FDIC Orders Bank to Pay $1.225 Billion for Alleged Interchange Fee Misclassification
On April 18, the FDIC announced a consent order against a Delaware-based bank alleging that the bank engaged in unsafe and unsound banking practices and violated various federal consumer protection laws, including Section 5 of the FTC Act, the Truth in Lending Act (TILA), and the Servicemembers Civil Relief Act (SCRA).
According to the FDIC, the bank:
Misclassified millions of consumer credit cards as commercial accounts. The misclassification allegedly lasted for approximately 17 years and caused the accounts to be hit with higher interchange fees.
Overcharged merchants by more than $1 billion. The higher interchange rates were passed on to merchants using the bank’s proprietary network, resulting in substantial overcharges.
Violated federal consumer protection laws. The FDIC alleged that the bank’s practices constituted unfair acts or practices under Section 5 of the FTC Act, and also cited violations of TILA, SCRA, and the Electronic Records and Signature Commerce Act.
The Consent Order requires the bank to distribute a minimum of $1.225 billion to adversely affected merchants, merchant acquirers, and other adversely affected parties and $150 million penalty to the U.S. Treasury.
In addition to the monetary penalties, the bank will be required to take extensive corrective actions, including enhancing its board oversight, risk management framework, consumer compliance program, vendor management procedures, and controls surrounding account classification. These measures must be implemented through clearly defined plans, subject to review and non-objection by the FDIC, and are designed to ensure ongoing compliance with consumer protection laws and prevent future harm.
Putting It Into Practice: While the future of CFPB enforcement and regulation remain somewhat unclear under the Trump administration, both federal and state regulators continue to actively pursue enforcement actions to address consumer protection violations (previously discussed here and here). This enforcement action reflects the FDIC’s heightened focus on ensuring that financial institutions maintain robust compliance systems capable of identifying and preventing such violations.
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CFPB Late Fee Rule Vacated by Texas Federal Court
On April 15, Judge Mark T. Pittman of the U.S. District Court for the Northern District of Texas entered an Order and Final Judgement vacating the CFPB’s 2024 credit card late fee rule (previously discussed here) for violating the federal Credit Card Accountability and Disclosure (CARD) Act and the Administrative Procedure Act. The rule, which amended Regulation Z, had established a new $8 late fee safe harbor for larger credit card issuers and eliminated annual inflation adjustments.
The court granted a joint motion filed by the CFPB and a coalition of trade associations and chambers of commerce. The parties agreed that the rule prevented card issuers from charging penalty fees that are “reasonable and proportional” as required by the statute. All other claims in the lawsuit were dismissed with prejudice.
The rule was part of the CFPB’s effort under the previous administration to reduce penalty fees across the credit card industry, especially for repeat late payments. The Bureau had justified the rule based on market data showing that most large issuers charged late fees at or near maximum permitted levels, with limited consumer awareness.
Key provisions of the vacated rule include:
An $8 Safe Harbor for Large Issuers. Larger card issuers could charge no more than $8 per late payment under the safe harbor.
Elimination of tiered safe harbors for repeat violations. The rule repealed the higher safe harbor of $41 for repeated late payments within six billing cycles.
No CPI adjustments. Annual inflation adjustments would no longer apply to the $8 safe harbor.
Preserved existing rules for smaller issuers. Issuers with fewer than one million open accounts retained the prior safe harbors—$32 for initial violations and $43 for subsequent ones.
Clarification of Cost Analysis Rules. The rule clarified that post-charge-off collection costs cannot be included in cost-based penalty fee calculations.
The court vacated the rule on the grounds that it violated the CARD Act’s requirement that penalty fees be “reasonable and proportional” to the violation. The parties agreed that the CFPB failed to account for the deterrent function of late fees, particularly for repeat violations, when setting the $8 safe harbor.
Putting It Into Practice: Given the CFPB’s current retreat from the prior administration’s regulatory priorities (previously discussed here and here), the future of the late fee rule appears effectively over. However, other federal or state regulators may pursue alternative approaches to curbing credit card penalty fees. Financial institutions should continue monitoring for potential regulatory changes to ensure ongoing compliance.
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CFPB Halts Enforcement of Small Business Lending Rule for Institutions Outside Fifth Circuit
On April 30, the CFPB announced it will deprioritize enforcement and supervision of its small business lending data collection rule for institutions not covered by the stay issued by the U.S. Court of Appeals for the Fifth Circuit. The rule, finalized in May 2023 under Regulation B, implements Section 1071 of the Dodd-Frank Act and requires lenders to collect and report demographic and loan application data from small business credit applicants.
