March 19 – 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 SHIELD Debt Collection Rule, continued opt-out legislation, Buy Now, Pay Later issues facing policymakers, and much more.
- Podcast Episode: Credit Card Rate Caps and the Credit Card Competition Act: The Right Problem, the Wrong Tools?
- Podcast Episode: Agentic AI in Consumer Financial Services: Opportunities, Risks, and Emerging Legal Frameworks
- Executive Order Seeks to Promote Mortgage Lending by Community and Smaller Banks Through Easing Regulatory Requirements
- OCC Issues Two Final Rules to Reduce Regulatory Burden on Community Banks (National Banks and Federal Savings Associations and Banks)
- OCC Proposes Overhaul of Appeals Process
- Trump Administration Signals Potential Revisions to Federal Cyber Incident Reporting Requirements
- A Busy Week for CalPrivacy Regulators on the Opt-Out Front
- Oregon’s DIDMCA Opt-Out Legislation Heads to the Governor’s Desk
- CRS Says Policymakers are Facing Myriad of BNPL Issues
- New York City Adopts Sweeping SHIELD Debt Collection Rule: How It Differs from Prior DCWP Rules and CFPB Regulation F
- Federal Focus on DEI Initiatives Expands in Corporate Hiring Practices and Regulated Industries
- Fortune 500 Companies Beware: EEOC Chair Sends Warning on DEI Compliance
- The Economic Reality of History Repeating Itself: DOL Proposes Another Shift in Independent Contractor Classification
- Looking Ahead
On this episode on our Consumer Finance Monitor podcast our host Alan Kaplinsky’s discussion with Marisa Calderon, President and CEO of Prosperity Now, is about two high-profile policy proposals raised or embraced by President Trump as part of a broader populist affordability agenda:
- A nationwide 10 percent cap on credit card interest rates for one year.
- The Credit Card Competition Act (CCCA), long championed by Senator Dick Durbin which would require large credit card issuers to enable at least two unaffiliated payment networks (only one of which could be MasterCard or VISA) on their cards.
Each proposal is framed as pro-consumer. Each has generated significant pushback from banks, card issuers, and trade associations. However, even consumer advocacy groups have raised serious questions about the wisdom of such initiatives. Prosperity Now is a nonprofit organization dedicated to advancing economic mobility, with a focus on those facing economic barriers. Each raises fundamental questions about how to balance affordability and access in the consumer credit market.
Our discussion focused on a central theme: affordability is a real and pressing concern, but policy design matters enormously.
Credit Card APRs: A Real Affordability Pressure
As Calderon emphasized, policymakers are not wrong to focus on credit card interest rates. Average credit card APRs now hover around 22 percent, up sharply from roughly 13 percent a decade ago. Approximately half of cardholders carry a balance, and many rely on credit cards not for discretionary spending, but as liquidity bridges, covering emergency medical bills, car repairs, groceries, and other essentials.
For lower and moderate-income households, credit cards are often the only readily available, regulated source of short-term liquidity. That makes rising APRs particularly painful.
Calderon’s formulation is apt: Policymakers have identified the right problem. The harder question is whether they have identified the right solution.
The 10 Percent Interest Rate Cap: Lessons from History
The proposal to impose a flat 10 percent nationwide cap on credit card interest rates for one year would represent an unprecedented federal intervention into unsecured revolving credit markets.
Credit cards are unsecured and priced for risk. Interest margins help issuers cover expected charge-offs, volatility, and operational costs. If pricing flexibility is removed, lenders cannot simply absorb the loss, they adjust.
Historically, those adjustments take predictable forms:
- Tighter underwriting standards
- Higher minimum credit scores
- Lower credit limits
- Reduced rewards programs
- Increased non-interest fees
- Exit from higher-risk market segments
The likely result, as Calderon noted, is credit contraction, particularly affecting marginal and lower-income borrowers.
The most relevant historical example may be the 1980 credit controls imposed during the Carter administration, which were rescinded within months after causing severe market disruption. A more targeted example is the 36 percent APR cap under the Military Lending Act, which illustrates both the importance of bipartisan legislative design and the reality that even well-intentioned caps can reduce access at the margins.
Recent Federal Reserve research on state usury caps reinforces this concern: When interest rate ceilings are imposed, credit to higher-risk borrowers contracts, credit to lower-risk borrowers expands, and delinquency rates do not meaningfully improve. In other words, credit is reallocated, not necessarily improved.
Even a “temporary” cap may have durable consequences. Issuers that exit certain segments or reduce credit lines are not obligated, and may not be economically inclined, to restore them once the cap expires. Credit score impacts and reduced access can linger well beyond the formal life of the policy.
As Calderon put it, blunt price controls are a chainsaw when what is needed is a scalpel.
Affordability in Context: What Drives Household Budgets?
An additional consideration is scale. Research recently highlighted by the Consumer Bankers Association shows that the fastest-growing household expenses from 2013–2024 were health care, shelter, food, and vehicles. Credit card interest represents a relatively small share of average household expenditures.
This does not minimize the pain of high APRs, especially for households carrying persistent balances, but it does raise an important structural question: can credit card rate caps meaningfully solve broader affordability challenges rooted in housing, medical costs, food inflation, and transportation?
Credit cards are often the mechanism households use to cope with those rising costs. Constraining access to that liquidity may exacerbate, rather than relieve, financial stress.
The Credit Card Competition Act: Structural Reform or Indirect Price Control?
The second proposal we discussed, the Credit Card Competition Act (the CCCA), takes a different approach.
Rather than capping interest rates, the CCCA would require large issuers to offer merchants at least two unaffiliated network routing options (only one of which could be Visa or Mastercard). The theory is that routing competition would reduce interchange fees (swipe fees), lowering merchant costs and ultimately consumer prices.
Merchants have generally supported the proposal. Banks and card issuers have strongly opposed it.
The consumer-facing promise is straightforward: Lower merchant fees should translate into lower retail prices, but history complicates that assumption.
The Durbin Amendment to the Dodd-Frank Act imposed caps on debit card interchange fees for large issuers and included routing requirements. While interchange revenue declined, Calderon pointed out that empirical evidence suggests that cost savings were not consistently passed through to consumers in the form of lower prices. At the same time, banks offset lost revenue through higher account fees and reduced benefits.
A similar dynamic could unfold in the credit card market. Interchange revenue helps fund:
- Rewards programs
- Fraud detection and prevention
- Customer service infrastructure
- Risk management
If that revenue is compressed, issuers may respond with tighter underwriting, reduced rewards, or new fee structures. As Calderon observed, although the CCCA operates through indirect price pressure rather than a direct APR ceiling, downstream effects could look similar.
Distinguishing Populist Framing From Durable Reform
Both the rate cap and the CCCA are framed as pro-consumer, populist reforms. The political appeal is clear, but distinguishing headline appeal from durable consumer benefit requires careful analysis.
Calderon suggested several guideposts policymakers should consider:
- Access – Does the reform preserve or expand access for low- and moderate-income borrowers?
- Incidence – Who actually captures the gains? Consumers, merchants, intermediaries, or some combination?
- Substitution effects – Does the policy push consumers toward higher-cost, less-regulated alternatives such as payday or fringe products?
- Durability – What happens after implementation? Do markets rebound, or do credit line reductions and underwriting changes persist?
These questions are not ideological. They are structural.
