They actually had some similar issues that
surrounded their acceptance policies that were resolved through litigation years ago.
They kind of held out and were successful. I think though,
what's relevant to this settlement here is how their card
acceptance agreement kind of plays into what changes at MasterCard
and Visa. My understanding is, right now, you can't stir
(25:52):
charge an Amex card if you're not also star charging
other companies' credit cards. That's a kind of an agreement
made between Amex and the merchant right now. But if
we see a world where search charging becomes allowed of
Visas a MasterCard products, maybe that also opens the door
to Amex having the same issue with things like honoring
all cards and surch charges getting passed on. It's going
to be kind of opening the wild wild West here
(26:14):
in terms of what merchants can do and in terms
of accepting cards here and not there. So pretty big stuff.
Speaker 1 (26:21):
Yeah, so interesting. I'm going to think about this discussion
every time I buy something on my credit card.
Speaker 3 (26:26):
Oh man, that's a lot of time to think about it.
Speaker 1 (26:29):
All right, Well, thanks justin all right. I think with
that we'll wrap up this episode of Votes and Verdicts.
As always, thank you for listening. If you have any
questions about any of the matters we discussed on this episode,
Please don't hesitate to reach out to us at your
convenience with your questions. As a reminder, you can find
all of our research on the Bloomberg terminal at BI go.
(26:51):
You can find our litigation and policy research at BI
laws Go. As always, we want to thank our producer
Adita Somani, without whom this podcast would never publish on time.
Thank you again for listening and have a great day.
Hello, and welcome to the Votes and Verdicts podcast, hosted
by the Litigation and policy team at Bloomberg Intelligence, the
investment research platform of Bloomberg LP on the Bloomberg Terminal.
Bloomberg Intelligence has five hundred analysts and strategists working across
the globe and focused on all major markets. Our coverage
includes over two thousand equities and credits, and we have
(00:36):
outlooks on more than ninety industries and one hundred market industries,
currencies and commodities. This podcast series examines the intersection of
business policy and law, and today is our weekly look
at their litigation and policy catalysts that we're currently watching
and that we think will impact companies across a number
of different sectors. My name's Elliott Stein. I'm an analyst
(00:57):
with Bloomberg Intelligence covering litigation in the financial sector, and
I'm delighted today to be joined by several of my
Bloomberg Intelligence colleagues. As always, you can find all of
our research on the Bloomberg terminal at BI go. You
can find most of our litigation and policy research on
our dashboard which is available at DII laws go and
(01:19):
just the time stamp this because things do you always
seem to move pretty quickly, especially at least something's in Washington.
It is Thursday, November thirteenth. It is three eight pm
here in New York and in Washington. All right, let's
kick it off with a discussion about the shutdown, what
has happened, and what to be looking towards.
Speaker 2 (01:41):
Next.
Speaker 1 (01:42):
Let me bring in two of my colleagues down in Washington, DC,
Nathan Dean and Dwayne Wright. Nathan, Dwayne, how you guys
doing surviving?
Speaker 2 (01:51):
Actually, you know, the shutdowns over and traffic coming into
the city today was absolutely horrid.
Speaker 1 (01:57):
Wow. Okay, so there was a noticeable effects. I remember
when the shutdown started you said there was still a
fair amount of traffic.
Speaker 2 (02:03):
Yeah, you know, it wasn't like you know, it was
heavy for a Thursday, So you know, but we'll see
what happens. Opm ohpm were around nine o'clock this morning,
ordered everybody back to the office, so you know, start
I think traffic tomorrow will be pretty heavy as well.
Speaker 1 (02:19):
Yeah. So, Nathan, I mean this shutdown, I mean, you know,
a lot of questions come to mind. You know, maybe
first while, among other things, explain what the logic was
by the Democrats to sort of agree to this now
when they seem to be having so much momentum after
their election victory. But then I'm also sort of curious
what the terms of the deal are. What the terms
(02:41):
are of the deal, because it seems like something's got
funded for a whole year, but other things only until
the end of January. So why wouldn't we be back
here in the same position with another potential shutdown at
the end of January.
