- Podcast Episode: BSA/AML Priorities Under a New Administration
- Podcast Episode: The Future of Shareholder Arbitration in Light of SEC’s New Policy Statement
- CFPB Does an About-Face on Its Funding From Fed
- HUD Proposes to Remove Its Fair Housing Act Disparate Impact Rule
- CFPB and DOJ Withdraw Joint Statement on Consideration of Immigration Status Under ECOA
- CFPB Adjusts HPML Asset Exemption Threshold
- CFPB Adjusts HMDA Asset Exemption Threshold
- Senate Sends Levenbach Nomination to be CFPB Director Back to President, Allowing Vought to Serve Longer as Acting Director
- NCUA Outlines Supervisory Priorities
- New York City Mayor Zohran Mamdani Seeks to Eliminate ‘Junk Fees’ and ‘Subscription Traps’
- President Trump’s Proposed 10 Percent Credit Card Interest Cap: Key Considerations
- Treasury Targets Fraud: Heightened Bank Compliance Risks
- CIPA Reform in 2026: What Website Operators Need to Know
- Mark Your Calendar: HIPAA Deadline on February 16
- What to Expect in AI Regulation in 2026
- New Year, New Selection Criteria for H-1B Cap Lottery: DHS Finalizes Rule Prioritizing Higher-Paid Workers
Podcast Episode: BSA/AML Priorities Under a New Administration
Join us for a timely and insightful conversation on the evolving landscape of anti-money laundering (AML) compliance in consumer financial services. In this episode of the Consumer Finance Monitor Podcast, Alan Kaplinsky, founder and senior counsel of Ballard Spahr’s Consumer Financial Services Group, hosts Terence Grugan, co-chair of Ballard Spahr’s Anti-Money Laundering Team (AML) and a recognized authority in financial crimes compliance, for a timely and insightful conversation on the evolving landscape of AML compliance in consumer financial services. Together, they deliver a comprehensive discussion on the latest regulatory developments, enforcement trends, and strategic implications for institutions across the industry.
Episode Overview and Key Takeaways:
- Regulatory Streamlining: Explore how AML and Bank Secrecy Act (BSA) compliance requirements are being recalibrated, with a focus on reducing unnecessary burdens, modernizing supervisory practices, and emphasizing substance over form.
- Bank Examination Modernization: Learn how recent policy changes are promoting risk-based, targeted examinations for community banks, enabling institutions to allocate resources more effectively while maintaining compliance.
- Nonbank Financial Institution Developments: Gain insights into emerging proposals from FinCEN and the Treasury aimed at gathering industry feedback and potentially scaling back AML obligations for nonbank entities such as casinos, money services businesses, and others.
- SAR Reporting Reforms: Hear about FinCEN’s clarifications that are refining suspicious activity reporting (SAR) requirements, streamlining documentation, and reducing operational complexity for financial institutions.
- Evolving Crypto Regulation: Assess the regulatory retreat within the cryptocurrency sector, implications for AML risk, and anticipated impact of new regulatory initiatives including upcoming Stablecoin rules.
- Enforcement Trends: Review notable shifts in enforcement priorities, with fewer high-profile AML fines this year and an increased focus on targeting substantive violations rather than technical compliance failures.
- National Security and Economic Policy Alignment: Understand how AML and financial crime policies are aligning with broader national security priorities, including sanctions compliance, immigration enforcement, and efforts to disrupt international cartels.
- Future Outlook: Preview possible future developments, including greater centralization of AML enforcement within the Treasury Department and continuing modernization of compliance obligations.
This episode equips financial institutions, compliance professionals, and industry leaders with expert perspectives on the regulatory, operational, and strategic changes transforming AML compliance.
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 GroupPodcast Episode: The Future of Shareholder Arbitration in Light of SEC’s New Policy Statement
This week on the award-winning Consumer Finance Monitor Podcast, host Alan Kaplinsky is joined by Senior Counsel Mark Levin and special guest Professor Mohsen Manesh for a powerful roundtable on one of today’s most consequential topics: the SEC’s new position on mandatory arbitration in corporate governance documents and how state law and market realities are shaping the future for consumer financial services companies, investors, and legal counsel.
Meet the Speakers:
- Alan Kaplinsky – Host and Senior Counsel at Ballard Spahr’s Consumer Financial Services Group, Alan brings decades of expertise in arbitration and class action waivers to the table.
- Mark Levin – A leading authority on arbitration provisions and regulatory compliance, Mark (now retired) was a seasoned attorney at Ballard Spahr and long-time collaborator with Alan.
- Mohsen Manesh – The L.L. Stewart Professor of Business Law at the University of Oregon, Mohsen is a nationally recognized legal scholar and co-author of a widely cited NYU Law Review article on shareholder arbitration clauses.
In This Episode, the Panel Explores:
- The SEC’s Policy Shift: Why the SEC now allows mandatory arbitration provisions in registration statements, and how the focus has moved to disclosure, not the substance, of arbitration clauses.
- State Law Challenges: How Delaware’s SB 95 (DGCL 115(c)) bans arbitration provisions for federal securities law claims in corporate charters, and the legislative backstory behind this move.
- Federal vs. State Authority: The panel debates whether states like Delaware can lawfully prohibit shareholder arbitration in corporate charters without being preempted by the Federal Arbitration Act (FAA).
- Practical Guidance for Issuers: The importance for issuers of providing clear, plain-language disclosures about arbitration clauses and drafting these provisions conservatively while preserving statutory remedies to address current legal and regulatory challenges.
- Market Realities and Investor Response: Despite ongoing legal debates, public companies thus far have shown little interest in reincorporating elsewhere to enable arbitration provisions, as both shareholder demand for mandatory arbitration and management support for such proposals remain limited.
- Issuer and Investor Impact: While arbitration can offer faster, more efficient, and confidential dispute resolution and reduce costly class actions, it may also limit options for class-wide remedies and restrict investor recourse.
- What’s Next? With the SEC’s new stance and ongoing uncertainty about the interplay with state laws, the landscape for shareholder arbitration is in flux—and this episode breaks down the key issues you need to watch.
Whether you’re a legal professional, corporate executive, or investor, this episode delivers sharp insight and practical takeaways on regulatory trends that could reshape the field of consumer financial services.
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.
Following this episode, Professor Mohsen Manesh released a new article, The Past, Present, and Likely Future of Shareholder Arbitration, which builds directly on the insights he shared on the podcast. The full paper is available here.
To listen to this episode, click here.Consumer Financial Services Group
CFPB Does an About-Face on Its Funding From Fed
On January 9, CFPB Acting Director Vought notified Judge Amy Berman Jackson that, in response to her December 30, 2025, opinion in National Treasury Employees Union v. CFPB (DDC), he had just requested $145 million from the Federal Reserve Board to operate the CFPB from January through March of this year.