Under the rule, covered financial institutions must collect and report application-level data, including loan purpose, amount, pricing, business size, industry classification, and ownership demographics. Certain demographic data must be firewalled from credit decisionmakers, and financial institutions are prohibited from disclosing protected information except as required by law.
The Bureau stated that staying the enforcement against institutions outside the Fifth Circuit—while others remain shielded—would create inconsistent and inequitable regulatory treatment. The Bureau also cited that it will keep its focus and resources on “more pressing threats to consumers,” particularly those affecting servicemen, veterans, and small businesses.
Putting It Into Practice: The CFPB’s decision to deprioritize its small business lending data collection rule is the latest move in a recent push to scale back the previous administration’s priorities (previously discussed here and here). The stay effectively pauses enforcement for entities outside of the stay’s reach. We will be sure to provide updates as litigation regarding the rule continues.
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D.C. Circuit Reinstates Injunction Blocking CFPB’s Mass Layoffs
On April 28, the U.S. Court of Appeals for the D.C. Circuit reinstated a district court order blocking the CFPB from conducting a large-scale reduction in force (previously discussed here). The decision reversed an earlier partial stay that had permitted limited layoffs based on a “particularized assessment.”
The underlying lawsuit, brought by the Bureau’s trade union, challenged the legality of the proposed reduction-in-force that would have cut nearly 90% of the CFPB staff. Plaintiffs alleged the plan is an attempt to disable the agency in violation of the Dodd-Frank Act, among other federal statutory mandates.
In reinstating the full injunction, the appellate panel clarified what it meant by a “particularized assessment”—a determination that each CFPB division could still fulfill its statutory duties without the employees selected for termination. The CFPB argued that judicial review would improperly entangle the judiciary in executive decision-making, while plaintiffs contended the layoffs lacked a genuine individualized analysis and would disable core agency functions. The judges acknowledged that both sides remain sharply divided over whether the particularized assessments can be reviewed in court, and concluded that restoring the injunction was the best way to avoid ongoing litigation on that question.
Putting It Into Practice: The administration’s plan to reduce the CFPB to a skeletal staff remains on hold following the D.C. Circuit’s decision to reinstate the injunction. While the court has yet to decide whether the mass layoffs are lawful, its order underscores the stakes—namely, that a downsized CFPB would significantly curtail federal consumer financial enforcement. We will continue to monitor this closely as the case moves to oral argument on May 16.
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CFPB Dismisses Two Actions Against Student Loan Trusts and Subprime Auto Lender
The CFPB recently dropped two more lawsuits it brought under the Chopra administration—one involving a student loan securitization trust and the other regarding a subprime auto finance company. Both lawsuits included allegations of unfair, deceptive, or abusive practices (UDAAPs) in violation of the Consumer Financial Protection Act.
On April 25, the CFPB voluntarily dismissed its 2017 lawsuit against a group of pre-2008 student loan trusts. The Bureau alleged that the trusts had, via third-party contractors, engaged in unlawful debt collection litigation tactics involving private student loans. Specifically, the lawsuit alleged the student loan trusts (1) filed lawsuits without proper documentation, (2) litigated time-barred debts, and (3) engaged in deceptive collection practices. The Bureau alleged that the trusts used misleading or false legal filings to mislead consumers.
The parties had agreed to a $2.25 million settlement in January, which included obligations to adhere to compliance obligations and restrictions on future lawsuits, but in February, a group of investors filed an objection to the deal in February, arguing it was unclear whether the CFPB had authority to settle the case in light its suspension of activities. The joint stipulation filed by the Bureau and the trusts has led to its dismissal with prejudice.
On the same day, the CFPB moved to withdraw from a 2023 lawsuit it filed jointly with New York Attorney General Letitia James against a subprime auto lender. The complaint alleged that the company’s indirect lending model obscured finance charges and incentivized dealers to inflate loan amounts. Although New York did not oppose the CFPB’s exit from the lawsuit, it will continue to pursue the litigation independently.
Putting It Into Practice: As the CFPB continues to narrow its enforcement activity by withdrawing from prior lawsuits (previously discussed here, here, and here), UDAAP violations continue to be enforced by both state and federal agencies (previously discussed here and here). Financial institutions should continue monitoring both federal and state UDAAP activity and reassess enforcement exposure in areas involving third-party practices and complex product structures.
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Colorado Overhauls Money Transmission Law to Align with Multistate Licensing Standards
On April 16, the Colorado General Assembly enacted House Bill 25-1201, replacing the state’s prior money transmitter law with the Money Transmission Modernization Act (the “Act”). Modeled on the multistate framework developed by the Conference of State Bank Supervisors (CSBS), the Act aims to align Colorado’s licensing and oversight regime with standards adopted in other states, while updating key regulatory definitions, exemptions, prudential requirements, and enforcement tools.