Affordability and access are not opposing values. The policy challenge is designing reforms that alleviate financial strain without narrowing the regulated credit tools families rely on when emergencies arise.
The Bottom Line
Affordability concerns are real. Rising APRs are real. Financial stress among many households is real. But blunt price caps may reduce rates on paper while reducing access in practice. Structural competition mandates may promise savings that do not materialize at the checkout counter.
Durable consumer protection requires careful calibration—the scalpel, not the chainsaw.
For industry participants, policymakers, and advocates alike, the takeaway is straightforward: evidence and market mechanics matter. Populist framing may win headlines, but long-term financial stability depends on policy design that accounts for how credit markets actually function.
As always, we will continue to monitor these proposals and their evolution in Congress and the Administration. It may be noteworthy that President Trump did not mention either proposal during his almost two-hour State of the Union Address on January 24.
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
Artificial intelligence is rapidly transforming the consumer financial services industry. From underwriting and fraud detection to customer engagement and collections, financial institutions are increasingly deploying advanced AI tools to automate processes, personalize services, and improve operational efficiency. This episode, on our Consumer Finance Monitor Podcast show, is a discussion of what may be the next major technological shift for the industry: Agentic AI in Consumer Financial Services—AI systems capable of acting autonomously, making decisions, and interacting directly with consumers.
The discussion featured Professor Oren Bar-Gill of New York University School of Law, along with Ballard Spahr partners Joseph Schuster and Adam Maarec. The discussion was hosted by Alan Kaplinsky, the founder and practice group leader for 25 years of the Consumer Financial Services Group and now senior counsel. The panel examined how agentic AI differs from earlier forms of automation, the benefits it offers financial institutions and consumers, and the significant legal and regulatory risks it may create.
Below are the key takeaways from the discussion.
What Is Agentic AI?
Agentic AI refers to AI systems that can independently take actions on behalf of users or organizations. Unlike traditional automation, which performs predefined tasks, or generative AI, which primarily produces content, agentic AI systems can:
- Make autonomous decisions
- Interact directly with consumers
- Initiate actions such as transactions or communications
- Learn from prior interactions
In financial services, these systems may soon conduct customer service interactions, initiate collections calls, execute payments, or manage purchasing tasks for consumers.
While these capabilities promise major efficiencies, they also raise complex legal questions regarding accountability, fairness, and consumer protection.
Understanding AI-Driven Consumer Harm
Professor Bar-Gill framed the discussion by examining potential consumer harms associated with AI-powered decision-making. Drawing on his recent book with Cass Sunstein, “Algorithmic Harm: Protecting People in the Age of Artificial Intelligence,” he explained that the impact of AI depends largely on the type of market in which it operates. The book is available on Amazon here.
Sophisticated vs. Unsophisticated Markets
Bar-Gill distinguishes between:
- Sophisticated markets, where consumers are generally able to make informed decisions
- Unsophisticated markets, where consumers are more likely to misunderstand complex products
In sophisticated markets, AI-driven personalization, such as individualized pricing, can increase efficiency and expand access to products by offering lower prices to consumers with lower willingness to pay.
In contrast, in markets involving complex financial products, such as credit cards, mortgages, or insurance, AI-powered personalization may harm consumers who misjudge product costs or benefits.
For example, if a consumer mistakenly overestimates the value of a financial product, an AI system may set the price just below that mistaken valuation, leading the consumer to pay more than the product is actually worth.
Algorithmic Price Discrimination
One area of growing concern is AI-enabled price discrimination, where algorithms tailor prices to each consumer’s willingness to pay.
Examples cited during the discussion included:
- Airlines experimenting with AI-based pricing strategies
- Online retail platforms offering individualized prices for identical products
- Insurance companies using algorithms to optimize premiums
While pricing based on individual risk, such as in insurance underwriting, is widely accepted, pricing based on willingness to pay raises significant consumer protection concerns.
As these practices expand, they are likely to attract increased attention from regulators and lawmakers, particularly at the state level.
AI Use Cases in Consumer Finance
The panel also highlighted several areas where AI is already being deployed across the consumer financial services lifecycle.
Marketing and Customer Acquisition
Financial institutions are using AI to analyze large data sets and create highly personalized marketing campaigns. Large language models can generate customized messaging tailored to specific demographic groups or individual consumers.
While this personalization improves targeting and engagement, it also creates compliance challenges related to:
- Misleading advertising
- Disclosure requirements
- Potential discriminatory targeting
Underwriting and Credit Decisions
AI-driven underwriting tools allow lenders to analyze alternative data, such as cash-flow information, to assess creditworthiness. These tools may expand access to credit for consumers who previously lacked traditional credit histories.
However, they also raise fair lending concerns under laws such as the Equal Credit Opportunity Act and its implementing regulation, Regulation B.
Because many AI models operate as “black boxes,” institutions may struggle to explain how decisions are made, an issue that can complicate discrimination analyses and regulatory oversight.
Fraud Detection
AI is particularly powerful in fraud detection, where pattern recognition is essential. Advanced models can analyze transaction behavior in real time to identify suspicious activity while minimizing unnecessary transaction declines.
These tools also allow financial institutions to communicate with customers instantly, confirming transactions or investigating suspicious activity through automated interactions.
Servicing and Collections
Agentic AI may soon conduct both inbound and outbound customer interactions, including:
- Customer service conversations
- Dispute resolution
- Collections calls
In some cases, AI-driven voice systems can conduct conversations that are indistinguishable from human interactions.
While this technology may improve efficiency and reduce costs, it raises legal concerns about consumer deception, harassment, and compliance with debt collection laws.
Core Legal Risks
Despite the novelty of the technology, many of the key legal risks arise from existing laws, not new AI-specific statutes.
Liability for AI Actions
As Joseph Schuster emphasized, AI is a tool, not a liability shield. Institutions remain responsible for the actions of AI systems just as they would for the actions of employees or third-party vendors.
Traditional legal doctrines, including agency law, vicarious liability, and unfair or deceptive acts or practices, continue to apply.
UDAP Risks
AI systems interacting with consumers may create risks under federal and state UDAP laws if they:
- Provide inaccurate information (hallucinations)
- Fail to deliver required disclosures
- Exhibit overconfidence in uncertain responses
- Engage in manipulative behavioral targeting.
Fair Lending and Discrimination
AI models can unintentionally produce discriminatory outcomes, even when protected characteristics are not used as inputs.
As Professor Bar-Gill noted, future litigation may increasingly focus on disparate impact analysis, which examines whether outcomes disproportionately affect protected classes regardless of the model’s internal logic.
Governance and Risk Management
Given these risks, institutions are increasingly adopting governance frameworks for AI deployment.
Common practices include:
- AI governance committees with cross-functional participation
- Model inventories and risk-tiering systems
- Vendor due diligence for AI providers
- Data mapping and validation processes
- Continuous monitoring of AI outputs.
Financial regulators are already asking supervised institutions detailed questions about how AI is being used. Institutions that implement structured governance processes are better positioned to respond to these inquiries.
The Rise of Agentic Commerce
One emerging application of agentic AI involves autonomous purchasing.
For example, a consumer might instruct an AI assistant to plan and purchase supplies for a birthday party. The AI would then select vendors, place orders, and initiate payments using the consumer’s stored payment credentials.
But what happens if AI makes a mistake, such as ordering supplies for 1,000 guests instead of 10?