Speaker 2 (02:57):
Yeah, So what the deal was was there are twelve
appropriation bills that Congress has to fund every year, and
the deal was to fund three of those through the
rest of the fiscal year, so through September thirtieth, twenty
twenty six. And that's the USDA, so the agg Department
that is Veteran Affairs, and that's specifically the Congressional Operation.
(03:17):
So the salaries for congressional.
Speaker 1 (03:20):
Staffers and for congress people themselves, I assume.
Speaker 2 (03:23):
Well, congress folks got paid. Yeah, they were getting paid
during the shutdown.
Speaker 3 (03:26):
And that's why write the laws.
Speaker 2 (03:28):
Yeah, you know that, It's why some of the policymakers
will say that, you know, if I refuse to accept
this check, even though the check still has to come.
But anyway, so they funded three of those out of
the twelve through the rest of the fiscal year. But
the bulk of what we care about outside of the
farm aspect, the bulk of what we care about from
the investing angle, that's only funded through January thirty. First. Now,
(03:51):
the deal was essentially was to have a vote on
ACA subsidies in the Senate. I'll let Dwayne talk about that, yep,
because you know, Dwayne had a great note they put
out yesterday or the day before talking about his preview
of that. But you know, in addition here there were
eight Democrats that ultimately supported this deal, which got it
to across the sixty that you needed for the filbuster. Now,
(04:13):
the big question was is that why would the Democrats
do this? Well, the bulk of the party did not
agree to this, you know, the bulk of the party.
If you watched the Daily Show with John Stewart, there
was a lot of blasting and Democrats for this. If
there were a lot of anger amongst progressives for doing this.
And the question was that was, well, why should we
be the ones that are agreeing to a deal? If Virginia,
(04:34):
New Jersey and New York City come out so strongly
in favor of the Democrats. I mean here in Virginia
there were Trump districts that Trump won by twenty twenty
five points that ultimately swang for the Democrats. Look at Georgia.
The Public Safety commissioner elections down in Georgia. You know,
Democrats took both of those seats. So the question is
(04:55):
why are the Democrats and ones making the deal here? Well,
I view it is as way of cashing in chips
after the election, because what essentially happened here is that
the deal. And Dwayne can correct me if he feels differently,
but I always thought the deal was going to be
a vote on ACCH subsidies. It wasn't going to be
a vote on the actual subsidies themselves. And when that
(05:19):
is what your endgame was, and you've had a shutdown
where the Republicans were the ones that independents blamed slightly
more than Democrats, and the Republicans were ultimately getting to
blame here. Bloomberg News had some reporting that President Trump
even told the private Republican caucuses that Virginia New Jersey
could have been because of the shutdown. I think these
(05:40):
eight moderate Democrats, none of which are off for reelection
and none of them several of them are retiring, ultimately
supported this deal as a way of cashing in their
chips and saying, you know what, we're going to have
a vote on ACA subsidies and if we don't succeed
in that, the Republicans owned that issue. And as Dwayne
said a couple of days ago, now that is your
messaging for twenty twenty six. And you know the Democrats,
(06:04):
you know, they don't get what they want in terms
of the subsidies, but they get messaging.
Speaker 1 (06:09):
So Dwayne, let's let's bring you in. I mean, do
you agree for the most part with what Nathan said
about you know, why the Democrats agreed to this at
this point and you know what does this look like
when it comes up again in terms of ACA subsidies
at the end of January.