The Act introduced several notable changes for covered entities, including:
A broader definition of regulated activity. The law now covers digital money movement and payroll processing, expanding licensing requirements.
Modernized control thresholds and notifications. Entities seeking to acquire control of a licensee or adding key individuals must notify or obtain approval from the Division of Banking, subject to financial and character reviews.
Expanded exemptions. The Act exempts banks, payee agents meeting specific criteria, broker-dealers acting within the scope of securities law, and certain governmental and judicial appointees, among others.
Enhanced supervisory authority. The Division may participate in multistate examinations and rely on reports from other accredited states, allowing for greater coordination and reduced redundancy in oversight.
Customer protection provisions. Licensees are required to forward funds timely, provide receipts containing specific transaction information, and offer refunds unless certain exceptions apply. Required disclosures must be in the language principally used to market the service.
Putting It Into Practice: Colorado’s adoption of a uniform money transmission framework is part of a growing trend among states to expand and modernize financial licensing requirements (previously discussed here and here). Companies operating in Colorado should assess whether their activities fall within the expanded scope of the new law and ensure compliance with updated licensing, control, reporting, and bonding requirements.
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Top Ten Regulatory and Litigation Risks for Private Funds in 2025
Confession: writing this in May 2025, we cannot predict with confidence what the rest of 2025 will bring. The year has already seen four months of change and upheaval – political, regulatory, and economic. The new US administration has touted a business-friendly regulatory environment, with actual and promised tax cuts and deregulation. However, geopolitical tensions, tariff trade wars and political instability have introduced new risks and created a climate of extreme unpredictability. We should expect 2025 to hold several surprises still, whether that is a breakout of peace or new political themes obtaining prominence in one or more jurisdictions.
Against this backdrop, it can be tempting to adopt the view of legendary film writer William Goldman declaring that “nobody knows anything” and that publishing our annual “Top Ten Litigation and Regulatory Risks for Private Funds” is simply a fool’s errand. We have, after all, already rewritten this introduction multiple times before new developments make it out of date again. However, whatever happens, sponsors with strong foundations and nimble mindsets will be best placed to take advantage of any new opportunities that arise and be able to pivot as needed in new, more promising directions.
We have therefore focused on two sub-themes to support those strong foundations:
Topics to ensure “your house is in order” to give those strong foundations (e.g., how to navigate ESG in 2025, the use of insurance products by sponsors, best practice with MNPI, dealing with whistleblowers and global anti-corruption compliance)
Risks arising now from the trends of 2024 (e.g., risks from the growth of the private credit market, the rise in earn out disputes in portfolio companies and navigation of end-of-life funds)
To complete our list of ten, we will engage in some tentative crystal ball gazing, including the role of the SEC in a non-regulatory environment and outward investment restrictions and tariffs, but will, like our clients and readers, seek to remain “nimble” to ensure we remain relevant.
With this backdrop, we are pleased to present the Top Ten Regulatory and Litigation Risks for Private Funds in 2025.
ESG in 2025: Finding the Sweet Spot in a Complex World
Regulatory Scrutiny on Potential MNPI in the Credit Markets
SEC Regulation in a Non-Regulatory Environment
Global Trade in 2025: Tariffs and Outbound Investment Restriction
Three Risks to Monitor in Private Credit
End Of (Fund) Life Issues and Zombies
Navigating Earn-Out Disputes: Key Considerations for Portfolio Companies
Why the DOJ’s New Whistleblower Program Remains Relevant
Protecting Sponsors from Emerging Portfolio Company Risks through Insurance
FCPA & Anti-Corruption Enforcement: Shifting Global Dynamics in Light of New US Regime
Additional Authors: Dorothy Murray, Joshua M. Newville, Todd J. Ohlms, Robert Pommer, Seetha Ramachandran, Nathan Schuur, Bryan Sillaman, Robert Sutton, John Verwey, Jonathan M. Weiss, William D. Dalsen, Rachel Lowe, Adam L. Deming, Adam Farbiarz and Hena M. Vora
Broker-Dealers, Investment Advisers And Others May Soon Face Enforcement Under the California Consumer Financial Protection Law
In 2020, the legislature enacted the California Consumer Financial Protection Law. The CCFPL significantly expanded the regulatory authority of the Department of Financial Protection & Innovation by granting it the power to enforce any California or federal consumer financial law pursuant to Financial Code section § 90003(a)(2). Currently, this authority has been exercised with respect to “covered persons”, as defined in Financial Code § 90005(f). These include providers of debt settlement services, income-based advances, private postsecondary education financing, and student debt relief services.