Such scenarios raise difficult questions involving:
- consumer authorization
- merchant liability
- payment network rules
- dispute resolution
These issues are only beginning to receive attention from regulators and industry participants.
Key Takeaways for Financial Institutions
The panel concluded with several recommendations for institutions exploring AI deployment.
First, distinguish beneficial uses from harmful ones. AI can deliver significant consumer benefits, but firms must remain vigilant about potential misuse or unintended harm.
Second, prioritize governance. Robust policies, oversight structures, and risk management processes are essential.
Third, remember that existing laws still apply. AI systems must comply with the same consumer protection, fair lending, and disclosure requirements that govern traditional processes.
Finally, institutions must recognize that failing to adopt AI also carries risks. As fraudsters increasingly deploy advanced technology, financial institutions may need AI tools simply to keep pace.
As AI technology continues to evolve, the legal framework governing its use in financial services will also develop. For now, however, the most important lesson is that innovation must proceed hand-in-hand with careful legal and compliance oversight.
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
President Trump recently issued an Executive Order titled “Promoting Access to Mortgage Credit“ seeking to promote mortgage lending by community banks and smaller banks. The executive order refers to community banks and smaller banks as banks with assets of less than $30 billion and $100 billion, respectively.
The premise of the executive order is that “[o]ver the past two decades . . . statutory and regulatory changes—including rules adopted under the Dodd-Frank Act . . . and subsequent rulemakings—have increased the compliance costs of mortgage origination and servicing and distorted the structure of the mortgage market. These burdens have contributed to a significant decline in bank participation in mortgage lending.” The executive order seeks to reduce the burdens through a combination of easing various regulatory requirements and supervisory and enforcement policies and addressing the capital and liquidity frameworks applicable to community banks and smaller banks.
Regarding the easing of regulatory requirements, the executive order provides that the CFPB “shall consider, as appropriate and consistent with applicable law:”
- Proposing amendments to the regulations under the Truth in Lending Act (TILA) and Real Estate Settlement Procedures Act (RESPA), including the ability to repay (ATR)/qualified mortgage (QM) rule under TILA and the TILA/RESPA Integrated Disclosure (TRID) rule.
- The ATR/QM rule sets forth requirements for QMs which, if satisfied, create either a safe harbor of compliance or a rebuttable presumption of compliance with the rule. The executive order provides that the amendments to the rule potentially may include a broader QM safe harbor for loans that banks retain in their portfolio.
- “[E]xempting small-mortgage loans from caps on QM points and fees or, as appropriate, modifying such caps to support affordability.”
- The ATR/QM rule limits the total dollar amount of points and fees that may be charged by a creditor for a loan to be a QM loan, with the amounts varying based on the principal balance of the loan. For example, during 2026 if the loan amount is greater than or equal to $137,958, the points and fees may not exceed 3 percent of the total loan amount, and if the loan amount is less than $17,245, the points and fees may not exceed 8 percent of the total loan amount. There are three additional tiers of points and fees limits for loan amounts between those two amounts.
- “[U]pdating regulations regarding banks’ reasonable compliance with ATR and QM underwriting requirements by removing unnecessarily burdensome elements.”
- Replacing TRID timing rules with a “materiality-based standard that preserves consumer clarity and reduces closing delays.”
- The TRID rule imposes a seven-business day waiting period between when a creditor delivers or mails a Loan Estimate to the consumer and consummation of the loan, and a three-business day waiting period between when a consumer receives a Closing Disclosure and consummation of the loan.
- “[M]odernizing the right to rescission for mortgage lending, for example, by enabling increased secure electronic and digital forms and processes.”
- “[S]treamlining the requirements applicable to rate-and-term refinancing under Regulation X mortgage servicing rules.”
- It is not clear what the executive order contemplates regarding this provision, as a rate-and-term refinance would appear to be governed more by Regulation Z under TILA than the mortgage servicing provisions of Regulation X under RESPA.
- “[E]xempting rate-and-term refinancing (including cash-out refinancing) from rescission rights.”
- Under TILA/Regulation Z, for refinance loans secured by a consumer’s principal dwelling the consumer has three business days after consummation to rescind the loan.
- “[P]roposing amendments to Regulation C to raise the asset threshold for exemption from HMDA data collection and reporting requirements for smaller banks, to exclude inquiries from the scope of HMDA, and to ensure that disclosures protect privacy and reduce burdens, including insufficiently tailored, expensive, and complex software and training needed for reporting financial institutions.”
- The HMDA asset-based exemption threshold is statutory. An attempt by the CFPB to modify the threshold by regulation may face challenges as to whether the CFPB’s exception authority under HMDA is broad enough to modify the threshold. Inquiries currently are not reportable under HMDA, although pre-approvals under certain types of formal pre-approval programs are reportable. It’s unclear whether the executive order intends to target reportable pre-approvals. As previously reported, there is a concern that the publicly available HMDA data can be combined with other publicly available data to determine the identity of consumers in HMDA Loan Application Registers.
- The HMDA data collection and reporting requirements impose significant operational and cost burdens on mortgage lenders.
The executive order directs the CFPB, federal financial institution regulators and Federal Housing Finance Agency (FHFA) to “consider, as appropriate and consistent with applicable law and their statutory authorities:”
- “[M]odernizing appraisal regulations and guidance to expand the use of alternative valuation models, desktop and hybrid appraisals, and artificial intelligence valuation tools.”
- “[S]implifying appraiser qualification requirements.”
- There is a concern in the mortgage industry that existing appraiser qualification requirements pose a high barrier to entry into the field, leading to a shortage of appraisers.
- “[R]educing appraisal requirements for low-risk transactions, including low loan-to-value refinancing and small balance loans; and setting clear appraisal timelines.”
The executive order also directs the U.S. Department and Housing and Urban Development and the U.S. Department of Veterans Affairs (VA) to “consider, as appropriate and consistent with applicable law:”
- Aligning appraisal standards between the Federal Housing Administration insured home loan program and VA guaranteed home loan program, where risk is comparable.
- “[C]larifying the distinction in an appraisal inspection between safety and habitability concerns that necessitate pre-closing repairs versus cosmetic concerns.”
- “[E]xpanding post-closing repair flexibility.”
The executive order directs the federal financial institution regulators to “consider, as appropriate and consistent with applicable law, revising supervisory guidance to ensure that:”
- “[E]xaminers evaluate mortgage lending based on the effectiveness of the lender’s policies regarding a consumer’s ability to repay and prudent underwriting, rather than the existing focus on process and technical compliance.”
- “[G]ood faith, technical compliance errors are subject to correction-first supervisory treatment, with enforcement reserved for borrower harm or repeated misconduct.”
The executive order directs the federal financial institution regulators and the FHFA to consider various measures, including the revision of capital requirements. It also directs the federal financial institution regulators to “consider, as appropriate and consistent with applicable law, promulgating a policy against enforcement actions for violations of consumer financial laws that:”
- “[D]iscourages imposing civil monetary penalties, except where the underlying violations are willful, knowing, or reckless.”
- “[C]onsiders good corporate conduct, including a bank’s correction of good-faith, technical compliance errors.”
- “[A]llows institutions a reasonable opportunity for self-identification and remediation of appropriate compliance matters.”
Richard J. Andreano, Jr. and John L. Culhane, Jr.