Speaker 4 (06:26):
Yeah, so I think Nathan's got it right. You know,
keep in mind where the Democratic Party was after the
last shutdown, which is pretty angry at leadership and generally
a call for finding ways to motivate the base. And
you know, last time around, Schumer on the one hand,
(06:49):
said they were going to shut down the government. Then
within twenty four hours said he was not going to
do that, and we saw what happened. So the key
here was trying to light a fire for the Democratic base,
but also on an issue that can really resonate with
folks because it has resonated in the past. If you
(07:11):
go back to twenty eighteen, one of the biggest issues
or headwinds for Republicans was the whole Obamacare repeal push,
and we saw what happened with midterms, and here we
are again Democrats trying to pick an issue that has
worked in the past and revisiting it again, especially with
(07:31):
an election an eye on these off year elections, which
I think served its purpose. I do think at the
end of the day, there were a handful of Democrats
that were not interested in he shut down at all,
just I think they think it has bad governance and
basically held their fire as long as they could. And
(07:56):
when you think about what was happening over the weekend
with flight cancelations, I think there was a risk that
Democrats can very well lose the narrative if we go
too close to Thanksgiving in we have a lot of
flights delayed, so we're canceled. So as it relates to ACA.
(08:17):
I don't think we've ever thought that there was a
chance that this would get extended. The wild card here
is always Trump. He has not said he wants to
support an extension, but if he puts out a true
social posts then it gets extended. There'll be a vote
in December. But it feels like those parties are miles apart,
(08:42):
with Democrats looking for or at least willing to entertain
a modified extension based on income and making the substies
less generous, and seems like Republicans want to focus on
really redirecting that money to other avenues, whether it's flexible
any accounts or health savings accounts, which is a non
(09:04):
starter for most Democrats because of the impact on the
risk pool and the dislike or just concerns about skimpy
benefits and putting more of the costs onto the individual.
So at the end of the day, it's what middle
of November, and one side's entertaining reform ideas while the
(09:26):
other side just wants an extension. So they're very far apart,
and I have a hard time seeing them get to
some middle ground in the next couple of weeks. But
again with Trump, anything is possible, but I still lean
against these subsidies getting extended. Now in terms of January,
I'd be surprised if we get or see another shutdown,
(09:48):
even as Democrats are talking about, even as Democrats are
talking about revisiting this, if they don't get extended in December,
largely because we haven't seen an election year shut down.
Speaker 1 (10:03):
We never have, we never had We've never had a
shutdown in an election year, is that right?
Speaker 4 (10:07):
We've only had one start the year prior and then
extend into a new year or the election year. So
by and large, Democrats have their talking points if it
doesn't get extended, and you run the risk, especially when
you saw Republicans hold their ground, that it just is
(10:28):
too much, too much pain on the average American, and
they already have the political I think, the political benefit
and the political talking point.
Speaker 1 (10:38):
So when when do premiums actually go up? Will that
be after January thirty first? And then related to that,
what does this all mean for you know, companies that
you cover, I guess particularly health insurance.
Speaker 4 (10:47):
Well, the premiums are for January one, twenty twenty six,
so that's when they all start, and these consumers have
been notified of their premium increases, So this is already
baked in, and these plans have set their premiums based
on the fact that they think or based on the
(11:09):
assumption that substas won't get extended and certain people won't
re enroll, which changes the risk pool. So when we
think about companies like centeen, they are twenty five percent
of the AC enrollment and they've forecasted a drop an enrollment,
as well as United Health, So those are the two
(11:30):
big players in the space. So it's anticipated and if
there's a surprise extension, that's a pretty good tail went
for these companies.
Speaker 1 (11:40):
Got it all right? That's really interesting stuff, and I
guess we'll see what happens over the next few weeks.
That's why I have you, Nathan, speaking of shutdowns on
the CFPB, the Consumer Financial Protection Bureau. The acting director,
Russ Vote, who also heads up the Office of Management
and Budget essentially, you know, is telling the court where
(12:06):
there's litigation ongoing, and Congress as well, that he doesn't
think they can draw funds. The CFPB can't draw funds
from the Federal Reserve because the Federal Reserve is operating
at a loss and the statute says you can the
CFPB can only draw funding from the combined earnings of
the FED, and the Justice Department's Office of Legal Counsel
(12:32):
recently put out a memo saying that that means that
that term combined earnings means profit. So I mean I so,
you know, vote says they probably have enough money to operate.