Now, the legislature is pondering a huge expansion of the DFPI’s jurisdiction by authorizing the DFPI to use its authority to enforce Financial Code § 90003 against persons and their employees licensed by the DFPI under other statutes. If SB 825 becomes law, the DFPI could take action against broker-dealers, investment advisers, finance lenders, and others for, among other things, engaging in any unlawful, unfair, deceptive, or abusive act or practice with respect to consumer financial products or services.
Navigating Business Financing: Understanding Your Loan Options
Business financing isn’t one-size-fits-all — and choosing the wrong option can cost more than just interest. Whether you’re launching a startup, scaling operations, or managing a tight cash cycle, the type of loan you choose can shape your company’s trajectory. From asset-backed lending to merchant cash advances, the financing world is full of tools — and traps. This article breaks down the major options, clarifies key distinctions, and highlights what smart business leaders should consider before signing on the dotted line.
Debt vs. Equity
This article, of course, assumes the decision has been made to finance the company’s capital needs through debt. While this form of financing does not dilute ownership, it creates financial obligations that can strain cash flow. Entrepreneurs should carefully assess whether they can meet repayment obligations before taking on debt.
Editors’ Note: Read “The Basics of Business Formation: What Every Entrepreneur Needs to Know” for more information.
Asset-Based Lending vs. Cash Flow Lending: Understanding the Distinctions
When seeking financing, businesses often encounter two primary lending structures: Asset-Based Lending (ABL) and Cash Flow Lending.
Asset-Based Lending
This type of lending is secured by tangible assets such as inventory, accounts receivable, or equipment. The loan amount is typically determined by the value of these assets. Michael Weis, of Weis Burney, explains that in asset-based lending, the focus is on the collateral. Lenders assess the liquidation value of assets to determine the loan amount.
Purchase Order (PO) Financing: Bridging Supplier Payments
When a business receives a substantial order but lacks the immediate funds to fulfill it, Purchase Order (PO) financing can be a viable solution. This financing method allows companies to obtain the necessary capital to pay suppliers upfront, ensuring that large orders can be completed without depleting working capital.
Harvey Gross, president of HSG Services, explains that PO financing enables companies to cover the cost of goods and labor, especially when suppliers demand payment before delivery. This can be particularly useful for businesses dealing with international suppliers.
Accounts Receivable Factoring: Monetizing Outstanding Invoices
Factoring involves selling a company’s accounts receivable (invoices) to a third party (a factor) at a discount. This provides immediate cash flow, which is essential for businesses needing liquidity before their customers pay their invoices.
Gross notes that factoring is one of the oldest forms of business financing. It allows businesses to sell their receivables and gain immediate access to funds, improving cash flow without incurring additional debt.
Cash Flow Lending
This approach relies on the company’s expected future cash flows for repayment. Lenders evaluate the business’s financial health, including revenue and profitability, to assess loan eligibility. Weis adds that cash flow lending emphasizes the company’s ability to generate sufficient cash to service debt. It’s more about the income statement than the balance sheet.
Personal Guarantees: The Individual’s Commitment
Lenders often require a personal guarantee from business owners, making them personally liable for the loan if the business defaults. This ensures that the owner’s personal assets can be used to repay the debt, adding a layer of security for the lender.
Weis emphasizes that a personal guarantee serves both legal and psychological purposes. It demonstrates the owner’s commitment and aligns interests between the borrower and lender.
Business owners should take the time to understand, and potentially negotiate a personal guarantee before signing one. They come in many flavors.
Editors’ Note: Read “Good Boys and ‘Bad Boys’ — Borrower Promises and Lender Rights in Carveout Guaranties” for more information.
Construction and Bridge Loans: Financing Growth and Transition
Construction Loans: These are short-term loans used to finance the building or renovation of a property. They typically cover the costs of construction and are repaid upon completion, often through the acquisition of a mortgage. Phil Buffington, a financial expert with Balch & Bingham, notes that construction loans provide the necessary funds to cover building costs. Once the project is complete, businesses usually refinance into a long-term loan.
Bridge Loans: These interim loans provide immediate cash flow to cover current obligations while awaiting long-term financing. They are commonly used in real estate to bridge the gap between the purchase of a new property and the sale of an existing one.
Buffington explains that bridge loans are designed to offer quick liquidity during transitional periods, ensuring that businesses can meet short-term needs without disruption.
Equipment Financing: Acquiring Essential Assets
Equipment financing allows businesses to purchase necessary machinery or equipment by using the equipment itself as collateral. This type of financing is essential for companies that require expensive equipment to operate but prefer to preserve cash flow.
Buffington advises that, when considering equipment financing, a business owner should evaluate the lifespan of the equipment and the terms of the loan to balance the cost with the expected utility.
Merchant Cash Advances (MCAs): Quick Cash with Caution
A Merchant Cash Advance (MCA) provides businesses with immediate funds in exchange for a percentage of future sales. While MCAs offer quick access to capital, they often come with high costs and can impact cash flow significantly.
