November 6 – Read the newsletter below for the latest Mortgage Banking and Consumer Finance industry news, written by Ballard Spahr attorneys. In this issue, our lawyers discuss the California Governor’s veto of the employment automated decision systems bill, the GENIUS Act and what banks and Fintechs need to know about the future of stablecoins, the latest happenings at the CFPB during the government shutdown, and much more.
- Podcast Episode: A New Era for Banking –What President Trump’s Debanking Executive Order and Related State Laws Mean for Financial Institutions, Government, and Banking Customers – Part 1
- Podcast Episode: The GENIUS Act and the Future of Stablecoins – What Banks and Fintechs Need to Know – Part 1
- Podcast Episode: The GENIUS Act and the Future of Stablecoins – What Banks and Fintechs Need to Know – Part 2
- Banks May Still Make Loans That Would Otherwise Be Subject to Flood Insurance Even Though Program Has Lapsed, Regulators Say
- Democratic Senators Accuse Trump Administration of Trying to Abolish CFPB by Failing to Fund It
- CFPB Rescinds Rule Creating Registry for Nonbank Enforcement Actions
- CFPB Says FCRA Prohibits States From Regulating Content of Credit Reports
- Federal Courts Do Not Have Funds for Full Operations as Result of Government Shutdown
- Federal Appeals Court Rejects Trump Administration Request to Delay CFPB Lawsuit Due to Government Shutdown
- Trump Administration Tells Appeals Court That Union Is Not Entitled to an En Banc Hearing in CFPB Lawsuit
- California Governor Vetoes Employment Automated Decision Systems Bill
- NCUA Proposes Rule to Eliminate ‘Reputational Risk’ From Supervision Process
- NCUA’s Hauptman Vows to Prohibit Regulation Through Enforcement
- Looking Ahead
This podcast features the first part of a recent webinar produced on September 24, 2025, titled, “A New Era for Banking: What President Trump’s Debanking executive order and Related State Laws Mean for Financial Institutions, Government, and Banking Customers.”
In Part 1, we discuss the following topics:
- History of debanking, including:
- Operation Chokepoint: An initiative by federal prudential banking regulators during the Obama administration aimed at discouraging banks supervised by them from providing services to companies engaged in payday lending.
- OCC Final Regulation on Debanking: Issued by Acting Comptroller Brian Brooks toward the end of President Trump’s first term, this regulation applied only to the largest banks in the country. It was sent to the Federal Register but never published and, therefore, never became effective.
- Elements and scope of the debanking executive order.
- Statutory authority (or lack thereof) of the executive order, which was largely based on the unfairness prongs of UDAAP and UDAP, even though a federal district court in Alabama held a few years ago that such unfairness prongs do not cover discrimination.
Our presenters, who hold diverse views on the wisdom of the executive order, are:
- Jason Mikula
Founder and Publisher, Fintech Business Weekly
Jason Mikula is an independent Fintech and banking advisor, consultant, and investor. He also publishes Fintech Business Weekly, a newsletter analyzing trends in banking and Fintech. He opposes the executive order.
- Brian Knight
Senior Counsel, Corporate Engagement, Alliance Defending Freedom
Brian Knight serves as Senior Counsel on the Corporate Engagement Team at Alliance Defending Freedom. His work focuses on issues of financial access, debanking, and preventing the politicization of financial services. He opposes the executive order.
- Todd Phillips
Assistant Professor of Law, J. Mack Robinson College of Business, Georgia State University
Todd Phillips is an assistant professor of law at Georgia State University. His areas of expertise include bank capital and prudential regulation, deposit insurance, and the laws governing federal regulators. He opposes the executive order.
- Will Hild
Executive Director, Consumers’ Research
Will Hild is the Executive Director of Consumers’ Research, the nation’s oldest consumer protection organization. He has led efforts to combat ESG and what he considers “woke capitalism,” including launching the Consumers First campaign. He supports the executive order.
- Graham Steele
Assistant Secretary for Financial Institutions, U.S. Department of the Treasury
Graham Steele serves as the Assistant Secretary for Financial Institutions at the U.S. Department of the Treasury. He is an expert on financial regulation and financial institutions, with over a decade of experience working at the highest levels of law and policy in Washington, D.C. He opposes the executive order.
Alan Kaplinsky, the founder and first practice group leader and now senior counsel of the Consumer Financial Services Group at our firm, moderated the webinar.