The CFPB has enough money to operate through the end
of the year, but you know, who knows what happens
after that. This issue will get litigated. It could take
a while to play out. I don't have a call
(12:53):
yet on whose on which side is right. It's it's
pretty good arguments on both sides. But let's say there's
no fund. Let's say, you know, they don't draw funding
from the Federal Reserve, which means they don't they can't
operate the CFPB. What happens to things like the open
banking rule? Right like that that's a rule that they're
supposed to be working on that that you know, the
(13:14):
FinTechs really want because they don't want to be charged
fees by the banks in order to you know, get
data from them and transfer data to different companies. So
what does that look like?
Speaker 2 (13:26):
You know, I'm thankful that you didn't ask me to
appine in the legality of the case, because I was
just thinking, I'm the only non lawyer on this conversation
at the moment, So I appreciate you not asking me
about the legality.
Speaker 1 (13:37):
Say that for the next episode.
Speaker 2 (13:38):
Yeah, but I do look forward to your call when
you put it out there. You know, this is the
big question that we've had about the Consumer Financial Protection
Bureau because you have russ vote. And what I would
just coin is the Washingtonian view, and that is the
CFPB needs to go away, and we're just going to
(13:58):
have it go away and wave a metric want and
it's gone. But then you have the company view, and
the company view is is that like, look, there are
proposals out there, and there are rules out there that
we still have to abide by. It's not like, you know,
unless you take steps undo the rule, rules still on
the books. And so a future Democratic White House could
come in and say, see, I FPB's back magic wand oh,
by the way, we appreciate you companies that you haven't
(14:22):
been following these regulations. Oh, here's an enforcement action for
your trouble. Now, I don't. Obviously, that enforcement action would
then go to Elliott, who would then say, you know
there's you know, there's actually some risk there or not
risk there. But again that's not something as a company
that you want to deal with. So I think what
happens here is that you have the argument of the
(14:42):
policy versus the argument of reality, and from the company perspective,
they're going to continue to push the White House and
they're going to continue to push folks to say you
need to change the open banking rule, or if you're
in the mortgage servicing space, the CEE it FPB does
a weekly calculation that many companies, I think all companies
use in terms of calculating mortgage mortgage rates. So I
(15:06):
think what ultimately plays out here is that the White
House tries, meaning Roussveolte, tries to go away with the
CPB and they deal with the unattended consequences when they
come up. And as a results, maybe there's this theory
out there that if the CFPB can't operate, maybe the
OMB can do it on behalf of them or something
like that. I don't know, I'm just making stuff up here.
Speaker 1 (15:27):
Yeah maybe, yeah, yeah, who knows. Another agency takes up
the rolemaking you.
Speaker 2 (15:33):
Know, we'd have to go back to dot frank and
look at the statutory language there. And but that's the
type of thinking that's driving the White House at the
moment because for the last thirty forty fifty years in Washington,
here's the statute. You got to follow the statute, And
the White House is looking at the statute saying, okay, well,
what if we don't follow the statute? Is there another
(15:54):
way that we can legally do it? And they're opening
up boxes that people haven't even considered. And so it's
a lot of times when the White House responds to this,
or when the White House does that, folks like you
and me and Justin and Matt and Dwayne have to
go back and look at it and say, okay, there
is some there there or there's not some there there.
So we're just gonna have to wait and see what
(16:14):
rosvote does.
Speaker 1 (16:15):
Yeah, I mean, you know, most FOE would say they
are following the statute because the term in dot frank
is combined earnings that the CFPB can only draw funds
from the fed's combined earnings, which the OLLC now says,
you know, refers to profits and if there's no profits there,
CFPB can't draw funds.
Speaker 3 (16:36):
You know, the I guess one.