That seemingly brought to a conclusion a disagreement over the extent to which the CFPB could be funded by the Fed. Based on an opinion given to the CFPB by the Office of Legal Counsel of the Department of Justice, Vought had previously notified the district court that it would be unlawful for the CFPB to request funds from the Fed because the Federal Reserve System has been losing money since September 2022 and the Dodd-Frank Act only allows the CFPB to be funded out of “combined earnings of the Federal Reserve System.”
The CFPB had then requested the court to clarify how an injunction issued by Judge Jackson last year enjoining the CFPB from executing a reduction-in-force (RIF) and taking certain other actions to minimize the agency would apply should the CFPB decline to request funding from the Fed. Judge Jackson refused to modify or clarify the injunction after she concluded that “earnings” as used in the funding language of Dodd-Frank means revenues and that the Fed’s losses were irrelevant to the question of whether the CFPB could request funding from the Fed.
We published two blogs about Judge Jackson’s opinion. In the first blog, we described the opinion. In our second blog, we explained why Judge Jackson’s opinion was wrong. Initially, we thought that the CFPB would appeal her decision. Indeed, in the interest of judicial economy and the avoidance of conflicting opinions, we had thought that the CFPB had a reasonably good shot at getting the DC Circuit Court of Appeals to consolidate an appeal of the new issues in the case with the already existing en banc rehearing.
Why did Vought seek funding instead of appealing Judge Jackson’s opinion? Although we may never know the answer, we have the following conjectures:
- There is a belief in some circles that due to the heavy subsidization of the Federal Reserve Banks by the Treasury, through the Treasury lending the Federal Reserve Banks billions of dollars of interest-free loans, the Federal Reserve System on a combined basis was profitable in the fourth quarter of last year. If so, then it would now probably be lawful for the Fed to fund the CFPB even under the CFPB’s definition of “earnings” being “profits”. (That is not completely clear because there is an argument that before resuming the funding of the CFPB, the Federal Reserve Banks would first need to recover their enormous accumulated losses which began to accrue in September 2022.) Thus, what is the point of continuing to litigate the issue of whether “earnings” means profits or revenues if it would now be lawful for the Fed to fund the CFPB because the Federal Reserve System is now profitable on a combined basis?
- By requesting $145 Million in funds from the Fed, the CFPB may have mooted the two other lawsuits raising the funding issue, one pending in Federal District Court for the Northern District of California filed, by Public Citizen and the other pending in the District of Oregon filed by a consortium of Democratic Attorneys General. In both lawsuits, the plaintiffs are seeking a mandatory injunction requiring the CFPB to seek funding from the Fed. Since the CFPB has now made the request for funds, it would seem that it has satisfied the claims in both lawsuits.
- If the CFPB had decided to appeal Judge Jackson’s decision, the CFPB would have had to seek a stay of her order which required the CFPB to seek funding and there was no certainty how long that would take or whether it would ever be granted by the DC Circuit (either a three-judge panel or en banc) or the Supreme Court. That separate process would have consumed a great deal of time — time which the CFPB did not have because it was running out of money. That might have put Vought between a rock and a hard place. If the CFPB ran out of money, it would have had to lay off the many employees that it is now enjoined from laying off (which would have subjected Vought to being in contempt of Judge Jackson’s order) or it would have had to eventually seek funds from the Fed, which may have mooted the CFPB’s appeal.
- The CFPB has been the subject of a lot of pressure from banks and other consumer financial services providers to finalize many of the items on its semiannual regulatory agenda includes, among other things, a final rule under Section 1033 of Dodd-Frank (open banking), Section 1071 of Dodd-Frank (data collection on small business loans) and the Equal Credit Opportunity Act. The CFPB had been hinting that it was about to run out of money and that it might have to issue interim final rules as a result. It is anticipated that consumer advocacy and other groups will sue the CFPB to challenge any final (or interim final) rules that the CFPB issues. Any rules that were rushed out because of funding running out at the CFPB would likely be more vulnerable to being successfully challenged. Now that the CFPB has requested funding, it is hoped that the CFPB will not issue interim final rules but instead will issue final rules after reviewing and dealing with all substantive comments and engaging in the deliberative process contemplated by the Administrative Procedures Act.
The CFPB on January 9 filed its opening brief in the en banc rehearing in the DC Circuit Court of Appeals which is considering whether to vacate, affirm, or modify Judge Jackson’s injunction against the CFPB. That brief raises no concerns about CFPB funding issues.
Although the CFPB seems to have abandoned its argument that it can’t request funding from the Fed, there still remains the question about the lawfulness of CFPB funding while the Federal Reserve was unprofitable and it seems likely that any rules, enforcement initiatives, and other actions taken by the CFPB during the period from September 2022 until at least the end of last year will be challenged in court as being invalid because done with unlawful funding.
Alan S. KaplinskyHUD Proposes to Remove Its Fair Housing Act Disparate Impact Rule
We have previously reported on the tortured history of the disparate impact rule adopted by the U.S. Department of Housing and Urban Development (HUD) under the Fair Housing Act, most recently here. HUD now proposes to remove the rule from its regulations. Comments are due by February 13, 2026.
How did we get here? The original version of the rule was adopted in 2013, during the Obama administration. The National Association of Mutual Insurance Companies and another insurance trade group swiftly challenged the rule in court, although the second trade group later dropped from the case. Then, in 2015, the U.S. Supreme Court held in a five to four decision in Texas Department of Housing and Community Affairs v. The Inclusive Communities Project, Inc. that disparate impact claims may be brought under the Fair Housing Act. In 2020, during the first Trump administration, HUD revised the rule to reflect the Inclusive Communities decision and to make other changes. The revised rule was then challenged in multiple courts by various civil rights groups and stayed before it became effective. In 2023, during the Biden administration, HUD reinstated the original rule.
After the Biden administration reinstated the original rule, the National Association of Mutual Insurance Companies case, which was then before the federal district court for the District of Columbia, moved forward. In September 2023 the court granted HUD’s motion for summary judgment. Addressing the decision, we noted that it is not hard to see that another court may find that the rule is inconsistent with the Inclusive Communities ruling. The district court’s decision resulted in an appeal to the DC Circuit Court of Appeals.
In a December 5, 2025, status report filed by HUD with the DC Circuit Court of Appeals, HUD included the following statement: “As previously explained, HUD intends to reconsider the 2023 Rule. On or about August 4, 2025, HUD submitted to the Office of Management [and] Budget a draft final rule titled ‘HUD’s Implementation of the Fair Housing Act’s Disparate Impact Standard.’ That draft is pending internal regulatory review under Executive Order 12,866, and thus has not yet been made public.” (Footnote omitted.)
Path chosen by HUD. Questions were raised regarding the path that HUD would take with the rule, given the policy of the current Trump administration on the disparate impact theory of liability. As previously reported, President Trump issued Executive Order 14281 titled “Restoring Equality of Opportunity and Meritocracy,” which provides that “[i]t is the policy of the United States to eliminate the use of disparate-impact liability in all contexts to the maximum degree possible to avoid violating the Constitution, Federal civil rights laws, and basic American ideals.” We now have the answer to the questions regarding the path—HUD intends to remove the rule.