Part 2 of this webinar releases on November 6, 2025.
To listen to this episode, click here.
Consumer Financial Services Group
This podcast features the first part of a recent webinar produced on September 3, 2025, which examined the key provisions of the Guiding and Establishing National Innovation for U.S. Stablecoins, or GENIUS Act (the Act) and its regulatory impact on banks, Fintechs, and the future of stablecoins. The discussion covers critical definitions, licensing, oversight and enforcement requirements, and the relationship to state stablecoin laws. Panelists offer insights into the role of federal banking regulators such as the Comptroller of the Currency, the Federal Reserve, and the Financial Stability Oversight Council (FSOC), highlighting the Act’s efforts to establish a uniform regulatory framework and how financial institutions are responding to the new rules.
The webinar features three speakers: Art Wilmarth, Professor Emeritus at George Washington University Law School, Richard Rosenthal, Principal in Deloitte’s Risk and Financial Advisory practice and Peter Jaslow, Practice Co-Leader of Ballard Spahr’s Blockchain Technology and Cryptocurrency group.
Listeners will gain an understanding of how the GENIUS Act may reshape business stablecoin models. The episode touches on compliance timelines, emphasizing the rapid pace of regulation, and previews issues of consumer protection and its ban on making interest payments. This dialogue sets the foundation for deeper analysis of legal risks and constitutional challenges, which will be explored in the upcoming second part of the series.
Consumer Finance Monitor is hosted by Alan Kaplinsky, senior counsel at Ballard Spahr, and the founder and former chair of the firm’s Consumer Financial Services Group. We encourage listeners to subscribe to the podcast on their preferred platform for weekly insights into developments in the consumer finance industry.
To listen to this episode, click here.
Consumer Financial Services Group
This podcast features the second part of a repurposed webinar produced on September 3, 2025, which dives into the legal risks, compliance challenges, and emerging constitutional questions stemming from the GENIUS Act. The conversation examines the strict prohibition of deceptive claims regarding federal backing or insurance for stablecoins, highlighting the significant civil liabilities, and penalty provisions attached to violations.
Art Wilmarth delves deeply into areas such as federal preemption of state laws, consumer protections, and the power dynamics introduced by big tech and nonbank entities in the stablecoin market. Richard Rosenthal outlines the importance of building cross-functional teams, updating risk taxonomies, and adapting existing safety and soundness frameworks to the new environment presented by stablecoins. Peter Jaslow highlights legal risks for stablecoin issuers, such as the lack of explicit federal insurance, the reliance on monthly attestations of reserves, complex issues surrounding redemption policies, and significant civil and criminal penalties for noncompliance.
The speakers articulate the importance of rigorous compliance frameworks and the critical role finance teams will play in adapting to the new regulatory demands. Additionally, there is emphasis on the GENIUS Act’s consumer protection priorities and its alignment with administration policy objectives.
This episode also explores the business model impact of the GENIUS Act, discussing the growing demand for stablecoin and tokenized deposit solutions, and how institutions might leverage these technologies for treasury management and cross-border payments. Panelists provide perspectives on how innovation is being fostered, the implications for privately held stablecoins, and the ways the GENIUS Act reflects the desires of the crypto industry. This session offers a holistic look at both the challenges and opportunities that financial institutions must consider as regulatory and market landscapes evolve.
Consumer Finance Monitor is hosted by Alan Kaplinsky, senior counsel at Ballard Spahr, and the founder and former chair of the firm’s Consumer Financial Services Group. We encourage listeners to subscribe to the podcast on their preferred platform for weekly insights into developments in the consumer finance industry.
To listen to this episode, click here.
Consumer Financial Services Group
Financial institutions may continue to make loans that would otherwise be subject to federal flood insurance statutes even though the authorization for the National Flood Insurance Program (NFIP) has lapsed, federal financial regulators reassured lenders.
During a NFIP lapse, lenders are permitted to make these loans without requiring federal flood insurance, the Farm Credit Administration, FDIC, Federal Reserve Board, OCC, and NCUA said, in joint guidance to financial institutions.
The regulators cautioned, however, that institutions “must continue to make flood determinations; provide timely, complete, and accurate notices to borrowers; and comply with other applicable parts of the flood insurance regulations. In addition, lenders should evaluate safety and soundness and legal risks and should prudently manage those risks during the lapse period.”
Much of the NFIP lapsed when funding for much of the federal government expired on September 30.