Speaker 1 (16:37):
Irony is that that argument and that outcome is only
only as good as will only last as long as
the FED is not operated at a profit. At some point,
especially if interest rates go down, which is what the
administration wants. You know, they may turn around and become
profitable because they're not paying out as much interest to
(16:59):
resis of balances. So that could be one high you know,
Trump gets his way and lower his interest rates, the
c IFB can get its funding again.
Speaker 2 (17:07):
And then at that point russ Vote will then submit
a letter to the Fed saying requesting one dollar exactly.
McK mulvaney, the first guest of votes and verdicts, said
that he wanted to.
Speaker 1 (17:17):
Do thought him donuts and requested a dollar.
Speaker 2 (17:19):
For Yeah, request one dollar and just say look, but
at the end of the day, you know, the CFB
is a diminishing agency, you know, enforcement risk Obviously, there's
no CFPB examiners out there. There's nobody out there saying
like we're policed. You know, Elizabeth Warren used to call
the CFP be the cop on the beat. There's no
cop on the beat anymore. But the law still remains
(17:40):
the law, and there are other cops out there states,
you know, a future CFPB, and so you know. Our
view is, and this is the note that Elliott and
I put out all the time when these things come up,
is is that the law remains the law, and regulations
remain real regulations until they're undone.
Speaker 1 (17:57):
Yep.
Speaker 2 (17:58):
And until the CFB does and does not, a company
can look at it and say, do you want to
take the risk of following the regulation or do you
think we can take the risk of not. And most
companies that are publicly traded will take the more conservative
point of view. Yep.
Speaker 1 (18:13):
I think that's fair. All right, good stuff, Thanks Nathan,
and thanks Wayne. All Right, Justin Teresi, let's bring you in.
Justin covers antitrust for us along with Jenry. Justin, you
have been covering this litigation involving Visa and MasterCard and
interchange fees. The litigation is almost as old as we are, right,
(18:35):
I don't know if I go that far. Yeah, it's
twenty years old.
Speaker 3 (18:39):
Years old. Yeah, that's pretty old.
Speaker 5 (18:41):
I wish it was as old as I am, right, Okay, yeah, no, no,
you were as young as the litigation, Yeah right, as
do I All right, but why don't you come in
and sort of tell us, you know what that case
is about and what the settlement looks like.
Speaker 3 (18:59):
Yeah, yeah, definitely a lot of folks really aren't aren't
aware of this. But every time you swipe your credit card,
there's a fee associated with that swipe, right, And it's
not the issuing banks that pays that fee in most
cases right now anyway, it's not the consumer that pays
that fee. It's the merchant who's getting hit paying that fee,
and that can really range wildly. Cards without a lot
(19:19):
of rewards attached to them, they're typically going to be
one percent of the transaction. But you know, as I'm
sure you're aware, right, the world has really grown here
to a place where everyone just loves their cash back cards,
they love their travel rewards cards. You know, the points
add up. These cards are just something that I've kind
of become a steeple in the consumer's wallet. The problem
for merchants here, they have really high swipe fees on them.
(19:40):
We're talking three or four percent in some circumstances for
the entire transaction. When you're paying something from a merchant.
So what's the case about. Basically, the allegation twenty years
ago continuing through today is that these card issuers, the
banks like JP Morgan, Bank of America, et cetera, and
Visa mass Card basically got together and said, hey, what
should these white phase fees b So this settlement, it's
(20:03):
the second second try at reaching a deal. It's not
about the damages, right, It's not about the money that
the Visa MasterCard owe the merchants for the past harm
that's already been settled as part of a twenty nineteen resolution.
There was a few large merchants who opted out of
that case. They're going to trial over all the money
stuff next year. But this is the just the OPT's
(20:23):
that's right.
Speaker 1 (20:24):
I'd like the six and a half billion dollars settlement exactly.
Speaker 3 (20:27):
Yeah, so the settlement in twenty nineteen, it was about
five and a half billion that they held a little
back to kind of handle these opt out issues that
you know, for the future. So yeah, it's probably looking.