The Office of the Comptroller of the Currency (OCC) recently adopted two final rules designed to reduce regulatory burden on community banks. The rules expand streamlined licensing procedures for qualifying community banks and rescind an outdated mortgage data collection regulation that applied only to national banks.
According to the OCC, the actions are intended to tailor regulatory requirements to the size and complexity of banking organizations and eliminate duplicative or unnecessary compliance obligations while preserving core supervisory and consumer protection safeguards.
OCC Expands Expedited Licensing Procedures
In the first rulemaking, the OCC amended its licensing regulations in 12 C.F.R. Part 5 to expand the availability of expedited review procedures for certain filings made by community banks.
Previously, expedited processing was generally limited to institutions that qualified as “eligible banks” or “eligible savings associations,” typically those that were well capitalized, well managed, and had favorable supervisory ratings. The final rule expands streamlined licensing procedures to a newly defined category of “covered community banks” and “covered community savings associations.”
These categories generally include national banks and federal savings associations with less than $30 billion in total assets that meet alternative specified supervisory criteria (i.e., well capitalized and not subject to a formal enforcement action).
Under the rule, qualifying institutions may use expedited or simplified procedures for a number of routine corporate filings under the OCC’s licensing regulations, including:
- Certain corporate reorganizations and restructuring transactions
- Non-controlling investments
- The establishment or modification of operating subsidiaries
- Other corporate applications governed by the OCC’s licensing framework
By expanding eligibility for expedited review, the OCC expects that qualifying community banks will experience reduced paperwork and faster regulatory review timelines when undertaking routine corporate activities.
The rule also clarifies how public comments affect expedited processing. Specifically, a filing generally will remain eligible for expedited review unless a comment raises a significant supervisory, compliance, or Community Reinvestment Act concern.
In adopting the rule, the OCC noted that community banks typically engage in less complex activities than larger banking organizations and therefore present lower supervisory risk in connection with many licensing filings.
OCC Rescinds Fair Housing Home Loan Data System Rule
In a separate rulemaking, the OCC rescinded its Fair Housing Home Loan Data System regulation, previously codified at 12 C.F.R. Part 27.
This regulation, adopted in 1979, required national banks to collect and maintain certain data regarding home loan applications to assist regulators in monitoring compliance with fair housing laws.
The OCC concluded that the regulation had become largely obsolete and duplicative, primarily because of the extensive mortgage data collection requirements imposed under the Home Mortgage Disclosure Act (HMDA) and its implementing regulation, Regulation C.
HMDA already requires lenders to collect and report detailed information regarding mortgage applications, originations, and pricing. Regulators—including the OCC—use this information extensively to monitor fair lending compliance and housing credit availability.
The OCC determined that the additional data collection required under Part 27 no longer provides meaningful supervisory benefits and imposes unnecessary compliance costs. The agency also noted that the rule applied only to national banks, resulting in inconsistent regulatory requirements across different types of financial institutions.
Importantly, the rescission does not diminish regulators’ ability to monitor fair lending compliance. Banks remain subject to HMDA reporting requirements and to federal fair lending laws such as the Equal Credit Opportunity Act and the Fair Housing Act.
Implications
The OCC’s two rulemakings are consistent with the agency’s broader policy objective of tailoring regulation for smaller banking organizations.
For community national banks and federal savings associations, the rules should produce several practical benefits:
- Reduced compliance costs associated with OCC licensing filings
- Faster regulatory approvals for routine corporate transactions
- Elimination of duplicative mortgage data collection requirements
At the same time, the OCC emphasized that the rule changes maintain existing supervisory safeguards and fair lending oversight mechanisms.
Ballard Spahr Observations
These rulemakings reflect the OCC’s continuing emphasis on regulatory tailoring for community banks, a policy goal that has been pursued by multiple administrations in recent years.
The expansion of expedited licensing procedures is particularly significant because the OCC’s Part 5 regulations govern a wide range of corporate activities. By broadening the institutions eligible for streamlined review, the OCC is likely to reduce delays associated with routine transactions such as internal reorganizations, investments, and subsidiary formations.
The rescission of the Fair Housing Home Loan Data System rule is also notable. Because HMDA reporting has expanded significantly over the past several decades, the additional mortgage data collection required by Part 27 had become largely redundant. Eliminating the rule removes a regulatory requirement that applied only to national banks without reducing the availability of mortgage lending data used for fair lending supervision.
Taken together, the two rules represent relatively modest but meaningful steps toward reducing regulatory burden on community banks while preserving the OCC’s core supervisory and consumer protection objectives.
Beau Hurtig and Alan S. Kaplinsky
OCC Proposes Overhaul of Appeals Process
Following on the FDIC’s recent issuance of updated guidelines for appeals of material supervisory determination, the OCC is now proposing to replace the existing guidance for handling appeals of material supervisory determinations at institutions under its jurisdiction and to create a board to decide bank appeals. The deadline for comments on the proposal is April 20, 2026.
Under the proposed process, an institution could appeal a material supervisory determination to the Deputy Comptroller of the Division that decided the issue being appealed or the institution could appeal directly to the new Appeals Board. An institution disagreeing with a determination by the Deputy Comptroller could also seek review by the new Appeals Board.
Although the OCC is considering other options, as proposed, the Appeals Board would have three members, the Chief National Bank Examiner and two individuals with relevant banking, regulatory, legal, or supervisory experience who would serve one-year nonrenewable terms. Those individuals could not be current OCC employees or previous appointees.
“The proposed changes reflect the OCC’s experience administering the bank appeals process and are intended to enhance the independence and efficiency of the appeals function,” the OCC said.
The OCC said it is concerned that few appeals have been filed with the agency’s Ombudsman using the current appeals process. Officials went on to say that there may be a perception among institutions that the current appeals process is not fair. In addition, institutions may be afraid that an appeal might hurt their relationship with the OCC, they added. The agency said that it expects that the proposed review process would increase the number of appeals.
The proposal would amend 12 CFR Part 4 to add a Subpart I governing bank appeals of material supervisory determinations.
The proposed rule would:
- Replace the regulator’s existing guidance for handling bank appeals.
- Establish an Appeals Board to decide bank appeals.
- Clarify that a de novo standard of review would be used for deciding appeals, with no deference shown to either party.
- Establish standards for when stays of material supervisory determinations would be issued pending an appeal.
- Strengthen the agency’s ombudsman function by having the ombudsman serve as an impartial liaison between the appellant and the Deputy Comptroller or the Appeals Board.
- Establish standards for expedited appeals when a material supervisory determination relates to or causes an institution to be critically undercapitalized.
- Prohibit retaliation against a bank or person for filing an appeal and prohibit discouraging a bank or person from filing an appeal or otherwise communicating concerns to the OCC.
The OCC is seeking comments on all aspects of the proposal and has asked for responses to questions on twenty specific topics, including how the process should work if a member of the Appeals Board is recused and the remaining members cannot come to a joint decision.
Ronald K. VaskeTrump Administration Signals Potential Revisions to Federal Cyber Incident Reporting Requirements
Following the release of the Trump administration’s new National Cyber Strategy, National Cyber Director Sean Cairncross noted in a virtual interview that the administration is considering changes to the existing cyber incident reporting rules previously promulgated by the Cybersecurity and Infrastructure Security Agency (CISA). According to Cairncross, the administration wants to ensure the rules “make[] sense for industry” while still providing the government with actionable threat intelligence.