The Congressional Research Service has said that flood insurance contracts entered into before the September 30 expiration would continue until the end of their policy term of one year. The authority for the NFIP to borrow funds from the U.S. Treasury would be reduced from $30.425 billion to $1 billion.
The NFIP is not authorized under a long-term authorization; attempts to enact long-term legislation have repeatedly failed. Instead, it has been authorized through 33 short-term reauthorization measures, according to the CRS.
Members of Congress have been pushing legislation to reauthorize the NFIP even as the spending stalemate continues. For instance, Reps. Troy Carter, Sr., (D-La.); Mike Ezell, (R-Miss.); and Lizzie Fletcher, (D-Texas), have introduced legislation that would reauthorize the program through November 21, 2025. That was the same deadline as a Continuing Resolution to fund the government that the House passed in September.
And, Rep. Andrew Garbarino, (R-N.Y.), has introduced legislation that would reauthorize the program through September 30, 2026.
On the Senate side, Sen. John Kennedy, (R-La.), has called on Congress to enact standalone NFIP legislation.
However, Politico has reported that House Republican leaders oppose enacting such legislation at this point.
Industry trade groups have called on Congress to extend the NFIP program, warning that without easy access to flood insurance, property buyers could lose financing.
The CRS estimated that during a lapse in June 2010, each day more than 1,400 home sale closings were canceled or delayed. That represented more than 40,000 sales each month.
In recent years, there has been a growth in private flood insurance, according to AM Best, which reported that the share of premiums in that segment grew from 13% in 2016 to 27% in 2024. Private flood insurance may be an option in some cases.
Despite the guidance from the regulators, lenders must consider investor and agency requirements regarding flood insurance.
Richard J. Andreano, Jr. and John L. Culhane, Jr.Democratic Senators Accuse Trump Administration of Trying to Abolish CFPB by Failing to Fund It
Democrats on the Senate Banking, Housing and Urban Affairs Committee are accusing Acting CFPB Director Russell Vought of trying to shut down the CFPB by starving it of funding.
“You have…let the fiscal year pass without having requested any funding for the CFPB to perform its work, an unprecedented approach that threatens to leave the agency unable to fulfill its many statutory obligations on behalf of consumers across the country,” the Democrats, led by ranking Democratic Sen. Elizabeth Warren, (D-Mass.), said in a letter to Vought.
Under Section 1017 of Dodd-Frank, the CFPB is funded through quarterly transfers from the combined “earnings” of the Federal Reserve system. The One Big Beautiful Bill Act reduced the maximum amount that the CFPB can receive in a fiscal year from 12% to 6.5% of the Federal Reserve’s inflation-adjusted operating expenses for 2009.
With the reduction, the maximum amount for fiscal 2025 would be $446 million. However, critics have asserted that “earnings” means profits, that the Federal Reserve system currently has no earnings and has not had any earnings since it has been operating at a loss since September 2022, and accordingly that the Bureau cannot be funded. See here, here, and here.
The Democratic Senators also questioned Vought’s reported recent comments on the “Charlie Kirk Show.” According to several press reports, Vought said that he thinks he will be successful in shutting down the CFPB within the next two or three months.
“Those comments are particularly concerning given that a federal court has specifically blocked you from illegally shutting down the agency,” the Democrats wrote.
The National Treasury Employees Union has filed suit, arguing that the firing of more than 1,400 CFPB employees amounts to a shutdown of the agency.
The U.S. Circuit Court of Appeals for the District of Columbia has said that the Trump administration officials may resume the firings, but it withheld the mandate in the case. The union subsequently filed a request for an en banc hearing.
The Democratic Senators told Vought that while administration officials have said in the litigation that there is no plan to close the Bureau, his “brazen admission” makes it clear that the goal is to shut down the CFPB.
And they asked Vought to respond by October 31 to the following specific questions:
- What is the current unobligated balance of the Consumer Financial Protection Bureau Fund? Without additional funding, on what date will the Bureau run out of funding at its current spending rate?
- What is the current unobligated balance of the Consumer Financial Protection Bureau’s Civil Penalty Fund?
- Despite a federal court order barring you from shutting down the CFPB, you confirmed that you still plan to try to close the agency in two or three months. Has the agency prepared specific plans for reductions in force, for terminating contracts, for reducing enforcement actions, or for winding down other work in that timeframe? Please provide copies of any relevant memoranda.
Whether and how Vought will respond remains to be seen.