I think they're going to see all of those go
away for about another one and a half to two
billion dollars I think from Visa MasterCard between now and
next spring. But this here, this is about what things
(20:47):
look like in the future, right, And really there's feet
concessions involved with the settlement to the tune of about
thirty eight billion dollars over the course of five years.
But I think really importantly looking at what this looks
like in the future for consumers is card companies are
would have to relax with what's called an honor all
cards rule. And what that means is that you, let's
(21:08):
say on Walmart, for example, if I accept a Visa
a master card, I don't have to accept all Visa
and Master cards anymore from customers. There'd be bucketing involved, right,
so lower tiered cards would just be called these standard
consumer cards for Visa and MasterCard. There'd be commercial cards
in one bucket, but there's another bucket for quote unquote
premium cards, and those are those cards that come with
(21:29):
things like miles, that come with things like hotel points,
come with cash back rewards, and those cards in that bucket.
A merchant could now say I don't want to take
those anymore because of the fees associated with them. That's
a big change from present policy and how things roll out.
Merchant also now gets the option to stir charge those
fees onto the customer if they're going to accept those
(21:49):
cards at their location. So either way, there's some big
changes there with how things roll out. But got to say,
the deal not sure it has all the buy and
it needs right now from large merchants who are concerned
with what this looks like.
Speaker 1 (22:00):
Why do you say that?
Speaker 3 (22:02):
So last year's deal really was blown up because you know,
the smaller merchants here, I think they're the ones who
are most aggravated by the fees because there's less of
an ability for them to absorb them, right, so they
really want this right to serve charge cards on, you know,
the fees on to consumers, I think large merchants. And
really we see we've already seen the National Retail Federation
out and kind of opposed to this second attempt to
(22:24):
the deal, saying, you know, what kind of a business
practice is this. We're not going to accept some cards
and not accept other types of cards. So for us,
it's kind of irrelevant here, you know, in terms of
relaxing that onor all cards rule. And they also feel
like the feed concessions for thirty eight billion dollars over
five years, it's really just you know, it's kind of
chump change. It's really not addressing the massive amount of
(22:45):
swipe fees that have been collected by the card companies,
So the tune of one hundred and eleven billion dollars
last year by Visa MasterCard alone. So that's kind of
what we're looking at here from an objection standpoint moving forward.
Speaker 1 (22:58):
So has the National Retail Federation already lot I mean,
have they found something in court objected to this or
is this just a statement that they put out.
Speaker 3 (23:07):
Yeah, not yet, not yet. We haven't seen any filed
objections with the court yet on the settlement. There have
been comments made publicly by smokespersons at NRF already commenting
on negative aspects of the deal, So I should definitely
clarify that point while we're talking right now. But you know,
if it's any indicator of how things rolled out last time,
it's a big problem for the deal because we're not
(23:28):
talking about a damage's class where someone can just opt
out of the deal. It's a mandatory equitable relief class, right,
So if it's going to actually be approved by the
by the court, it's going to apply to everyone. And
I think that really weighed on the judge last time
and her considerations as well.
Speaker 1 (23:43):
Wow, So what's the timing looking like for you know,
this approval process.
Speaker 3 (23:48):
Yeah, so I think, you know, we'll probably see a
preliminary hearings approval hearing sometime in the first quarter of
twenty twenty six. And you know, for now, look, I
think you know consumers and the effect on consumers. They're
not party to this litigation, so I think it's on
the judge's mind. But you know, it's insofar as you
know the parties here are involved. You know, that's probably
not going to be the crux of appeals. I think
(24:10):
probably we have a sixty percent chance right now there's
enough changes here to maybe get the deal over the line.
But I really think it's going to depend on what
the merchants have to say about it out of hearing.
Probably sometime in January February last year. The judge ruled
from the bench at the preliminary approval hearing. It said, sorry, guys,
this just isn't enough to get the deal done. So wow,
we'll see how that rolls out this time.