Gross warns that MCAs can be enticing due to their speed and lenient credit requirements, but the associated costs can be exorbitant, sometimes exceeding 100% APR. It’s crucial to understand the terms fully before proceeding.
The Regulatory Landscape
The financing industry is subject to evolving regulations aimed at protecting businesses and ensuring fair practices. For instance, certain states have introduced legislation requiring licensing for commercial financing providers and mandating clear disclosures.
Jacqueline Brooks, a partner with Duane Morris, emphasizes the importance of staying abreast of regulatory changes. Compliance not only protects the business but also fosters trust with lenders and customers.
Making Informed Financing Decisions
Understanding the nuances of various financing options empowers businesses to make informed decisions aligned with their goals and financial health. Collaborating with financial advisors and legal experts can provide valuable insights and help navigate the complexities of business financing.
To learn more about this topic view Business Borrowing Basics / What Kind of Loan? The quoted remarks referenced in this article were made either during this webinar or shortly thereafter during post-webinar interviews with the panelists. Readers may also be interested to read other articles about business borrowing.
This article was originally published here.
©2025. DailyDACTM, LLC d/b/a/ Financial PoiseTM. This article is subject to the disclaimers found here.
The Renaissance of HVDC for a Low Carbon Future
In this, the first of a series of two articles, we explore the resurgence of high voltage DC transmission technology and its relevance in a world that is transitioning to renewable power and adopting electric vehicles and heating and reducing its reliance on fossil fuels.
In this article we consider the benefits of the technology and some of the challenges it creates for investors, regulators and policy makers. In the second article we will look at how investments in HVDC transmission projects might be structured, including by examining examples of projects that have been successfully implemented.
Introduction
Anyone who has read a little history or seen the 2017 film The Current War knows that George Westinghouse’s alternating current (AC) won the late nineteenth century battle against Thomas Edison’s purportedly safer direct current (DC) alternative—the evidence is plain to see in our own homes. Ultimately, in 1892 the Edison Electric Light Company merged with its main AC competitor, Thomson-Houston, to form General Electric.[1]
A principal reason for AC’s early success was that transmission of electricity over significant distances is inefficient at low voltages: the energy wasted as heat in a conductor is proportional to the square of the current; and, for any given quantity of power transmission, the current is inversely proportional to voltage. Therefore, the higher the voltage the lower the energy losses become.
High transmission voltages are therefore desirable, with lower voltages at the point of use for safety reasons. A hundred odd years ago there was no efficient solution to convert DC from low to high voltage. AC on the other hand could be easily stepped up in voltage using a simple and cheap transformer, which has no moving parts. The invention of the induction motor also allowed AC to be used to power heavy industrial machinery, although DC still had many advantages over AC, such as being easier to use for railways and to control variable speed, asynchronous motors.
DC’s renaissance
More recently, over the past few decades, DC systems and in particular high voltage DC (HVDC) have enjoyed a renaissance, owing to their offering a number of benefits. HVDC transmission involves purely reactive power with no reactive power component and associated losses, which ultimately limits the length of high voltage AC power lines. HVDC transmission lines are technically the only viable solution for submarine or terrestrial buried electrical cables longer than a few tens of kilometers because of the capacitance of the insulated cables (which have to be charged and discharged each cycle, causing significant energy losses).
DC transmission also allows two asynchronous AC transmission grids (e.g., operating at different frequencies in different territories) to be interconnected. For the same reason, HVDC is typically also used to connect offshore wind farms, with the additional advantage that wind turbine generators can operate asynchronously with the onshore grid and, as such, at an optimum level of efficiency for any given wind condition.
Photovoltaic panels are only capable of directly producing DC output, and an inverter therefore has to be used to generate a three-phase high voltage AC output which is synchronised with the transmission grid. The same is true of storage batteries and other non-traditional power generation sources that do not use spinning generators.
Inverters use high-power, solid-state devices (typically, insulated gate bipolar transistors (IGBTs)) which switch on and off in a modulated configuration, controlled by sophisticated electronics, to produce a sinusoidal output which can be stepped up via a transformer to high voltage AC (HVAC) for transmission. Similar conversion devices can be configured to step-up the lower voltage DC output of a solar panel array or battery energy storage system directly to HVDC suitable for transmission or indeed to convert HVAC to HVDC.
The drive towards increased offshore wind power generation in many countries, including the UK, where generation sources are located far from where energy is required by consumers, provides a good illustration of the advantages and benefits of HVDC solutions. It would be impractical to build new transmission lines linking Scotland with England, such as the Eastern Green Links, without using subsea cables;[2] and, as noted above, HVDC is the only viable way to transmit electricity over long distances via such cables, which will necessarily have to be several hundred kilometers long.[3]
Several planned projects also involve long distance terrestrial buried HVDC cables, as the impact on the landscape is minimal once the work is completed and the land corridor restored—and there may be significant local resistance to new terrestrial overhead cables.