John L. Culhane, Jr. and Alan S. KaplinskyCFPB Rescinds Rule Creating Registry for Nonbank Enforcement Actions
The CFPB has formally rescinded its rule creating a registry for nonbank enforcement actions.
The rule, proposed during the Biden administration, would have required certain nonbank entities to register certain covered enforcement or court orders, and comply with ongoing, attested reporting requirements on the entity’s compliance with such orders.
The repeal was effective on October 29, 2025.
The Bureau proposed rescinding the Nonbank Registry Rule (NBR) rule earlier this year.
The rule would have applied to any nonbank that engaged in offering or providing consumer financial products or services and any of its service provider affiliates unless excluded. The rule would have required that covered entities register with the CFPB if they were, or became, subject to certain court orders or certain types of orders from state, local, or federal agencies involving consumer protection laws. We discussed the rule at length here.
The CFPB said it was concerned that the rule would have imposed costs on regulated entities and that those costs would be passed onto the consumer. The benefits of the rule are “speculative and unquantified,” the CFPB said.
When it was issued during the Biden administration, the CFPB said the rule would help deter violations of consumer protection laws. At the time, the CFPB also said it would help the Bureau, law enforcement and the public limit harms from repeat offenders.
However, in repealing the rule, the CFPB said it was unlikely that consumers would find the registry useful, including as a tool to comparison-shop among providers of consumer financial products and services.
The Bureau said it consulted with the Federal Reserve, the FDIC, the OCC, the NCUA, the FTC, and the Farm Credit Administration, state agencies, and tribal governments, in developing the rescission rule.
Comments from the Small Business Office of Advocacy, the Conference of State Bank Supervisors, and most industry associations supported rescission of the rule, the CFPB said.
“The Bureau agrees with commenters who supported rescission of the NBR Rule because its various features are duplicative, unnecessary, or significantly burdensome,” the CFPB said.
The Consumer Financial Protection Bureau (CFPB) has recently released its Spring Semiannual Regulatory Agenda (which included the proposal to repeal the nonbank registry discussed above) the first under the Trump administration and it’s raising eyebrows across the consumer financial services industry.
Click here for the webinar recording.
John L. Culhane, Jr., Alan S. Kaplinsky, and John D. Socknat
CFPB Says FCRA Prohibits States From Regulating Content of Credit Reports
The CFPB has issued an interpretive rule that says the federal Fair Credit Reporting Act (FCRA) preempts states from regulating broad areas of credit reporting.
“Congress meant to occupy the field of consumer reporting and displace [state] laws within that field,” the Bureau said, in the rule that went into effect on October 28.
The interpretive rule could call into question the legality of recent state laws that purport to ban medical debt and other information from credit reports.
The rule replaces a Biden administration interpretive rule that the agency repealed in May, when it repealed almost 70 other guidance documents and interpretive rules.
“The 2022 rule was not binding on the public or courts, and the withdrawal of the 2022 rule will have no effect on the legal status of any [state] law,” according to the CFPB.
The Biden administration’s interpretive rule analyzed the FCRA, finding that it had a “narrow sweep” that allowed for substantial state regulation of consumer reports and consumer reporting agencies.
The Trump administration examined the text and legislative history of the FCRA and rejected that position, saying that the prior interpretive rule was wrong to conclude that states can regulate the presence of certain categories of information, such as medical debt or arrest records, on a consumer report.
Moreover, the Trump administration concluded that the prior interpretive rule should never have been issued in the first place. “The 2022 rule [was] neither necessary nor [did] it reduce compliance burdens,” the Trump administration said. The administration emphasized that the 2022 rule risked “fracturing” the credit reporting system by allowing each state to create its own standards.
The administration said that having to comply with those disparate standards would impose substantial compliance costs on consumer reporting agencies, users of credit reports and furnishers of credit report information, “turning what is currently a cohesive national market into dozens of regional markets.”
The 2022 interpretive rule would lead to a “patchwork” system of conflicting regulations, which the FCRA’s was meant to avoid, according to the CFPB. The content of consumers’ credit reports could vary, depending on where people live, the agency said.
For instance, the CFPB said, if some states were to limit the types of adverse information that could be included in a credit report, lenders might not be able to identify the riskiest borrowers, which could lead to a cross-subsidy by good credit risk borrowers for worse credit risk borrowers.