Federal agencies, including CISA, are still gathering feedback on proposals for changes to the rules, and the administration has not yet committed to any specific changes. Still, given Cairncross’s recent comments, companies should expect to see changes to the rules in the near future and be prepared to promptly conform their existing incident response plans and reporting protocols accordingly.
Stephanie Chavez, J. Matthew Thornton, and Lexi ChapmanA Busy Week for CalPrivacy Regulators on the Opt-Out Front
In the span of just a couple days, the California Privacy Protection Agency (CalPrivacy) announced two significant privacy enforcement actions, highlighting the increasing scrutiny on companies’ handling of personal data. These actions underscore the agency’s commitment to ensuring that businesses comply with privacy laws designed to protect individuals’ rights, particularly focusing on transparency and ease of data control for consumers. The cases involve a youth sports media company and the automotive giant Ford, both of which were alleged to have engaged in practices that violated consumers’ opt-out rights.
In the action against PlayOn Sports, CalPrivacy took particular issue with the fact that PlayOn directed users to opt-out through the Network Advertising Initiative and the Digital Advertising Alliance as opposed to providing its own opt-out mechanism. CalPrivacy also alleged a failure to recognize opt-out signals and insufficient privacy notices. In its public announcement, CalPrivacy’s head of enforcement stated that “[s]tudents trying to go to prom or a high school football game shouldn’t have to leave their privacy rights at the door.” PlayOn was fined $1.1 million and agreed to modify its practices.
In a separate action, CalPrivacy alleged that Ford added unnecessary friction to the opt-out process, making it cumbersome for consumers to exercise their right by requiring email verification. The agency acknowledged that Ford “didn’t intend” to require consumers to verify their identities, but it stated that the action shows it “will pursue violations regardless of intent.” As part of the settlement, Ford will pay a fine and has committed to streamlining its opt-out procedures.
These enforcement actions serve as an important reminder that regulators are still extremely focused on public-facing aspects of privacy regimes, and especially the granular details of opt-out mechanisms. Companies should review their processes carefully.
Lexi Chapman and Gregory P. SzewczykOregon’s DIDMCA Opt-Out Legislation Heads to the Governor’s Desk
As we recently reported, in the wake of the 10th Circuit’s decision in National Association of Industrial Bankers v. Weiser, 159 F.4th 694 (10th Cir. 2025), Oregon legislators re‑introduced H.B. 4116—legislation designed to opt Oregon out of Section 521 of the Depository Institutions Deregulation and Monetary Control Act of 1980 (DIDMCA). H.B. 4116 aims to prohibit out‑of‑state, FDIC‑insured, state-chartered banks from making consumer finance loans of $50,000 or less to Oregon borrowers using the banks’ home-state interest rates. Instead, those banks’ loans may not exceed Oregon’s law, which caps interest rates at 36 percent. On March 6, 2026, the legislature passed H.B. 4116. The bill’s next stop will be Governor Kotek’s desk where she is expected to sign it into law. If signed, the law will take effect on June 4, 2026.
As we have discussed previously, DIDMCA leveled the playing field between state-chartered banks and national banks by allowing state-chartered banks to make loans at their home state’s rates, even if the borrower resides in another state that caps interest rates below the banks’ home state rate. National banks have the authority under Section 85 of the National Bank Act to charge interest at the rate permitted by state laws where the national bank is “located,” even when borrowers reside in states that have more restrictive interest rate caps. See Marquette Nat. Bank of Minneapolis v. First of Omaha Serv. Corp., 439 U.S. 299, 313(1978).
Neither DIDMCA, nor any other federal statute, permits a state to opt out of Section 85 of the National Bank Act. Oregon is thus enacting a statute that will only affect a limited segment of lenders—specifically, state-chartered banks. H.B. 4116 does not, and cannot, impose Oregon’s interest rate caps on national banks.
Supporters of H.B. 4116 believe the law will protect Oregon consumers from “predatory loans” by preventing state banks chartered in other states from charging interest rates allowed by the laws of their home states for consumer finance loans to Oregon residents. But, as explained previously, this law will have no impact on rates that national banks may charge, raising doubts as to whether H.B. 4116 can provide the consumer protection its proponents seek to provide.
And, whether Oregon can lawfully dictate the interest rate set by out-of-state state banks (based on their own state’s laws) is legally dubious. Litigation is still pending with respect to Colorado’s 2023, opt out from DIDMCA. The District Court in Colorado held that the operative language—”loans made in such State”—in Section 525 of DIDMCA encompassed only loans made by state banks located in Colorado, and therefore Colorado’s opt-out statute did not limit the interest that could be charged to Colorado borrowers by state banks located outside Colorado. The district court reasoned, among other things, that only the lender, not the borrower, makes loans. The district court entered an injunction to prevent enforcement of the Colorado interest rate limits against out-of-state state banks. However, as we have previously reported, in Weiser, the Tenth Circuit reversed that ruling in a 2-1 decision, holding that a loan is “made” for purposes of the opt-out provision in Section 525 of DIDMCA in both the state where the bank is located and the borrower’s state, meaning that Colorado’s usury limits will apply to loans made to Colorado borrowers by out-of-state state banks. A petition for rehearing en banc is still pending, so the district court’s injunction against enforcement of the Colorado opt-out statute against out-of-state, state-chartered banks remains in effect. Both the Office of the Comptroller of the Currency and the FDIC filed separate amicus briefs urging the 10th Circuit to grant rehearing en banc. Our firm filed an amicus brief on behalf of the American Banker’s Association and the Bank Policy Institute urging the same result.
Iowa and Puerto Rico are the only jurisdictions, besides Colorado, that are currently opted out from Section 521 of DIDMCA. On March 2, 2026, however, Rhode Island introduced opt‑out legislation, which is currently in committee. At the same time, several other states have considered opt-out legislation in recent years, but none have been signed into law. And in its infancy, as we have discussed, several states opted out of DIDMCA only to later repeal such opt-out legislation.
As we reported recently, the “American Lending Fairness Act of 2026,” introduced in Congress by Senator Moreno and Congressman Davidson, would effectively reverse the 10th Circuit’s decision, eliminate future opt outs from DICMCA, as applied to out-of-state state-charted banks, and nullify H.B. 4116 and legislation like it.
In the meantime, if the 10th Circuit denies the petition for rehearing en banc, we anticipate that other states will enact similar opt-out legislation, and that many state-chartered banks involved in interstate lending will consider converting to national banks to avoid the legal uncertainties and business risks created by opt-out laws.
Pilar French, Alan S. Kaplinsky, Burt M. Rublin, and Ronald K. Vaske
CRS Says Policymakers are Facing Myriad of BNPL Issues
Although an interpretive rule that made Buy Now Pay Later (BNPL) services subject to the Truth in Lending Act has been withdrawn, the issue remains a flashpoint in the industry and among policymakers, according to the Congressional Research Service (CRS).
“Whether BNPL providers should be subject to the Truth in Lending Act (TILA, 15 U.S.C. §1601 et seq.) is one of the key issues policymakers have debated,” CRS said, in a report.
And, CRS said, controversy surrounding the rule is just one of several BNPL issues confronting policymakers.
CRS said that the most popular form of BNPL is known as “Pay in 4,” in which a consumer generally pays 25 percent of the total cost up front for a purchase and makes the remaining three payments in equal two-week increments. CRS noted that, according to the CFPB, Pay in 4 originations have increased tremendously, from $2.2 billion in 2019 to $43.9 billion in 2023. CRS then estimated growth to $63.3 billion in 2025.