As the proportion of electricity generated by renewables increases, and as battery storage systems become more widespread, the arguments for using HVDC transmission more generally, as opposed to high voltage AC, become more compelling. If we take into account the future expansion of electric vehicle (EV) use and the need for fast battery charging stations, there are additional arguments in favour of HVDC systems. EV batteries require relatively low voltage but high current DC to charge rapidly. As such, a battery charging station array could in principle be supplied locally by DC or AC. There is no inherent technical requirement for AC as opposed to DC (or vice versa) and in principle either could be used with the appropriate conversion equipment; but what HVDC offers is potentially greater efficiencies and economies on a wider scale, which are discussed below.
Why use HVDC systems?
HVDC transmission systems offer a number of advantages over HVAC:
HVDC requires only two conductors, whereas HVAC needs three to support three phases, reducing costs and potentially requiring narrower land corridors.
HVDC power transmission losses may be lower than 0.3% per 100 km, which is 30% to 40% lower than losses for HVAC at an equivalent voltage, for a number of reasons:
AC suffers from a skin effect whereby only the outer part of the cable conducts current, which is avoided in DC transmission—the result is that for a given conductor size and energy losses, HVDC systems can transmit higher current over longer distances;
HVDC lines operate continuously at peak voltage (which is determined by the design of the transmission line insulators and towers, among other things), whereas HVAC is sinusoidal—and while the crests of the sine wave are naturally at peak voltage, the effective average voltage (and corresponding current) is the root mean square value (RMS), which is only 0.7 times the peak voltage; the net effect is to increase the power transmission capacity of an HVDC system relative to HVAC; and
DC carries only active power, whereas AC transfers both active and reactive power.
HVDC transmission lines/interconnectors are asynchronous, enabling connections between unsynchronised power sources, such as two grids operating at different frequencies, phases or voltages.
As noted above, HVDC is the only practical option for undersea cables longer than around 50 km.
Drawbacks of HVDC
HVDC does have certain drawbacks:
HVDC systems may be less reliable, have lower availability and be more expensive to maintain than HVAC, owing to their greater complexity;
additional complexity also increases the relative cost for shorter-distance transmission as compared with HVAC;
converter stations are required at each end of HVDC cables to convert from AC to DC and back again (assuming the source and load are AC)—these are expensive and may introduce relatively higher energy losses for shorter distance lines—but as noted above in the case of DC generation sources (such as solar) and DC loads (such as battery chargers), conversion equipment is also required if an HVAC transmission line is used; and
HVDC switching and breaker systems are more difficult to design and implement because, unlike AC which has zero current twice every cycle (at which point the circuit can be broken safely), HVDC current is continuous and a simple mechanical breaker cannot therefore be used because it would suffer potentially destructive arcing.
Weighing up the pros and cons, it is generally considered that for overhead transmission lines, HVDC transmission becomes cost effective above a minimum critical distance.
Bringing increased future reliance on renewable power generation, electrical vehicles, battery storage and heat pumps into the equation suggests that there are potential benefits in developing wide area HVDC super grids. These might help to mitigate the intermittency of renewable power sources by averaging and smoothing the outputs of geographically dispersed generation facilities.
It also seems likely that substantial investment in upgrading of transmission systems will be required to support any move towards the widespread use of electric vehicles and the adoption of heat pumps for heating in place of natural gas. Existing transmission systems are entirely inadequate and would create severe bottlenecks. The United Kingdom is already seeing the impact of planning for such changes in its “Great Grid Upgrade” through the procurement of the Eastern Green Links (EGL 1 to EGL 4) between Scotland and England, in the case of EGL3 and EGL4 reaching as far as East Anglia.
Implications for investors, regulators and policymakers[4]
Given the potential attractiveness of HVDC solutions, those responsible for investing in grid infrastructure (such as integrated utilities or unbundled network companies) may need to keep their investment programmes under review. Changes in the nature of the grid and the technologies connected to it may mean that HVDC becomes a contender to traditional AC network investments where the conditions are right, such as where power generated by non-synchronous generators (e.g., wind and solar farms) is being moved over long distances and in particular where it is impractical to build new conventional terrestrial transmission lines.
As noted above, this is already happening today in the UK. While many early links to offshore windfarms relied on AC technology, ENTSO-E’s Offshore Network Development Plan (ONDP) has adopted HVDC as a standard transmission technology, with 525 kV VSC converter technology. Following the precedent of the Eastern Green Link projects, it looks likely that 525 kV HVDC may become the standard for the significant GB offshore network investment planned in the North Sea, as well as interconnectors (for example, Neuconnect).