The specific proposals are to:
- Remove 24 CFR part 100, subpart G, which contains the disparate impact rule in section 100.500; and
- Remove the second sentence of 24 CFR § 100.5(b), which currently provides as follows:
“This part provides the Department’s interpretation of the coverage of the Fair Housing Act regarding discrimination related to the sale or rental of dwellings, the provision of services in connection therewith, and the availability of residential real estate-related transactions. The illustrations of unlawful housing discrimination in this part may be established by a practice’s discriminatory effect, even if not motivated by discriminatory intent, consistent with the standards outlined in § 100.500.”
In the preamble to the proposal, HUD addresses the Executive Order 14281, and states that it:
“[I]nstructs all federal agencies including HUD to, in coordination with the Attorney General, review existing regulations and rules that impose disparate impact liability and consider amendment or repeal of these regulations as appropriate under applicable law. Consistent with this, HUD has reviewed its disparate impact regulations and related prior rulemakings and determined they are unnecessary. HUD’s prior assertion, that its disparate impact regulations provided clarity and predictability for all parties engaged in housing transactions (78 FR 11460), is diminished by the facts that case law continues to develop and HUD’s regulation does not provide an up-to-date picture of the legal landscape.”
HUD also addresses the 2025 decision of the U.S. Supreme Court in Loper Bright Enterprises v. Raimondo, in which the Court overturned the long-standing Chevron Deference Doctrine, saying that judges—not federal agencies—should interpret federal laws. We previously reported on the decision here and here. We also addressed the decision in two podcasts, available here and here.
In view of Loper, HUD states that:
“A reviewing court is free to consider, or not, an agency’s interpretation, and in any case the court may not simply defer to the agency’s interpretations where the court finds the underlying statute to be ambiguous. As a result, HUD’s prior disparate impact rulemakings, HUD’s interpretation of the Fair Housing Act, and the codification of that interpretation in regulations, do not carry deferential weight. A reviewing court may wholly reject HUD’s claims in prior rulemakings that the regulations provide greater clarity and predictability and may vacate or set aside HUD’s rules. It is appropriate for courts, not a Federal agency, to make determinations related to the interpretation of disparate impact liability under the Fair Housing Act.” (Footnotes omitted.)
HUD also addresses the 30-day comment period, in view of the HUD “policy to afford the public” a comment period of not less than 60 days. HUD notes the significant number of public comments it reviewed in connection with the prior three disparate impact rulemakings, and states that “[p]ublic comments covered a vast array of topics and issues, and many comments raised legal concerns including, for example, relevant court opinions, State and local law concerns, and interpretations of underlying legal authorities.” HUD then states:
“Given that this rulemaking does not change any requirements or affect any rights or obligations, and given the volume of public comments already submitted, the scope of issues and topics raised by those comments, and HUD’s thorough consideration of those comments and other relevant materials over the course of several rulemakings, HUD has determined that it is in the public interest to remove HUD’s disparate impact regulations as expeditiously as possible.”
Assuming that HUD removes the current rule, it is likely that one or more parties that favor the rule will challenge that action in court. Thus, the torture will likely continue.
Richard J. Andreano, Jr. and John L. Culhane, Jr.
CFPB and DOJ Withdraw Joint Statement on Consideration of Immigration Status Under ECOA
As previously reported, in October 2023 the CFPB and DOJ issued a joint statement regarding “the potential civil rights implications of a creditor’s consideration of an individual’s immigration status under the Equal Credit Opportunity Act (ECOA).”
The agencies have now withdrawn the joint statement. The withdrawal was based on concerns that the joint statement (1) “may have created the impression that either ECOA or the statement itself imposes limitations on the consideration of immigration or citizenship status when evaluating an application for credit [when] [n]o such limitation exists” and (2) was not consistent with the CFPB’s revised policy on issuing guidance documents that was announced in May 2025.
In withdrawing the joint statement, the agencies correctly observe that “[n]othing in ECOA or Regulation B prohibits the consideration of an applicant’s immigration or citizen status. To the contrary, Regulation B permits the consideration of ‘any information obtained, so long as the information is not used to discriminate against an applicant on a prohibited basis.’” The agencies also note that a Regulation B Commentary provision states that a “creditor may take the applicant’s immigration status into account” and another Regulation B provision states that a creditor “may consider the applicant’s immigration status or status as a permanent resident of the United States, and any additional information that may be necessary to ascertain the creditor’s rights and remedies regarding repayment.” The agencies then state that “[t]he joint statement’s exclusive emphasis on the risks of such consideration, however, may have created the misimpression that ECOA or Regulation B prohibit or otherwise limit the consideration of immigration or citizenship status by a creditor evaluating an application for credit.”
The joint statement included the following examples of creditor practices that could risk violating ECOA and Regulation B:
- A blanket policy of refusing to consider applications from certain groups of noncitizens regardless of the credit qualifications of individual borrowers within that group. Compliance risk could arise because some individuals within those groups may have sufficient credit scores or other individual circumstances that may resolve concerns about the creditor’s rights and remedies regarding repayment.
- The overbroad consideration of certain criteria, such as how long a consumer has had a Social Security Number. This could implicate or serve as a proxy for citizenship or immigration status, which in turn, can implicate a protected characteristic under ECOA like national origin or race. Any claims that such policies are necessary to preserve the creditor’s rights and remedies regarding repayment or to meet other binding legal obligations should be supported by evidence and cannot be a pretext for discrimination.
- Requiring documentation, identification, or in-person applications only from certain groups of noncitizens, and this requirement is not necessary for assessing the creditor’s ability to obtain repayment or fulfilling the creditors’ legal obligations.
The agencies now criticize the first two examples. The agencies state that the first example “could be read as positing a bright-line, one-size-fits-all approach to underwriting noncitizens as necessary for ECOA compliance [when] [t]here is no such requirement in ECOA or Regulation B” and that a “credit applicant’s immigration or citizenship status may present underwriting risks that typical assessments of financial capacity alone will not fully resolve.” Addressing the second example, the agencies state that the “example may have been perceived as discouraging the collection and assessment of [Social Security Number] information when in fact it can be important to a creditor’s compliance with anti-money laundering or Know Your Customer requirements.”
The joint statement also cautioned creditors to be mindful of their obligations under 42 U.S.C. § 1981. Section 1981 provides that “[a]ll persons within the jurisdiction of the United States shall have the same right in every State and Territory to make and enforce contracts . . . as is enjoyed by white citizens[.]” The joint statement provided that this statute “has long been construed to prohibit discrimination based on alienage” and that except to the extent consideration of immigration status is permissible under ECOA and Regulation B, creditors must comply with both statutes. Addressing this aspect of the joint statement, the agencies state that their “withdrawal of the joint statement serves to address any misimpression that the joint statement has interpreted section 1981 to confer any liability under the statute that has not already been recognized by courts.”