Speaker 1 (24:31):
Who's the judge.
Speaker 3 (24:32):
It's Judge Margot Brody in the Eastern Districtive but you
actually was the chief judge until recently over there, so
I've been there a long time.
Speaker 1 (24:38):
And what are you looking at in terms of timing
for the opt out litigation?
Speaker 3 (24:43):
Yeah, so I think lined up right now there's a
trial scheduled. The first of three trials is scheduled for
the opt outs from the damages deal for next April. Look,
they've already been making a lot of one off deals
here to try to make those go away. There's a
huge amount of risk I think evolved for both the
card companies and for the plaintiffs here trying to present
(25:04):
this case to a jury. It's incredibly complicated talking about
these fees. Percentage is what it looks like. So they've
kind of been picking off the plaintiffs here. The remaining
plaintiffs one by one. Starbucks is settled, Target is settled,
a lot of the big merchants have already settled. I
think they probably continue to do that in large groups
between now and the spring to avoid any trial on it.
Speaker 1 (25:23):
And you mentioned obviously Visa and MasterCard AMX is not.
American Express is not part of this litigation.
Speaker 3 (25:30):
They are not. They actually had some similar issues that
surrounded their acceptance policies that were resolved through litigation years ago.
They kind of held out and were successful. I think though,
what's relevant to this settlement here is how their card
acceptance agreement kind of plays into what changes at MasterCard
and Visa. My understanding is, right now, you can't stir
(25:52):
charge an Amex card if you're not also star charging
other companies' credit cards. That's a kind of an agreement
made between Amex and the merchant right now. But if
we see a world where search charging becomes allowed of
Visas a MasterCard products, maybe that also opens the door
to Amex having the same issue with things like honoring
all cards and surch charges getting passed on. It's going
to be kind of opening the wild wild West here
(26:14):
in terms of what merchants can do and in terms
of accepting cards here and not there. So pretty big stuff.
Speaker 1 (26:21):
Yeah, so interesting. I'm going to think about this discussion
every time I buy something on my credit card.
Speaker 3 (26:26):
Oh man, that's a lot of time to think about it.
Speaker 1 (26:29):
All right, Well, thanks justin all right. I think with
that we'll wrap up this episode of Votes and Verdicts.
As always, thank you for listening. If you have any
questions about any of the matters we discussed on this episode,
Please don't hesitate to reach out to us at your
convenience with your questions. As a reminder, you can find
all of our research on the Bloomberg terminal at BI go.
(26:51):
You can find our litigation and policy research at BI
laws Go. As always, we want to thank our producer
Adita Somani, without whom this podcast would never publish on time.
Thank you again for listening and have a great day.
Host
Elliott Stein
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I’m Jay Shetty host of On Purpose the worlds #1 Mental Health podcast and I’m so grateful you found us. I started this podcast 5 years ago to invite you into conversations and workshops that are designed to help make you happier, healthier and more healed. I believe that when you (yes you) feel seen, heard and understood you’re able to deal with relationship struggles, work challenges and life’s ups and downs with more ease and grace. I interview experts, celebrities, thought leaders and athletes so that we can grow our mindset, build better habits and uncover a side of them we’ve never seen before. New episodes every Monday and Friday. Your support means the world to me and I don’t take it for granted — click the follow button and leave a review to help us spread the love with On Purpose. I can’t wait for you to listen to your first or 500th episode!
Dateline NBC
Current and classic episodes, featuring compelling true-crime mysteries, powerful documentaries and in-depth investigations. Follow now to get the latest episodes of Dateline NBC completely free, or subscribe to Dateline Premium for ad-free listening and exclusive bonus content: DatelinePremium.com
Stuff You Should Know
If you've ever wanted to know about champagne, satanism, the Stonewall Uprising, chaos theory, LSD, El Nino, true crime and Rosa Parks, then look no further. Josh and Chuck have you covered.