The interpretive rule, issued by the Biden administration, concluded that certain BNPL programs involved “digital user accounts” and that those digital user accounts were “credit cards,” making the BNPL providers “card issuers.”
As a result, many BNPL providers were subject to many of Regulation Z’s open-end credit provisions. These Regulation Z requirements included account-opening disclosures, billing statements, change in terms disclosure, payment processing, treatment of credit balances, issuance of cards, liability for unauthorized use, merchant disputes, billing disputes, crediting of returns, advertising, and, as the CFPB noted in a footnote, potentially application and solicitation disclosures.
CRS said the reaction to the interpretive rule was mixed. Some industry proponents argued that such requirements under TILA were unnecessary, since the industry had already implemented many of the protections, including the ability to dispute charges and disclosures on the cost of credit.
Certain consumer advocate groups alleged that consumers did not have clear legal rights, suggesting that the interpretive rule was needed.
In May 2025, Acting CFPB Director Russell Vought withdrew the interpretive rule, which also was being challenged in the U.S. District Court for the District of Columbia by the Financial Technology Association. The decision was made at a time when the Trump administration was rolling back many of the Biden administration’s regulatory initiatives.
When the Trump administration withdrew the rule, officials said they would not issue a new one.
However, CRS said that issues surrounding BNPL remain. “Other policy debates relate to how BNPL relates to broader consumer debt, incorporation of BNPL in credit scores, and data visibility,” CRS said. “These include the degree to which BNPL products may encourage increased spending by consumers.”
In addition, CRS said that credit furnishing by BNPL firms remains inconsistent. Only one major firm universally furnishes Pay in 4 data to credit bureaus, even as certain credit scoring models are increasingly capable of using and scoring such data, CRS said.
“While BNPL today remains a minority of total consumer volume for payments, a lack of central data collected on the BNPL may present risks to policymakers attempting to assess overall risks of the product if it continues to grow,” CRS said.
Several bills that would affect BNPL have been introduced during the past two Congresses. Reviewing legislation introduced in the 118th Congress and the current Congress, CRS said that bills have been introduced that would:
- Address TILA’s applicability to Pay in 4.
- Require a study of BNPL and credit reporting.
- Limit Pay in 4 payments for semiautomatic weapons.
- Require a study of the financial effects of BNPL on military members.
States also have imposed specific and differing regulations for BNPL companies. A wide range of states have long-standing license and other obligations for consumer loans generally and they may or may not apply to BNPL products, CRS said. Some states are moving toward specific licenses and disclosure obligations for BNPL providers. For example, New York enacted the Buy Now Pay Later Act in 2025, and the New York Department of Financial Services published a proposed rule implementing the Act.
Violations of various state rules and laws have triggered consent agreements or settlements against BNPL providers. And, in December 2025, seven state attorneys generals sent letters to BNPL providers requesting more information about their business practices to determine if the companies are complying with consumer protection laws. Finally, observing the increasing popularity of current Pay in 4 and BNPL options and their potential movement into health care, rental housing, and other sectors of the economy, CRS concluded that interest in their “regulatory treatment, as well as other policy issues [it had noted]—such as associated debt levels, consumer indebtedness, and relevant protections—also have the potential to intensify.”
John D. Socknat, John L. Culhane, Jr., and Joseph J. Schuster
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,” using the New York City Department of Consumer and Worker Protection (DCWP) to implement the initiative. We reported about this in our January 12, 2026, blog. But there are more consumer protection initiatives going on at the DCWP. If you have any doubts about the strong commitment of Mayor Mamdani and the newly appointed Commissioner of the DCWP, Sam Levine, to significantly enhance its regulatory and enforcement toolbox, read on!
On February 26, the DWCP announced the promulgation of what it characterizes as the nation’s strongest municipal protections against predatory consumer debt collection practices. The newly adopted Stopping Harassment and Intimidation and Ensuring Lawful Debt (SHIELD) Collection Rule (the SHIELD Rule), which will become effective on September 1 of this year, significantly expands consumer protections in New York City and places additional operational and compliance burdens on debt buyers, third-party debt collectors, and creditors.
Creditors are now covered in certain situations, such as when they attempt to collect after they have ceased sending bills for a 30-day account for which periodic statements are not required, when they attempt to collect after they have ceased sending periodic statements for an account that requires them, or when they attempt to collect after they have taken or threatened to take legal action on such accounts. With other extensions of credit, creditors are covered when they attempt to collect after they have accelerated the debt or demanded payment in full.
However, despite being urged to do so by consumer advocates, the DCWP declined to adopt a provision expressly creating a private right of action for violations of the SHIELD Rule, as the DCWP concluded that it lacked the authority to do so.
Below is a summary of certain key changes made to DCWP’s existing debt collection regulations and how the SHIELD Rule compares to both the existing DCWP rules and Regulation F.
1. A Hard Cap on Communications—Not Just a Presumption
One of the most consequential changes is the imposition of a strict numerical cap on all debt collection contact attempts (i.e., telephone calls, e-mails and text messages)—no more than three contacts within any seven-day period.
How This Differs from Regulation F
Regulation F does not impose a hard ceiling on the number of debt collection contact attempts. It does not set specific limits on emails and text messages at all, although harassing, abusive or excessive contacts are prohibited. For calls, it establishes a rebuttable presumption of a violation if call frequency exceeds seven call attempts within seven days or if the debt collector calls the debtor within seven days of a telephone conversation with the debtor about the debt. Collectors can rebut the presumption based on facts and circumstances.
The SHIELD Rule eliminates that flexibility. It replaces the federal presumption framework with a bright-line limit. From a compliance perspective, that transforms call frequency from a risk-balancing exercise into a strict operational constraint.
How This Differs from Existing DCWP Rules
Existing DCWP debt collection rules prohibit harassment and abusive practices but do not contain the same clear, quantitative cap. The new framework moves from a general anti-harassment standard to a specific numerical restriction, reducing ambiguity but increasing rigidity.
2. Expanded Dispute Rights Beyond the FDCPA and Existing DWCP Rule
The SHIELD Rule broadens when and how a consumer may dispute a debt.
Regulation F
A consumer may dispute a debt:
- Within 30 days after receiving the validation notice. After the initial communication to the debtor (or within five days of it), a debt collector must provide a written “validation notice” containing required information about the debt. If the consumer disputes the debt in writing within 30 days, using the mailing address specified by the debt collector in the notice, special protections apply.
- After the 30-day period, a consumer may still dispute a debt, and the debt collector must report the debt as disputed when reporting to credit bureaus, but the enhanced verification-and-cease-collection protections under the FDCPA apply only if the dispute is made within the initial 30-day validation period using the mailing address provided.
SHIELD Expansion
The new NYC rule permits consumers to dispute a debt or request verification of the debt at any point in the collection lifecycle and through any communication channel previously used with the collector. This effectively decouples dispute rights from the initial validation period and creates ongoing exposure to dispute-triggered obligations, which may come in through less closely monitored channels.
Prior DCWP Rules
Existing NYC rules already required certain disclosures and documentation, but the SHIELD framework formalizes broader timing and communication flexibility for disputes.
3. A Defined Documentation Deadline with Consequences
Perhaps the most significant departure from federal law is the rule’s documentary verification framework.