“The utility of credit reports would be undermined because lenders would no longer be able to accurately compare consumers across the country,” according to the CFPB.
Since the rule is an interpretive one, it did not have to go through the comment period.
Daniel JT McKenna, John L. Culhane, Jr., Ronald K. Vaske, and Joseph J. SchusterFederal Courts Do Not Have Funds for Full Operations as Result of Government Shutdown
The federal judicial branch no longer has funds to sustain full operations, the U.S. Courts system has announced.
“Until the ongoing lapse in government funding is resolved, federal courts will maintain limited operations necessary to perform the Judiciary’s constitutional functions,” the Administrative Office of the U.S. Courts said in an announcement on the U.S. Courts’ website.
Federal judges will continue to serve in accordance with the U.S. Constitution, but court staff may only perform certain excepted activities allowed under the federal Anti-Deficiency Act, according to the statement. Employees performing that work will not be paid during the funding lapse. Staff members who are not performing excepted work have been furloughed.
“Examples of excepted work include activities necessary to perform constitutional functions under Article III, activities necessary for the safety of human life and protection of property, and activities otherwise authorized by federal law,” officials said,
Individual courts will have the responsibility to determine which cases will continue on schedule and which cases will be delayed.
The Administrative Office’s statement said that the Case Management/Electronic Case Files system will be in operation for the electronic filing of documents, and that case information will be available on PACER. In addition, the statement said that the jury program is not affected by the appropriations lapse. The administrative office will not have staff available to answer its public phone number.
At the Supreme Court, SCOTUSblog reported that Patricia McCabe, the head of court’s Public Information Office, said in a the statement that the Supreme Court building will be closed to the public, but that the court will be open to conduct essential work, which includes “hearing oral arguments, issuing orders and opinions, processing case filings, and providing police and building support needed for those operations.”
The government shutdown began when the federal fiscal year ended on September 30. The Judiciary was able to continue paid operations through October 17, with some work continuing on October 18 and 19, using court fee balances and other funds not dependent on federal appropriations.
Consumer Financial Services Group
A federal appeals court has rejected the Trump administration’s request to delay its response to an en banc hearing request in the lawsuit challenging the mass firings at the CFPB due to the government shutdown.
The National Treasury Employees Union (NTEU), which is challenging the firings, had not opposed the administration’s request.
Nonetheless, on October 17, the U.S. Court of Appeals for the District of Columbia said in a brief order that that the administration was required to respond to the union’s request for an en banc hearing by October 21, 2024.
Justice Department attorneys had said that funding for the DOJ had expired and that without appropriations, DOJ attorneys were prohibited from working except in limited circumstances. As a result, they said they could not respond to the request for an en banc hearing.
The plaintiffs, including the NTEU, filed suit against the Trump administration, contending that mass firings at the CFPB would result in the agency being shut down.
A divided appeals court dissolved a lower court injunction blocking the firings and said that the Trump administration can resume the firing of more than 1,400 employees at the CFPB. However, when it dissolved the injunction, the Appeals Court withheld the mandate in the case until the plaintiffs timely petitioned for a rehearing en banc. The plaintiffs subsequently filed a request for the en banc hearing.
The plaintiffs have argued that the Trump administration is violating federal law by trying to abolish the CFPB through massive layoffs. The Trump administration has said it was not intending to abolish the agency by laying off employees.
However, according to several press reports, Office of Management and Budget Director and Acting CFPB Director Russell Vought recently said on the “Charlie Kirk Show” that he thinks he will be successful in shutting down the CFPB “within the next two to three months.”
John L. Culhane, Jr. and Richard J. Andreano, Jr.
Contending that it cannot abolish the CFPB on its own, the Trump administration said that the union arguing that such a plan exists should not be entitled to an en banc hearing before an appeals court.
“Although factual disputes exist surrounding those actions, all the parties and both the majority and dissenting opinions agree that the Executive Branch lacks power to unilaterally abolish [the] CFPB based on policy disagreements with Congress’s choices,” the Justice Department said, in response to the request for an en banc hearing filed by the National Treasury Employees Union in the U.S. Circuit Court of Appeals for the District of Columbia.
The administration said the union is relying on what it says is “an unexpressed decision” to shut down the agency.
A court may not review “an abstract decision” but is instead limited to reviewing “specific agency action, as defined in the [Administrative Procedure Act],” the administration said.
The NTEU has sued the administration, contending that the administration’s plan to lay off more than 1,400 employees at the CFPB amounts to an abolishment of the agency. Only Congress has that power, the union said.