Addressing the CFPB’s revised policy on issuing guidance, the agencies note that the “revised policy is to issue guidance only where necessary and where doing so would reduce compliance burdens.” The agencies then state that “[g]iven that it is the responsibility of Congress and the President in the legislative process to define or expand the contours of civil rights protections, the agencies have determined that the joint statement is not necessary” and that “the joint statement does not meet the Bureau’s current standards for the issuance of guidance.”
While the withdrawal of the joint statement is a positive development, the agencies could have, but did not, sought to reduce compliance burdens by providing helpful guidance on how creditors may appropriately consider an applicant’s immigration status under ECOA. For example, it would be helpful to receive guidance on the consideration of an applicant’s immigration status in assessing the likelihood of continuation of income in the context of specific ability to repay determination requirements, particularly the requirements of the Regulation Z ability to repay rules for credit cards and for mortgage loans.
Richard J. Andreano, Jr. and John L. Culhane, Jr.CFPB Adjusts HPML Asset Exemption Threshold
The CFPB recently issued a final rule increasing the asset exemption threshold for the Truth in Lending Act (TILA) requirement to maintain an escrow account for a higher-priced mortgage loan (HPML).
Regulation Z, which implements the TILA, generally requires creditors to maintain an escrow account for the payment of taxes and insurance on a first lien HPML. There are two creditor-based exemptions to the escrow account requirement. The original exemption is for creditors with assets below a certain threshold that also meet additional criteria, which include (among other criteria) extending a first lien loan subject to the Regulation Z ability to repay rule (a “covered loan”) in a rural or underserved area and having a covered loan volume, with affiliates, at or below a certain level. The asset threshold is subject to annual adjustment based on inflation. For purposes of the asset threshold, a creditor’s assets include the assets of any affiliate that regularly extends covered loans. The asset threshold for 2025 was $2.717 billion. The final rule increases the asset threshold for 2026 to $2.785 billion. As a result, if a creditor’s assets, together with the assets of its applicable affiliates, were less than $2.785 billion on December 31, 2025, and the creditor satisfies the additional criteria, the creditor will be exempt from the escrow account requirement for HPMLs in 2026. Additionally, based on a grace period in the HPML rule, such a creditor will also be exempt from such requirement for purposes of any loan consummated in 2027 if the application was received before April 1, 2027.
The asset size threshold for purposes of the original exemption from the HPML escrow account requirement also is one of the criteria that determines whether a creditor qualifies under the ability to repay rule to make loans based on the small creditor portfolio, and small creditor balloon payment, qualified mortgage loan provisions. As a result, for 2026 the $2.785 billion threshold will apply for purposes of determining if a creditor is a small creditor under such provisions.
The Economic Growth, Regulatory Relief, and Consumer Protection Act, adopted in 2018, required the CFPB to add an additional exemption from the HPML escrow account requirements for insured depository institutions and insured credit unions. The additional exemption applies to insured depository institutions and insured credit unions with assets at or below a certain threshold that also meet additional criteria, which include (among other criteria) extending a covered loan in a rural or underserved area and having a covered loan volume, with affiliates, at or below a certain level, that is lower than the level under the original exemption. The asset threshold for 2025 was $12.179 billion. The final rule increases the asset threshold for 2026 to $12.485 billion. As a result, if an insured depository institution’s, or insured credit union’s, assets were $12.485 billion or less on December 31, 2025, and the entity satisfies the additional criteria, the entity will be exempt from the escrow account requirement for HPMLs in 2026. Additionally, based on a grace period in the HPML rule, such an insured depository institution or insured credit union will also be exempt from such requirement for purposes of any loan consummated in 2027 if the application was received before April 1, 2027.
Richard J. Andreano, Jr.CFPB Adjusts HMDA Asset Exemption Threshold
The CFPB recently issued a final rule increasing the asset exemption threshold under the Home Mortgage Disclosure Act (HMDA).
Banks, savings associations, and credit unions are not subject to the mortgage loan data collection and reporting requirements under HMDA for a calendar year if their assets as of December 31 of the prior calendar year did not exceed an asset threshold. The asset threshold is subject to annual adjustment based on inflation. The asset threshold for calendar year 2025 HMDA data collection and reporting is $58 million. The final rule increases the asset threshold for calendar year 2026 HMDA data collection and reporting to $59 million. As a result, banks, savings associations, and credit unions with assets of $59 million or less as of December 31, 2025, are exempt from collecting and reporting HMDA data for 2026 activity.
On January 3, 2026, the Senate sent the nomination of Stuart Levenbach to be CFPB Director back to the President without acting on it—a move that would allow Russell Vought to remain acting head of the bureau through August 1.
President Trump nominated Levenbach, an Associate Director of the Office of Management and Budget, as CFPB Director in November. Levenbach handles natural resources, energy, science, and water issues. During President Trump’s first term, Levenbach was chief of staff of the National Oceanic and Atmospheric Administration. He does not have a background in consumer protection and his nomination was widely considered to be a technical one to allow Vought to stay as Bureau Director for more time.
Vought is director of the Office of Management and Budget and has been serving in an acting capacity at the CFPB. He has said that his goal is to close the CFPB in the coming months. The Trump administration has tried to lay off more than 1,400 bureau employees, but that move is tied up in federal court.
President Trump originally nominated Jonathan McKernan to head the CFPB, but McKernan eventually joined the Treasury department and his nomination was withdrawn.
However, under the Act, once a second person is nominated to fill the position, the acting director may serve while the nomination is pending in the Senate. Should that nomination be rejected, returned, or withdrawn, the acting director may continue to serve for an additional 210 days from the date of the rejection, return, or withdrawal.
Under the Federal Vacancies Reform Act, Vought could only serve as Acting Director for 210 days from May 12, 2025, the date that McKernan’s nomination was officially withdrawn, absent a second nomination.
However, under the Act, once a second person is nominated to fill the position, the acting director may serve while the nomination is pending in the Senate. Should that nomination be rejected, returned, or withdrawn, the acting director may continue to serve for an additional 210 days from the date of the rejection, return, or withdrawal.
Vought may serve as Acting Director through August 1 and under the Vacancies Reform Act, Vought cannot be extended beyond that date by President Trump simply nominating another candidate.
That is because the VRA only allows the extension for two nominations. Assuming that no one else is nominated and confirmed beforehand, as of August 2, the Deputy Director (presently Geoff Gradler) will automatically become the new Acting Director. Gradler was appointed in September of last year.
Alan S. Kaplinsky, John L. Culhane, Jr., and Richard J. Andreano, Jr.
NCUA Outlines Supervisory Priorities
Promising that the NCUA will not engage in “regulation by enforcement,” NCUA Chairman Kyle Hauptman has sent a letter to credit unions outlining his supervisory priorities for 2026.