The EGL projects were signed off after formal reviews of their costs and benefits, conducted separately from the normal regulatory regime for the GB transmission network. This underlines that considering the full range of technologies and making optimum choices with the right long-term strategic benefits may require extraordinary action by policymakers and regulators.
Traditionally, network regulation typically aims to incentivise grid companies to do what is cheapest, but regulatory incentives are typically less effective than those from competitive markets. For example, if new technologies carry more of an operational risk than the traditional options, and grid operators believe that regulators may penalise them for investments which fail to perform, they may act in an unduly risk-averse manner and just carry on doing what they have always done, particularly if new technologies are not as well understood as traditional ones; and, at least in the short term, choice of technologies may be affected by limitations in the supply chain for HVDC equipment, and in particular cables, while traditional HVAC infrastructure is more readily available.
Everyone would agree that regulators should protect customers’ interests. However, they also need to realise that, in a world of technical change, this sometimes means innovation and taking greater risks. While penalising failure (e.g., lower asset availability) or failing to allow companies to pay to reserve supply chain capacity may feel like the right strategy in the short term, this could act to stall innovation, which in turn might be against customers’ long-term interests. Striking the right balance is therefore critical.
The NeuConnect project (which we discuss in part 2 of this article) provides a good illustration of how regulators such as Ofgem have taken a flexible approach in adapting regulatory regimes to unlock private investment in HVDC infrastructure through revenue support arrangements.
Endnotes
[1] Today, General Electric’s successor GE Vernova is once again championing DC in the form of high voltage conversion systems to support HVDC cables that can transfer electricity point-to-point or from offshore wind farms to shore—more about this below.
[2] The environmental impact of using terrestrial overhead transmission lines for the entire length of one of the Eastern Green Links would likely be prohibitive. Terrestrial underground cables are estimated by Scottish Power to cost between five and ten times as much as overhead transmission lines; however, submarine cables are also significantly more expensive than overhead transmission lines.
[3] For example, Eastern Green Link 1 (EGL1) is almost 200 km long (including 176 km of subsea cable) and when completed will link East Lothian with County Durham, allowing the transfer of 2GW of electrical power. The UK is planning a series of such links, including four Eastern Green Links, and the Western HVDC Link between Scotland and North Wales (with a capacity of 2.25 GW) was completed in 2019.
[4] Comments on regulatory aspects were kindly provided by Dan Roberts of Frontier Economics.
SEC Chairman Atkins Speaks on Crypto
In his first public statement since being sworn in on April 21, new SEC Chairman Paul Atkins delivered remarks on April 25 at the third roundtable of the SEC’s Crypto Task Force.
Chairman Atkins began by thanking Commissioner Peirce for “her principled and tireless advocacy for common-sense crypto policy within the United States.” Referring to her by her nickname “CryptoMom,” Atkins lauded Commissioner Peirce as “the right person to lead the effort to come up with a rational regulatory framework for crypto asset markets.”
Chairman Atkins continued:
This is important work as entrepreneurs across the United States are harnessing blockchain technology to modernize aspects of our financial system. I expect huge benefits from this market innovation for efficiency, cost reduction, transparency, and risk mitigation. Market participants engaging with this technology deserve clear regulatory rules of the road. Innovation has been stifled for the last several years due to market and regulatory uncertainty that unfortunately the SEC has fostered.
We expect that reconsideration of the SEC’s approach to the regulation of digital assets will continue to be a high priority for Chairman Atkins.
Mexico’s Federal Executive Proposes Reforms to Competition Law
On April 24, 2025, Mexico’s Federal Executive sent the Senate a draft decree that aims to reform, add, and repeal several provisions of the Federal Competition Law (the Initiative to reform) to initiate the legislative process.
The Initiative to reform proposes amendments that are divided into four main areas: (i) organic configuration and adjustment of the National Antimonopoly Commission’s powers; (ii) strengthening the Commissions’ powers and improving antitrust procedures; (iii) regulatory adjustments; and (iv) adjustments in telecommunications and broadcasting matters.
(i) Changing the National Antitrust Commission’s Organizational Configuration and Attributions
The initiative proposes eliminating the Federal Economic Competition Commission (COFECE) and creating the National Antimonopoly Commission as a decentralized public agency attached to the Ministry of Economy. The new Commission would have legal personhood, management autonomy, and technical and operational independence.
The Commission’s structure would include a plenary composed of five commissioners the Federal Executive appoints in a staggered manner and that the Senate of the Republic ratifies. The Commission would maintain separation between the investigation and sanction functions.