The DOJ had sought to delay its response to the en banc request, saying that the government shutdown resulted in it not having the necessary employees to respond. However, the Appeals Court denied that request and continued to require the administration to file its response by October 21.
A divided three-judge panel of the Appeals Court had dissolved a lower court injunction blocking the firings and said that the Trump administration could resume the firing of more than 1,400 employees at the CFPB. However, when it dissolved the injunction, the panel withheld the mandate in the case until the plaintiffs timely petitioned for a rehearing en banc. The plaintiffs subsequently filed a request for the en banc hearing.
Most recently, according to several press reports, Office of Management and Budget Director and Acting CFPB Director Russell Vought said on the “Charlie Kirk Show” that he thinks he will be successful in shutting down the CFPB “within the next two to three months.”
In its response to the request for the en banc hearing, the DoJ said that a general plan of future action “no matter how firmly announced” is only a preliminary step toward final action.
The administration said that no decision to shutter the CFPB is contained in any “regulation, order, document, email or other statement, written or oral.”
Just three weeks after the supposed shutdown decision was made, the agency’s Chief Legal Officer directed employees to perform all legally required work, according to the DOJ. And Vought ordered an employee to perform a statutorily required task, the administration noted.
The administration also said that “should [the] CFPB unlawfully cease performing its mandatory statutory duties, plaintiffs may challenge such a failure within the APA’s well-established limits.”
John L. Culhane, Jr. and Richard J. Andreano, Jr.
California Governor Vetoes Employment Automated Decision Systems Bill
On October 13, 2025, California Governor Gavin Newsom vetoed S.B. 7, which would have required human oversight in certain types of employment decisions made solely by automated decision systems (ADS). If Gov. Newsom signed the bill, it would have required California employers using automated systems for actions such as hiring, firing, and discipling to implement human oversight and explain certain decisions made by AI. The bill would have also required robust notices and granted employees and contractors access rights to data used by ADS.
In his letter notifying the California State Senate of the veto Gov. Newsom cited concerns that S.B. 7 would have imposed “overly broad restrictions” on employer deployment of ADS. For example, the requirements could be interpreted to extend to “innocuous” technology such as scheduling and workflow management tools. Industry groups opposing the bill argued it would have also carried massive costs for compliance, particularly to small businesses.
Gov. Newsom shared concerns with the bill’s author of unregulated use of ADS and affording employees protection as it relates to ADS, but wrote that legislatures “should assess the efficacy of [such] regulations to address these concerns.” Still, California employers face restrictions with respect to certain uses of ADS under the regulations recently finalized by the California Privacy Protection Agency.
Kelsey Fayer, Mo Pham-Khan, and Gregory P. SzewczykNCUA Proposes Rule to Eliminate ‘Reputational Risk’ From Supervision Process
The NCUA has issued a Notice of Proposed Rulemaking to codify the elimination of reputational risk from its supervisory program, becoming the latest federal financial regulator to do so.
“NCUA has determined that assessing reputation risk is subjective, ambiguous, and lacking in measurable criteria,” the agency said, in announcing the action. “The proposed rule is intended to ground NCUA’s supervision and examination programs in data-driven conclusions to eliminate the risk of individual perspectives driving the supervisory process.”
Comments on the proposal are due by December 22.
The agency said that reputational risk has been evaluated as part of the NCUA’s examination and supervision program for decades. However, the agency said it has not seen evidence that reputational risk is a primary driver of unsafe or unsound practices or that it poses a material risk to the NCUA’s Share Insurance Fund.
“Reputation risk is ambiguous and lacks measurable criteria, which leaves it too open to interpretation,” according to the NCUA. As a result, the agency’s supervision for reputational risk could reflect an individual’s perspectives, rather than data-driven conclusions.
In outlining the rule, the NCUA said that credit union management generally is in the best position to identify the business decisions that will positively influence the membership’s perception or opinion of the credit union.
The NCUA said that if credit union officials alter their behavior based on supervisory expectations related to reputational risk management, they are forgoing an opportunity to maintain or build a productive relationship within the credit union’s field of membership.
The FDIC and the OCC already have approved the joint publication of a Notice of Proposed Rulemaking that would codify the removal of reputational risk from their supervisory programs.