“NCUA is dedicated to supporting credit unions, developing right-sized regulations and policies that safely advance innovation within the credit union system, and protecting member deposits and the Share Insurance Fund through productive, streamlined credit union supervision,” Hauptman wrote in his letter.
Hauptman reiterated that these priorities reflect the agency’s goal of supporting a safe, sound, and resilient credit union system without imposing unnecessary regulatory burden.
It should be noted that Hauptman, a Republican, currently is the only member of the NCUA board, since President Trump has fired two Democratic members of the board, Todd Harper and Tanya Otsuka. The two have sued the agency, saying they were not fired for cause and that case is pending in federal court.
NCUA “will continue conducting defined scope exams in most federal credit unions with assets of $50 million or less, and risk-focused exam procedures for all other credit unions,” according to the agency.
Officials added that NCUA examiners are expected to shift the areas of supervisory focus based on a credit union’s risk profile when appropriate.
Examiners will concentrate on areas that pose the greatest risk to credit union members, the credit union system and the NCUA’s Share Insurance Fund, the agency said.
The areas of focus for examiners include:
- Balance sheet management and lending. Loan performance is at its weakest point in more than a decade, so examiners will review underwriting standards, credit risk management practices, and liquidity planning.
- Operational and compliance risk. “Examiners will conduct their reviews with a continued emphasis on fraud prevention, payment systems security, and compliance with consumer financial protection laws,” the agency said.
- Efficiency and Innovation. The agency will implement streamlined examination processes and will align the examinations with recent legislative and executive directives.
The letter closes by reminding federal credit unions that they may record their final exit meetings or joint conferences for training and compliance purposes, provided the recording is shared with NCUA, and by encouraging state-chartered credit unions to check with their regulators before recording meetings.
John L. Culhane, Jr., Richard J. Andreano, Jr., and Joseph J. Schuster
New York City Mayor Zohran Mamdani Seeks to Eliminate ‘Junk Fees’ and ‘Subscription Traps’
As part of his campaign for election, New York City Mayor Zohran Mamdani vowed to make New York City more affordable. To that end and as part of his affordability initiative, he has issued Executive Orders 9 and 10 intended to crack down on “junk fees” and “subscription tricks and traps.”
City officials said that by signing the “junk fees” Executive Order 9, Mamdani was signaling that his administration will crack down on “companies who mislead New Yorkers into paying more for services, saving New Yorkers money amidst our cost-of-living crisis.”
Specifically, Executive Order 9:
- Establishes a city-wide “junk fee” task force chaired by Deputy Mayor Julie Su and newly appointed Department of Consumer and Worker Protection Commissioner Sam Levine. The task force will focus on advancing the city’s work in fighting “junk fees.”
- Directs the Department of Consumer and Worker Protection to take action it deems necessary to crack down on hidden or deceptive fees.
- Directs the consumer and worker protection office to monitor compliance, investigate potential violations, and enforce new rules designed to address such fees.
On subscriptions, city officials said, “Businesses use a range of deceptive practices to trap customers in unwanted subscriptions, including so-called ‘free trials’ that automatically convert into paid plans with critical disclosures buried in fine print or behind hyperlinks; [and] adding monthly fees or add-on charges after payment information has already been collected.”
The subscriptions Executive Order 10:
- Calls for coordination among agencies, including the city’s Law Department and others, such as the New York Attorney General’s Office to “ensure maximum impact in combatting subscription traps.”
- Directs the Department of Consumer and Worker Protection to make recommendations to the City Council on ways to fight “subscription tricks and traps.”
- Empowers the city to use the full tools and authorities to crack down on “subscription tricks and traps.”
- Directs the consumer and worker protection agency to monitor, investigate, and enforce violations related to “subscription tricks and traps.”
In a related development, Mamdani has appointed Sam Levine as New York City Commissioner of the Department of Consumer and Worker Protection. Levine was formerly the Director of the FTC’s Bureau of Consumer Protection during the Biden administration.
Levine previously served as an attorney-advisor to then-FTC Commissioner Rohit Chopra and as a staff attorney in the FTC Midwest Regional Office. He currently is a Lecturer at Columbia Law School and a Senior Fellow at the Berkeley Center for Consumer Law and Economic Justice.
While Levine was at the FTC, it adopted final rules pertaining to “junk fees” and “subscription plans.” The “junk fee” rule which classified certain live event ticketing and short-term lodging fees as unfair and deceptive, was never challenged in court, and it is a final rule. The subscription rule, also known as the “click-to-cancel” rule was successfully challenged in court and the FTC has not proposed another subscription rule.
The Eighth Circuit Court of Appeals nullified the “click to cancel” rule, saying that the commission had not prepared a preliminary regulatory analysis for the rule.
The rule would have required that companies make it easier for a consumer to cancel a subscription.
Consumer groups have petitioned the FTC to reopen rulemaking on the “click to cancel” subscription proposal and the commission is seeking comments on that issue.
Because Levine was involved in both FTC rules, those rules may shed light on what areas the Department may focus on as it develops rules and/or investigates companies pertaining to junk fees and subscription plans.
In 2023, the CFPB issued a circular affirming that companies offering “negative option” subscription services must comply with federal consumer financial protection law.
Negative option programs are subscription services that are automatically renewed unless the consumer takes action to cancel and include trial subscription programs that charge a reduced fee for an initial period and then automatically begin charging a higher fee.
This circular was withdrawn in May 2025 as part of the CFPB’s rollback of guidance documents issued under the CFPB’s prior director, Rohit Chopra.
The CFPB also proposed a rule intended to prohibit NSF fees on transactions that are declined in real time—a type of “junk fee.” However, the Bureau withdrew that proposal.
The appointment of Sam Levine as the commissioner of the department and Mayor Mamdani’s imminent crackdown on junk fees and subscription plans underscore the advice we have been providing to our clients about the need to maintain their compliance programs in full force and effect despite the situation with the CFPB. State and city agencies across the country have been doing everything they can to fill the void. We expect that the department under Levine’s leadership will aggressively investigate and bring enforcement lawsuits against companies that it perceives to be charging junk fees or using deceptive subscription practices.
Daniel JT McKenna, Alan S. Kaplinsky, Celia Cohen, John L. Culhane, Jr., and Michael Robotti
President Trump’s Proposed 10 Percent Credit Card Interest Cap: Key Considerations
On January 9, 2026, President Donald Trump announced via Truth Social that he supports a temporary 10 percent cap on credit card interest rates (a concept raised during his 2024 presidential campaign), beginning on January 20, 2026. He described the proposal as an effort to address high credit card APRs and improve affordability for consumers.
While interest rate caps are often viewed as consumer-friendly at a high level, the proposal raises a number of policy, market, and implementation considerations that merit closer examination.