Regulation F
Regulation F requires verification after a timely dispute but does not impose a fixed deadline for producing underlying documentation, nor does it categorically extinguish collection rights if verification is not produced within a specified timeframe.
SHIELD’s 60-Day Requirement
The SHIELD Rule establishes a specific 60-day deadline for providing documentation supporting the debt after a dispute or verification request and expressly provides that a default judgment, by itself, is insufficient to verify the debt. Critically, the failure to comply within that timeframe disqualifies third-party collectors and debt buyers from further collection activity.
Prior DWCP Rules
Earlier DCWP rules required documentation and prohibited collection of certain time-barred or invalid debts. However, the new rule imposes a clearer timeline and more explicit enforcement consequences.
For debt buyers in particular, this raises the bar for front-end documentation acquisition and record integrity before initiating collection efforts.
4. Special Protections for Medical Debt
The SHIELD Rule introduces targeted provisions for medical debt collection, providing additional dispute rights, prohibiting reporting medical debt to credit bureaus, and requiring collectors acting on behalf of a nonprofit hospital or health care provider to inform consumers about the financial assistance policies of the hospital or provider.
Regulation F
Regulation F does not contain medical debt-specific disclosure obligations of this type. It does not prohibit reporting medical debt to credit bureaus (the CFPB’s attempt to prohibit such reporting under the FCRA and Regulation V was struck down in litigation). Nor does it provide for additional dispute rights for medical debt. While general validation and anti-deceptive standards apply, there is no federal analogue expressly requiring active promotion of provider financial assistance programs.
Policy Significance
This provision reflects the broader trend of heightened scrutiny of medical debt at both state and local levels. New York City is effectively using municipal rulemaking to incorporate affordability considerations into collection communications.
5. Compliance Implications for Industry
For collectors operating nationally, the practical result is a three-tiered regulatory structure:
- Federal floor under the FDCPA and Regulation F
- New York State law, where applicable
- New York City’s enhanced municipal framework
The SHIELD Rule is not merely additive; in several areas, it is stricter than federal law and other state law and leaves less room for operational discretion.
Key compliance pressure points include:
- Recalibrating dialer systems to comply with strict contact caps
- Updating dispute intake processes across all communication channels
- Ensuring documentation pipelines can meet defined deadlines
- Revising medical debt workflows and scripts
- Enhancing audit and monitoring controls specific to NYC accounts
For debt buyers and agencies that rely on incomplete placement files, the documentation provisions may require meaningful adjustments to acquisition standards.
6. Broader Context
The SHIELD Rule reflects an ongoing local trend: municipalities using licensing authority and rulemaking power to create consumer protections that go beyond federal baselines. For industry stakeholders, this underscores a familiar but intensifying reality—compliance strategies must now account for increasingly granular local variations, especially in large jurisdictions like New York City.
For consumer advocates, the rule represents a significant tightening of guardrails around communication frequency, documentation standards, and medical debt practices.
For collectors, it introduces reduced flexibility, higher documentation expectations, and increased operational risk if internal systems are not recalibrated.
John L. Culhane, Jr. and Alan S. KaplinskyFederal Focus on DEI Initiatives Expands in Corporate Hiring Practices and Regulated Industries
Recent remarks from Trump administration senior officials signal an expanding federal focus on diversity, equity, and inclusion (DEI) initiatives—particularly where they intersect with corporate hiring, promotion, and compensation decisions.
DOJ Elevates DEI-Related FCA Investigations to ‘Expedited Priority Treatment’
At the February 19, 2026, annual qui tam conference hosted by the Federal Bar Association, a Department of Justice (DOJ) official emphasized that investigations into DEI-related employment practices are “receiving expedited priority treatment.” Brenna Jenny, Deputy Assistant Attorney General for the Commercial Litigation Branch of the Civil Division, described companies implementing practices that pressure decision makers to make employment decisions based on race or sex as “at the top of the list.” Her remarks align with the DOJ’s broader Civil Rights Fraud Initiative, which leverages the False Claims Act (FCA) to investigate corporate government contractors and grant recipients’ DEI practices as “illegal.” In other words, the DOJ may treat claims for federal funds as false under the FCA if submitted by a contractor or grantee whose employment practices are found to violate applicable anti-discrimination laws.
While Jenny acknowledged that merely “promoting diversity isn’t inherently unlawful,” she identified three types of practices that attract attention in DEI investigations:
- Setting and tracking race- or sex-based workforce demographic goals,
- Tying executive compensation to the achievement of workforce demographic goals, and
- Asking employees to set DEI-related goals that affect their performance reviews, compensation, or promotion.
Jenny further described the DOJ’s interest in training or mentoring programs that limit participation on the basis of race or sex, as well as “diverse slate” policies that require candidate pools to include certain demographics but that effectively lower qualification standards for those groups.
Despite the absence of precedent for FCA enforcement actions in this context, Jenny noted that FCA enforcement has consistently evolved to address new theories of liability, and that the government’s assessment of damages for DEI-related FCA cases would depend on the extent and scope of the violation and may also include penalties to deter future misconduct.
FAA Moves to Require Strictly ‘Merit-Based’ Hiring
Federal scrutiny of DEI initiatives is also expanding in regulated industries. In a notice issued on February 13, 2026, U.S. Transportation Secretary, Sean P. Duffy, has doubled down on “purging DEI from our skies.” The Federal Aviation Administration (FAA) proposed an amendment to an existing Operations Specification, OpSpec A134, requiring all commercial airlines to formally commit to strictly merit-based hiring for pilots. While attacking as “absurd” Biden-era initiatives, such as renaming cockpits as flight decks, OpSpec requires all U.S. airlines to certify that they have ended hiring practices based on race or sex. The certification requires that an airline “ensure pilot hiring is exclusively merit-based to fulfill its duty to provide the highest possible degree of safety in the public interest.”
Although OpSpec A134 is not yet effective, it is progressing through the FAA’s non-emergency amendment process, requiring carriers to submit written comments within seven days and potentially becoming effective 30 days after a disposition letter is issued, if adopted—even though substantive compliance guidance has not yet been provided. The notice explains that OpSpec A134 was developed in response to the January 21, 2025, Executive Order 14173, “Ending Illegal Discrimination and Restoring Merit‑Based Opportunity and the Presidential Action titled Keeping Americans Safe in Aviation”—both asserting that DEI-based practices in aviation are unlawful, undermine safety, and must be replaced with strictly merit-based hiring.
What This Means for Employers
Together, these developments indicate a coordinated shift in federal enforcement and regulatory policy. Employers—particularly those with formal DEI goals, programs, or tracking—may face increased scrutiny as they have for the last fourteen months since this Administration began. In highly regulated industries like aviation, certification requirements add another compliance layer.
Together, these developments make clear that federal scrutiny of DEI practices is intensifying. Employers, especially those receiving federal funds or holding government contracts, should carefully review any links between hiring, promotion, and compensation practices and DEI initiatives, and consult legal counsel on FCA compliance to mitigate exposure to enforcement actions.
Cecilia Nieto, Shirley S. Lou-Magnuson, and Brian D. Pedrow
Fortune 500 Companies Beware: EEOC Chair Sends Warning on DEI Compliance
Fortune 500 companies recently received an important message from the U.S. Equal Employment Opportunity Commission (EEOC): Review your diversity, equity, and inclusion initiatives carefully.