(ii) Strengthening Powers and Improving Procedures to Combat Monopolies
The Initiative to reform would strengthen the Commissions’ investigative and sanction tools to combat monopolistic practices, as well as illicit concentrations. The main measures include:
Absolute Monopolistic Practices: Article 53 would be amended to sanction anticompetitive information exchanges without the need for a prior agreement.
Concentrations: The timeframe for investigating unlawful concentrations would increase from one to three years, and monetary thresholds would decrease to make more transactions reportable.
Collective Actions: The Initiative to reform specifies that these would be exercised once the administrative resolution is final.
Immunity and Fine Reduction Programs: The terms and benefits would change to encourage early cooperation by the entities under investigation.
Penalties and Enforcement Measures
In addition, the reform would strengthen enforcement measures and sanctions. For example, fines would increase for impeding verification visits ($22,628,000 MXN) and for failure to cooperate in appearances ($3,394,200.00 MXN).
Economic sanctions would become proportional to the damage caused. Examples of penalty increases include penalties of up to 20% of a company’s income for absolute monopolistic practices, 15% for committing relative monopolistic practices or illicit concentrations, and up to 10% for closing a transaction without obtaining an authorization from the authority when this was required.
(iii) Regulatory Adjustments
The Initiative to reform proposes adjustments to update legal references and elevate various regulatory provisions and the organic statute of the former COFECE to the status of law. Among the main adjustments are the following:
Verification and Qualification Procedures
The Initiative to reform proposes to make law the Procedure for Verification of Compliance with Obligations, which seeks to dissuade companies from neglecting to report transactions that may affect competition. This procedure would allow the National Antimonopoly Commission to verify that companies comply with their legal obligations and prevent mergers from taking place without prior supervision, which may result in anticompetitive effects.
In addition, the Qualification Procedure, which establishes criteria to determine whether certain information should be excluded from a file due to protected communications between a company and its defense counsel, would be made law. This seeks to guarantee the protection of confidential information and strengthen companies’ legal security, while ensuring that investigations are conducted in a fair and transparent manner. Strengthening of Investigative Powers
The Initiative to reform seeks to improve the procedures for investigating, notifying concentrations, and issuing opinions, with the objective of making them clearer, faster, and more efficient. Among the improvements are:
More Robust Investigations: The Investigating Authority would receive additional tools, such as inspection procedures, surveys, and data collection, in order to obtain relevant information. This would allow for the timely identification of anticompetitive practices.
Notification of Concentrations: Deadlines for investigating illicit concentrations would extend from one to three years, and monetary thresholds would decrease to make more transactions notifiable (the lowest threshold is $837,236,000 MXN in asset accumulation). This is especially relevant in digital markets, where acquisitions may be complex and difficult to track.
Definitions and Key Concepts
The Initiative to reform expands and specifies the elements that the National Antimonopoly Commission must consider when determining the existence of substantial power, and related markets. These include:
Substantial Power: More detailed criteria would be established to identify whether a company has the ability to fix prices, restrict supply, or exclude competitors without other agents being able to counteract these actions.
Related Markets: The Initiative to reform introduces a clearer definition of this concept that considers the interactions between markets that may influence competition. This is particularly relevant in sectors such as digital, where companies generally operate in multiple, interconnected markets.
These clarifications seek to ensure that the Commission’s investigations and resolutions are technically sound and in line with international best practices.
Transparency
The Initiative to reform aims to reinforce the principle of transparency by ordering the stenographic versions of the Plenary of the National Antimonopoly Commission’s sessions be published.
In addition, the reform proposes that the Plenary’s resolutions be drafted in the citizens’ language, facilitating consumers and companies’ understanding.
(iv) Changes in Telecommunications and Broadcasting
The Initiative to reform includes provisions to regulate cross participation in telecommunications and broadcasting, in compliance with Article 28 of the Mexican Constitution. The National Antimonopoly Commission would impose limits on the concentration of frequencies and concessions and would order the divestiture of assets when necessary to guarantee competition. The procedures related to preponderance would coordinate with the agency in charge of telecommunications and broadcasting policies.
In addition, it states that the legal acts that the Federal Telecommunications Institute (IFT) has issued in matters of economic competition, preponderance, and asymmetric regulation would continue to be effective.
General Impact
The Initiative to reform seeks to consolidate a more robust legal framework to combat anticompetitive practices, strengthen the state’s control over the economy, and promote fairer and more competitive markets.
The National Antimonopoly Commission may be operational by July 1.
Achieving this goal might depend on two key factors:
1.
Congress’ approval of the proposed amendments without significant debate; and
2.
The president’s appointment of the five new commissioners, followed by Senate ratification.
Considering the majority in Congress, these objectives are potentially achievable.