Scope and Implementation Uncertainty
President Trump’s statement called for a one-year cap on credit card APRs at 10 percent, but did not specify how such a cap would be implemented. It remains unclear whether the proposal would rely on executive action, agency rulemaking, or congressional legislation. Under current law, a mandatory nationwide interest rate cap would likely require congressional action.
The absence of detail and the abbreviated time frame for implementation suggests that the proposal is not intended to operate as a binding legal requirement but is instead intended to influence creditor behavior through public or political pressure.
Market Considerations
Credit availability
Credit card interest rates are a primary mechanism for pricing credit risk. A uniform 10 percent cap could limit the ability of issuers to extend credit to consumers whose risk profiles require higher pricing to offset expected losses and operating costs. In response, issuers may adjust underwriting standards, reduce credit limits, or narrow the populations to whom credit cards are offered.
Product design and pricing adjustments
If interest rate flexibility is constrained, issuers may reassess other elements of card programs, including annual fees, rewards structures, and promotional offerings. These adjustments could affect consumer choice and the overall economics of card products, even for consumers who already qualify for relatively low APRs.
Potential pressure to voluntarily reduce rates
Even without a binding legal mandate, the proposal raises the question of whether card issuers may face expectations to voluntarily reduce interest rates in response to public statements or political momentum. At present, it is unclear whether such pressure would be short-lived or sustained, or how uniformly it would be applied across the market.
Voluntary Rate Reductions Under Existing Law
Current regulatory frameworks already allow creditors to voluntarily reduce interest rates for limited periods, including as part of promotional offerings or consumer hardship programs. Many issuers use these tools today to provide temporary relief or targeted incentives without fundamentally altering long-term pricing models.
If creditors choose to voluntarily lower rates in response to market or political developments, it would be prudent to structure those reductions as clearly defined, time-limited measures that allow rates to revert to existing levels once the applicable period ends. Doing so helps preserve pricing flexibility and program consistency over time.
Conclusion (for now)
President Trump’s proposal to cap credit card interest rates at 10 percent has generated significant attention but leaves open important questions regarding implementation, scope, and market impact. Whether pursued through legislation or reflected in voluntary market responses, a uniform 10% percent rate cap would invariably have a significant adverse impact on credit availability, product design, and consumer choice.
Existing regulatory structures already provide mechanisms for temporary or targeted rate reductions. Any broader shift toward lower pricing, whether mandatory or voluntary, will require careful calibration to balance affordability objectives with sustainable access to credit.
Joseph J. Schuster, Ronald K. Vaske, John L. Culhane, Jr., and Alan S. Kaplinsky
Treasury Targets Fraud: Heightened Bank Compliance Risks
On January 9, 2026, U.S. Treasury Secretary Scott Bessent announced a series of new federal actions focused on schemes to defraud federal aid programs. Treasury’s announcement follows a series of high-profile investigations involving alleged fraud tied to federally funded programs, such as the Feeding Our Future scheme to defraud the Federal Child Nutrition Program in Minnesota. That scheme relied on sophisticated financial activity, including rapid movement of funds, use of nonprofit and shell entities, and international transfers designed to conceal the source and use of government money. The government estimates that the Feeding Our Future scheme cost taxpayers an estimated $250 million.
Treasury’s initiative signals an enhanced approach to fraud enforcement that places banks squarely on the front lines to detect and deter financial fraud. As a result, financial institutions should expect heightened regulatory scrutiny, increased information requests, and closer coordination between bank examiners and law enforcement—particularly where institutions serve nonprofits or customers engaged in high-volume or cross-border transactions.
What does Treasury’s fraud initiative entail?
A central feature of the initiative is intensified oversight of financial institutions’ Bank Secrecy Act (BSA) and anti-money laundering (AML) compliance. FinCEN has already issued investigative demands to money services businesses in Minnesota and has indicated that banks serving nonprofits, tax-exempt organizations, and other customers that receive or distribute government-related funds may also face closer examination.
In addition, FinCEN has issued targeted alerts identifying red flags associated with fraud involving government programs. Treasury is specifically targeting international wires and similar pass-through bank transfers that move government or nonprofit-related funds quickly out of accounts in amounts or patterns inconsistent with the bank customer’s stated purpose. Treasury has made clear that these alerts are intended to inform transaction monitoring and examiner expectations.
Treasury is also expanding training for federal, state, and local law enforcement on the use of financial intelligence, including Suspicious Activity Reports (SARs), in fraud investigations.
What are the implications for financial institutions?
Treasury has emphasized that institutions are expected not only to file SARs, but to identify emerging fraud typologies early and adjust controls accordingly.
Financial institutions should confirm that systems and procedures are capable of capturing required data elements accurately and escalating potentially suspicious activity promptly.
As a result, banks should expect SAR filings to be used more actively in investigations, placing added importance on narrative quality, internal consistency, and timeliness.
In light of Treasury’s initiative, banks should consider taking the following steps in the near term:
- Reassess BSA, AML, and fraud risk assessments with a specific focus on government benefits, nonprofit customers, and pandemic-era funding streams.
- Review transaction monitoring rules and alert thresholds to ensure alignment with FinCEN’s identified fraud red flags.
- Evaluate SAR filing practices, including timeliness, narrative quality, and escalation procedures.
- Confirm operational readiness to comply with Geographic Targeting Order reporting requirements and related data integrity obligations.
- Prepare compliance, legal, and operations teams for potential regulatory examinations, subpoenas, or law enforcement inquiries.
Ballard Spahr brings deep, firsthand experience to advising financial institutions facing heightened fraud and AML scrutiny. Drawing on this experience, Ballard Spahr advises banks and financial institutions on BSA/AML compliance, fraud risk mitigation, regulatory examinations, and responses to government investigations—helping clients anticipate enforcement priorities and address issues before they escalate. In matters involving potential violations, we conduct internal investigations and assist in responding to administrative, civil or criminal investigations, government enforcement actions, and related civil litigation by private parties regarding fraud schemes. We help clients evaluate risk, strengthen compliance frameworks, respond to supervisory and enforcement actions, and navigate complex, multi-agency inquiries.
Rushmi Bhaskaran, a partner in Ballard Spahr’s White Collar Defense and Investigations Group, previously served as an Assistant U.S. Attorney in the Southern District of New York, where she investigated, prosecuted, and tried a wide range of white collar fraud matters, including those involving allegations of money laundering and violations of the Bank Secrecy Act.
Matthew Ebert, counsel in Ballard Spahr’s White Collar Defense and Investigations Group, previously served as Chief of the Fraud and Public Corruption Section at the U.S. Attorney’s Office for the District of Minnesota, where he played a leading role in the federal investigation and prosecution of the Feeding Our Future fraud scheme that is an impetus for Treasury’s anti-fraud initiatives.
If you would like to remain updated on these issues, please click here to subscribe to Money Laundering Watch. Please click here to find out about Ballard Spahr’s Anti-Money Laundering Team.