On February 26, 2026, EEOC Chair Andrea Lucas sent a letter to the board chairs, chief executive officers, and general counsel of Fortune 500 companies reminding them of their obligations under Title VII of the Civil Rights Act of 1964. The letter was intended to ensure that corporate leadership is aware of the EEOC’s technical assistance materials addressing race- and sex-based discrimination that may arise from workplace policies, programs, or practices labeled as DEI.
Although the letter does not allege wrongdoing by any particular company, it underscores, unsurprisingly, that the agency is paying close attention to how employers structure and implement diversity initiatives.
Reminder of Title VII Principles
In the letter, Chair Lucas emphasizes that the EEOC’s mission is to ensure that employees are evaluated based on their individual merit rather than protected characteristics such as race or sex. The letter reiterates the agency’s view that longstanding civil rights principles apply fully to workplace policies and programs, regardless of whether those initiatives are described as diversity, equity, and inclusion efforts.
Lucas wrote that the EEOC stands ready to combat discrimination and to protect each worker’s right to be judged based on merit, stating that employees should be evaluated “as individuals, not members of a particular race or group, and judged only by the content of their character, skills, and abilities, rather than by the color of their skin or by their sex.”
Enforcement
The letter also emphasizes the EEOC’s current enforcement posture. The Commission recently regained a quorum of Commissioners, allowing it to utilize the full range of enforcement mechanisms available under federal law. These tools include administrative enforcement, systemic investigations, and litigation.
Chair Lucas noted that the EEOC has mobilized its available resources to ensure compliance with federal civil rights laws and warned that the agency may pursue enforcement actions where workplace policies or practices result in unlawful discrimination. The letter states that the Commission is committed to using “its full range of enforcement tools,” including systemic cases and other large-scale litigation where appropriate.
A Broad Notice to Large Employers
The EEOC clarified that the letter was distributed broadly to hundreds of large employers and was not intended to suggest that any individual company had engaged in unlawful conduct. Rather, it serves as a reminder of employers’ responsibilities under Title VII and of the agency’s role in enforcing federal antidiscrimination laws.
The agency has also recently issued educational materials addressing potential discrimination related to DEI initiatives in the workplace and encouraging employers to review their policies to ensure compliance.
What This Means for Employers
Although the letter does not create new legal standards, it highlights the EEOC’s continued focus on workplace policies that may involve race, sex, or other protected characteristics. Employers may want to review diversity initiatives, recruiting practices, training programs, and advancement opportunities to ensure that they align with Title VII requirements.
Employers should also ensure that employment decisions remain grounded in neutral, job-related criteria and that workplace initiatives designed to promote inclusion do not result in differential treatment based on protected characteristics.
* * *
Ballard Spahr’s Labor and Employment Group regularly advises employers on compliance with federal and state anti-discrimination laws, including Title VII. We assist clients in reviewing workplace policies, responding to agency inquiries, and navigating evolving enforcement priorities from the EEOC and other federal agencies.
Brian D. Pedrow, Shirley S. Lou-Magnuson, and Ryan B. Ricketts
On February 27, 2026, the U.S. Department of Labor (DOL) released a proposed rule addressing employee versus independent contractor status under the Fair Labor Standards Act (FLSA). The proposed standard will also apply to employee classification under the Family and Medical Leave Act (FMLA) and Migrant and Seasonal Agricultural Worker Protection Act (MSPA).
If finalized, the proposal would rescind the Biden administration’s 2024 independent contractor rule and largely restore the framework adopted during President Trump’s first term. As with past versions, the proposed rule centers on the economic realities test, which seeks to determine whether a worker is economically dependent on an employer for work or instead operates as an independent business.
A Brief History
The U.S. Supreme Court established the multi-factor economic realities test to determine whether a worker is an employee or an independent contractor under the FLSA in the 1940s.
The 2021 Trump Administration Rule
In the final days of President Trump’s first term, the DOL issued a rule that emphasized the economic reality of the relationship between worker and employer but elevated two “core factors” above others: (1) the worker’s control over their work, and (2) the worker’s opportunity for profit or loss based on their initiative or investment. Three additional factors were considered but given less weight.
Critics of the rule argued that the focus on two core factors was inconsistent with the test developed by the courts, thereby wrongly narrowing the definition of employee and failed to provide sufficient worker protections. Many employers thought the rule provided clarity and predictability while making independent contractor classification easier to support.
The 2024 Biden Administration Rule
In 2024, under President Joe Biden, the DOL rescinded the 2021 rule and replaced it with a broader six-factor economic realities test. Under that framework, no single factor carried greater weight, and the analysis focused on the totality of the circumstances to determine whether a worker was economically dependent on the employer.
The 2024 rule was widely viewed as protecting workers from exploitation by increasing scrutiny of independent contractor arrangements and expanding the potential for employee classification.
The Proposed Rule
The DOL’s latest proposal would again modify the economic realities analysis and largely return to the approach reflected in the 2021 rule.
The central question remains whether, as a matter of economic reality, the worker is economically dependent on the employer for work. If so, the worker is more likely to be an employee. By contrast, an independent contractor is someone who more closely resembles a business owner operating a separate business.
Pursuant to its proposal, the DOL seeks to determine economic dependence in actual practice rather than merely what the contract says by placing primary emphasis on two core factors with less weight given to additional relevant considerations.
Core Factors
- Nature and degree of control over the work
- Opportunity for profit or loss
Additional Factors
- Amount of skill required for the work
- Degree of permanence of the working relationship
- Whether the work is part of an integrated unit of production or is segregable from the employer’s production process
- Any additional factors that indicate the individual is in business for themself
The DOL explains, as it did in 2021, that while the core factors are more probative, no single factor is determinative, and the list of relevant considerations is non-exhaustive.
What This Means for Employers
If finalized, the proposed return to two core factors and reduced emphasis on equal weighing could drastically impact the classification of workers nationwide. The DOL estimates the proposal could increase the number of workers classified as independent contractors by between .25 million and .75 million nationwide. This would reduce the number of workers classified as employees.
While the proposal may signal a more employer-friendly framework, it does not eliminate the complexity of independent contractor classification, and given the non-exhaustive nature of the proposed rule, misclassification risks remain. Employers should continue to evaluate contractor relationships beyond contractual language as worker classification remains a fact-specific inquiry focused on the underlying nature of the worker’s engagement rather than the language of the worker’s contract.
Importantly, the proposed rule is not yet final. The DOL has issued a Notice of Proposed Rulemaking, and it is currently subject to a 60-day public comment period before the agency can issue a final rule. Employers should continue to monitor developments and ensure compliance with the currently applicable legal standards and relevant case law.
Shanae T. Jones, Shirley S. Lou-Magnuson, and Brian D. Pedrow
ACES QC Now Webinar: Consumer Financial Regulation in Transition - Navigating the Shifting Landscape
April 1, 2026 – 2:00 PM
Speaker: Richard J. Andreano, Jr.
MBA – Legal Issues and Regulatory Compliance Conference
May 4-7, 2026 | InterContinental Hotel, Miami, FL
COMPLIANCE CONVERSATIONS TRACK: The Do’s and Don’ts of Loan Originator Compensation
Speaker: Richard J. Andreano, Jr.
DATA PRIVACY, SECURITY & AI TRACK: AI In the Mortgage Industry
Speaker: Gregory Szewczyk
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