In response to President Trump’s August 7 executive order, “Guaranteeing Fair Banking for All Americans,” the NCUA proposed rule also would prohibit NCUA from requiring or encouraging a credit union to close accounts or take other actions “on the basis of a person’s or entity’s political, social, cultural or religious views or beliefs, constitutionally protected speech, or on the basis of politically disfavored but lawful business activities perceived to present reputation risk.”
Scott A. Coleman, Ronald K. Vaske, and John L. Culhane, Jr.NCUA’s Hauptman Vows to Prohibit Regulation Through Enforcement
NCUA Chairman Kyle S. Hauptman said that through the issuance of a policy statement he is reenforcing an agency policy to prohibit officials from setting new policy through enforcement actions.
Hauptman said that the policy statement fulfills a goal he listed in January, after being appointed Chairman: “Codifying our procedures to protect Americans from regulation-by-enforcement. For example, no enforcement action should ever set―or even clarify― policy.”
Hauptman said the NCUA has a good track record regarding regulation by enforcement, so the policy statement is not the result of any recent agency actions.
Republican Hauptman currently is the only member of the NCUA board, and, as we have previously discussed here, NCUA has taken the position that he may act alone to set agency policy. President Trump’s firing of two Democratic members of the board, Todd Harper and Tanya Otsuka, is tied up in court.
In the policy statement, Hauptman said, “Regulation-by-enforcement is unethical and not permitted at NCUA.”
“It’s important to put in writing a policy of fairness, whereby government employees give regulated credit unions the same due process that they, under civil servant protections, rightly expect in their own careers,” he said.
Hauptman said that enforcement actions will only occur in cases of clear and significant violations of law or regulation. As a result, he said, no credit unions have an obligation to be aware of any prior enforcement actions because no new policy is set in such actions.
He said that enforcement is a necessary tool, but it is not a metric for success.
“Our goal is for credit unions to operate safely and soundly and in compliance with applicable laws and regulations,” he said. “We will seek to remedy any such problems whenever we can without needing to use enforcement action. The goal is to resolve any problems, not to issue press releases, rack up enforcement numbers, or improve the post-NCUA career options of agency staff.”
Hauptman said if the NCUA discovers a harmful practice that is not currently addressed by law or regulation, the next step is rulemaking or other remedy. The sequence of events at the NCUA is to publish rules and “then (and only then) enforce them.”
Jim Nussle, President and CEO America’s Credit Unions, the trade group representing those institutions, said he was pleased with Hauptman’s policy statement.
“We have long raised concerns about ‘regulation by enforcement’ and the uncertainty and burdens that approach adds to credit unions’ compliance efforts,” he said. “Official processes for rulemaking and guidance ensure transparency and well-defined expectations between regulators and covered institutions.”
John L. Culhane, Jr. and Richard J. Andreano, Jr.
Breaking Developments in National Bank Act Preemption: What the First Circuit’s Conti Decision Means for You
A Ballard Spahr Webinar | November 10, 2025, 12 PM ET
Speakers: Alan S. Kaplinsky, John L. Culhane, Jr., Joseph J. Schuster, and Ronald K. Vaske
Leading Through Uncertainty: Insights from Across the Life Sciences Spectrum
A Ballard Spahr and Life Sciences PA Event | November 12, 2025, 4 PM ET
Ballard Spahr’s Philadelphia Office
2025 Employment Law Update and 2026 Economic Outlook
A Ballard Spahr Seminar | November 18, 2025, 8 AM MT
Little America Hotel, 500 Main St., Salt Lake City, UT
CaMBA – Legal Issues and Regulatory Compliance Conference
December 8-9, 2025 | Irvine Marriott Hotel, Irvine, CA
Employment Law Updates – How to Protect Yourself
December 9, 2025 – 10:00 AM PT
Speaker: Richard J. Andreano, Jr.
Subscribe to Ballard Spahr Mailing Lists
Copyright © 2025 by Ballard Spahr LLP.
www.ballardspahr.com
(No claim to original U.S. government material.)
All rights reserved. No part of this publication may be reproduced, stored in a retrieval system, or transmitted in any form or by any means, including electronic, mechanical, photocopying, recording, or otherwise, without prior written permission of the author and publisher.
This alert is a periodic publication of Ballard Spahr LLP and is intended to notify recipients of new developments in the law. It should not be construed as legal advice or legal opinion on any specific facts or circumstances. The contents are intended for general informational purposes only, and you are urged to consult your own attorney concerning your situation and specific legal questions you have.