Rushmi Bhaskaran & Matthew Ebert
Back to TopCIPA Reform in 2026: What Website Operators Need to Know
Over the last few years, businesses, nonprofits, and other website operators have seen thousands of lawsuits and arbitrations filed under the California Invasion of Privacy Act (CIPA) alleging that the use of ubiquitous cookies and pixels on websites violates CIPA’s wiretap and pen register provisions. The California legislature considered curbing that explosion of litigation with SB 690, which was introduced in the 2025 session with some enthusiasm but ultimately stalled.
Thus, although there is some hope of relief as the legislative session picks back up in 2026, organizations are left in the same situation as before—balancing business needs and value with risk mitigation.
SB 690 at a Glance
CIPA was originally enacted in 1967 to address traditional wiretapping and eavesdropping concerns which, at the time, primarily involved telephonic communications. It therefore did not address digital technologies or adtech now used for website marketing. Nonetheless, in recent years, several thousands of lawsuits and arbitrations have sought to apply CIPA in precisely that context.
In 2025, California lawmakers advanced SB 690 to modernize CIPA for the internet era. The amendment aims to tamp down lawsuits targeting routine website technologies by adding a broad “commercial business purpose” exemption to CIPA’s wiretap and pen-register provisions and, thus, clarify that use of these technologies for business purposes would not trigger CIPA liability. Early versions of the bill included a retroactivity provision that would have applied to all pending cases as of January 1, 2026, but that provision was removed in the Senate amid criticism from consumer advocate groups.
Why SB 690 Stalled in 2025
Despite unanimous passage in the Senate, SB 690 did not clear the Assembly before the 2025 legislative session adjourned, and it was thus designated a two-year bill. Reports indicate the bill stalled in the Assembly Judiciary process, with lawmakers citing the need for further stakeholder dialogue and competing policy priorities, leaving businesses to face continued litigation through at least 2026.
The primary resistance to the bill came from privacy and consumer groups who argued that SB 690’s proposed exemption was too broad and would shield opaque tracking practices that CCPA enforcement has not yet addressed. Removal of the bill’s retroactivity provision would reduce immediate litigation relief, and plaintiffs’ filings continued apace through the close of the year amid split trial court decisions on CIPA’s scope.
What’s Next for SB 690 in 2026
Notably, it was SB 690’s author and primary sponsor that paused the bill in the Assembly in 2025, citing opposition from consumer privacy advocates and attorneys’ groups. So, it remains to be seen whether SB 690 will advance at all, at least in its current form, in 2026.
SB 690 is eligible for reconsideration as a two-year bill in the 2026 session, which reconvenes January 5. The last day to introduce bills is February 20, and the final day to pass bills August 31. Expect policy committee activity in spring, fiscal deadlines in May, and floor-only periods late May and in the final August push. If revived, SB 690 is likely to remain prospective only, reinforcing the importance of near-term compliance and risk mitigation for existing site technologies.
What Businesses and Organizations Should Do Now
Until reform is enacted, CIPA suits over pixels, analytics, chatbots, search bar functions, and replay tools will continue, complete with statutory damages of $5,000 per alleged violation and inconsistent early-dismissal outcomes. Further, even if SB 690 eventually passes in its current form, relief would not be coming until at least 2027, if not longer. Organizations therefore need to take steps now to assess their risk.
Risk mitigation for each specific organization will necessarily vary, but it will generally involve assessing practices, identifying any higher risk processing activities, and updating disclosures, consents, and vendor governance as appropriate.
Lexi Chapman, J. Matthew Thornton, and Gregory P. Szewczyk
Mark Your Calendar: HIPAA Deadline on February 16
The Health Insurance Portability and Accountability Act (HIPAA) regulations require updates to the Notice of Privacy Practices that health plan sponsors furnish to plan participants and health care providers furnish to patients. The updates must be made by February 16, 2026.
The Upshot
The regulations require changes to the Notice of Privacy Practices for information regarding certain substance use disorder treatment information and reproductive health information. Health plan sponsors and health care participants will want to consider:
- The measures they need to take to comply with the new notice requirements for protected health information originating at certain treatment centers for substance use disorders.
- Whether to make changes regarding reproductive health information, given that those regulations have been vacated by a federal district court.
- The extent to which other HIPAA-related documents should be amended.
The Bottom Line
The February 16 deadline is approaching, and employers should evaluate how they will respond and take appropriate action.
As a long-standing Health Insurance Portability and Accountability Act (HIPAA) deadline to amend the Notice of Privacy Practices draws near, health plan sponsors and health care providers will need to consider the measures they will take to comply.
Changes to the HIPAA regulations require health plans and most health care providers to amend their Notices of Privacy Practices by February 16, 2026, to address rules governing the confidentiality of certain information about care provided at a federally assisted treatment center for substance use disorders (SUD information).
Substance Use Disorder Information. The new changes to the HIPAA Notice of Privacy Practices arise from a separate set of regulations governing the disclosure of substance use disorder information by certain federally-assisted entities (such as opioid treatment centers or residential facilities). These entities are required to obtain consent from patients prior to disclosing substance use disorder records, and these consents may include restrictions on how that information can be used.
The HIPAA regulations now require the Notice of Privacy Practices to specifically address the use and disclosure of SUD information received pursuant to one of these patient consents. For example, the HIPAA-covered entity may not be permitted to use this information for the full range of treatment, payment, and health care operations if the patient’s consent limits the disclosure of the substance use information. Additionally, the Notice of Privacy Practices must describe applicable limits on the use and disclosure of SUD information for matters such as criminal or civil proceedings against an individual (uses and disclosures that might otherwise deter individuals from seeking treatment).
Providers must make the revised notice available to patients by the February 16, 2026, deadline. Similarly, health plan sponsors will need to post the revised Notice on the website where plan information may be found by the same deadline. If posted on time, plan sponsors may delay individualized delivery of the revised Notice until the next annual mailing to plan participants. Instead of providing the full Notice, plan sponsors could provide a description of the changes and instructions on how to obtain the full notice. For insured health plans, the insurance carrier will generally bear the responsibility for preparing and providing the Notice.
A significant question arises as to whether the revised Notice must be delivered on paper or whether it can be provided by email. The HIPAA regulations generally require an individual to agree to receive an emailed Notice, but health plans and health care providers may consider whether that requirement strictly applies to the revised Notice.
Plan sponsors and providers may also consider whether changes to other HIPAA-related documents are appropriate, including changes to their:
- Internal HIPAA privacy policies and procedures
- Business associate agreements with applicable vendors
- HIPAA training materials.
Reproductive Health Information. Until recently, substance use disorder information was not the only regulatory change driving edits to the Notice of Privacy Practices. As many covered entities are aware, regulations issued under the Biden administration put strict limits on the use and disclosure of information related to an individual’s reproductive health. However, the reproductive health regulations were recently vacated by a federal district court, which means these edits to the Notice of Privacy Practices do not appear to be necessary at this time.
Some health plan sponsors and health care providers may have already amended certain documents to account for the reproductive health information regulations. Recognizing the volatility of the issue, they have often qualified those amendments to apply only to the extent that the reproductive health regulations are actually in effect, which again would mean that no changes are needed.
The handling of reproductive health information remains a highly sensitive and politicized topic. Much of the activity seeking such information and shielding the information from those who seek it is likely to occur at a state level. Health plan sponsors and health care providers may consider in advance how they would respond to a request for reproductive health information and continue to watch for developments in this arena.
Ballard Spahr lawyers continue to follow these and other HIPAA developments and are available to help you respond to these new rules.
D. Finn Pressly & Edward I. LeedsWhat to Expect in AI Regulation in 2026
The past year set up a clear clash between federal deregulatory efforts and state-level AI rulemaking, and 2026 is poised to be the year that conflict materializes in earnest. The Trump administration signaled a strong preference for scaling back AI-specific rules while exploring avenues to preempt state and local measures, even as a growing number of states moved forward with their own frameworks. In short, 2025 laid the groundwork, and 2026 is likely to deliver the confrontation.
On the federal side, the Administration’s posture included both legislative and policy initiatives aimed at limiting state restrictions on AI. Although a proposed 10-year moratorium on enforcing state AI laws was removed during negotiations over the One Big Beautiful Bill Act, the America’s AI Action Plan soon followed, instructing agencies to consider using preemption to curb “burdensome” state AI regulations. In the final weeks of 2025, the White House issued an executive order, Ensuring a National Policy Framework for Artificial Intelligence (the “Executive Oder”). The Executive Order directs the U.S. Attorney General to establish an AI Litigation Task to challenge state AI laws deemed unconstitutional or preempted and tasks the Administration with developing a national AI legislative framework that would preempt conflicting state rules.
States, however, did not stand still. California’s SB 53 established a first-in-the-nation set of standardized safety disclosure and governance obligations for developers of frontier AI systems, underscoring state willingness to regulate despite federal headwinds. Colorado’s Anti-Discrimination in AI Law remained intact through the 2025 session and is scheduled to take effect in June 2026, setting a near-term compliance deadline that will shape risk assessments and product planning. Even traditionally deregulatory states like Texas pursued aggressive enforcement under existing biometric laws against alleged AI-driven facial recognition practices.
Looking ahead, expect 2026 to feature litigation over the scope of preemption, increased enforcement actions from federal agencies, and a push toward a federal legislative framework, alongside continued state innovation in AI governance. Despite the uncertainty, companies should continue to comply with applicable state AI laws because the Executive Order itself cannot overturn state law. Only Congress and the courts have the power to do so, and until then, state laws remain enforceable. For companies, that means preparing for a two-track reality: monitor and implement state obligations while tracking federal moves that could reshape, narrow, or delay those obligations. The result is likely to be a dynamic, contested compliance environment throughout 2026, rather than quick regulatory convergence.
Mudasar Pham Khan, Gregory P. Szewczyk, and Parisa Zarelli
The Department of Homeland Security (DHS) has finalized the rule overhauling the H‑1B cap selection process, replacing the longstanding random lottery with a wage-based, weighted selection system. The final rule makes no changes to the regulatory text from the Notice of Proposed Rulemaking (NPRM) in September 2025. The rule is scheduled to take effect February 27, 2026, positioning it to govern the upcoming H-1B cap lottery in March 2026.
This change marks one of the most consequential shifts in H‑1B policy in years and is expected to reshape employer filing strategies, beneficiary eligibility outcomes, and workforce planning.
Key Highlights of the Final Rule
- Weighted selection system favoring higher-paid roles: DHS will now assign higher selection odds to registrations offering higher wage levels within the Occupational Employment and Wage Statistics (OEWS) system. This replaces the purely random lottery used for decades.
- Cap numbers remain unchanged: The statutory caps–65,000 regular H‑1B visas and 20,000 U.S. advanced-degree exemptions–are not affected by the rule.
- The lottery remains beneficiary-centric. Multiple employers may enter the same beneficiary into the lottery, but that will not increase the likelihood of selection (registration is based on the unique beneficiary, not the number of registrations submitted).
- Rule intended to curb perceived program misuse: DHS states that the new system aims to reduce the ability of employers to submit large volumes of low-wage registrations and to prioritize “the most economically valuable workers.”
Implementation of the Weighted Rule
- Petitioners must select the occupational category (SOC code) and area of intended employment for each H-1B beneficiary’s registration. Based on the occupational category and area of employment, petitioners must then select the highest wage level the beneficiary’s proffered wage will meet or exceed.
- If the petitioner will rely on an alternate prevailing wage, not the OEWS survey, that falls below the Level I corresponding wage, they will select Wage Level I.
- If the proffered wage is a salary range, the lowest end of the range is used to determine the wage level.
- If the beneficiary will work in multiple locations, the lowest corresponding wage level should be used.
- Each registration is assigned a number of “entries” based on the selected wage level:
- Wage Level IV: four entries
- Wage Level III: three entries
- Wage Level II: two entries
- Wage Level I (lowest): one entry
- Multiple employers with a bona fide job offer may still submit registrations for a single beneficiary. In this case, the beneficiary will be assigned the lowest wage level among all submitted registrations.
- If Company A enters Beneficiary at a Wage Level IV and Company B enters Beneficiary at Wage Level II, Beneficiary’s name will only result in two entries based on the Wage Level II (lowest wage level) entry.
- If the beneficiary is selected, the corresponding H-1B petition must include a proffered wage equal to or exceeding the selected OEWS wage level from the cap registration.
- The wage level used on the Labor Condition Application (LCA) for the H-1B cap petition need not be the same as the wage level selected on the registration, but the proffered wage must meet or exceed the wage level selected on the registration.
Practical Implications for Employers
- Expect materially different selection odds: Employers offering Level III or Level IV wages will likely see significantly improved chances of selection, while Level I and Level II filings may face steep declines.
- Reevaluate wage levels and job structures: Employers may consider adjusting wage levels, job descriptions, or geographic placements to remain competitive under the new system.
- Prepare for increased documentation scrutiny: Wage levels (based on occupational classifications) will now directly influence selection odds, increasing the importance of accurate job classifications.
- Start planning earlier: With the rule effective before the next registration window, employers should begin internal reviews.
- Global mobility alternatives: Employers may need to consider potential alternatives to H-1B (TN, L-1, O-1, etc.) or offshore strategies for candidates unlikely to be selected under the new system.
- Finally, the potential silver lining of the $100,000 fee: The overall number of submissions into the H-1B cap lottery may decrease after the implementation of the $100,000 fee, which impacts petitions filed for individuals outside the United States. If there are fewer H-1B cap lottery entries for individuals outside the U.S., the impact of the new wage-based selection process on lower wage level registrations may be mitigated.
Dustin J. O'Quinn, Christopher A. Motta-Wurst, and Samantha L. Bloom
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