April 16 – 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 FTC’s recent debanking letters to major payment processors, the Treasury’s NPRM on state oversight of stablecoin issuers under the GENIUS Act, ongoing developments on BNPL regulation, and much more.
- Podcast Episode: A Deep Dive on BNPL Regulation and Other ‘Hot’ Topics with Max Dubin of the New York DFS
- Podcast Episode: Debt Sales 101 Mini-Series — Episode 2: What Can Be Sold? Understanding Eligible Debt and Portfolio Composition
- Podcast Episode: DIDMCA Opt-Outs Resurface: Oregon Legislation and the Colorado Case Could Alter the Landscape for Interstate Lending by State Banks
- Podcast Episode: Debt Sales 101 Mini-Series — Episode 3: Who Buys Debt and How Deals Are Structured
- Consumer Finance Monitor Podcast Draws Coverage from ‘Inside the CFPB’: A First for Our Platform
- Ballard Spahr Lawyer Adam Maarec Admitted as Fellow of the American College of Consumer Financial Services Lawyers
- CFPB Workforce Restructuring Plan: New CFPB Motion Details Sweeping Proposed Reductions in Staff Across All Divisions While Injunction Remains in Place
- Vought Requests $75.8 Million for CFPB for Third Quarter of Fiscal Year
- 2025 HMDA Modified Loan Application Register Data Published
- Tenth Circuit Grants Rehearing En Banc in Colorado Opt-Out Litigation
- District Court’s Ruling Could Signal New Wave of CCPA Litigation
- FDIC, OCC Adopt Debanking Final Rule
- FTC Sends Debanking Letters to PayPal, Stripe, Visa, Mastercard
- FTC Sends Warning Letters About Pricing to 97 Auto Groups
- FinCEN’s Residential Real Estate Rulemaking Vacated
- FinCEN’s Proposed Rule to Reform Financial Institution AML/CFT
- Treasury Issues NPRM on State Oversight of Stablecoin Issuers Under the GENIUS Act
- Looking Ahead
In this podcast episode, our host Alan Kaplinsky, founder, chair for 25 years, and now senior counsel of our Consumer Financial Services Group, is joined by Max Dubin, Chief of Staff to the Acting Superintendent of Banking at the New York Department of Financial Services (DFS). As a senior leader at one of the most influential state financial regulators in the country, Max offers a rare and insightful look into how DFS is approaching some of the most important issues facing the consumer financial services industry today.
A central focus of the conversation is the Department’s proposed framework for regulating the rapidly evolving “buy now, pay later” (BNPL) market (read more about BNPL on our Consumer Finance Monitor blog here.) Max provides valuable context on what DFS is aiming to accomplish and how it is thinking about balancing innovation with consumer protection. Among other points, he explains that the DFS is seeking to craft a regulatory approach that reflects how BNPL products actually function in today’s marketplace, while also ensuring that consumers receive clear disclosures and are adequately protected from potential risks.
We also cover a wide range of additional “hot” topics at DFS, including DFS regulatory, supervisory and enforcement priorities, emerging consumer protection concerns, the DFS’ approach to fintech innovation and partnerships, crypto licensure and regulation, New York Governor Hochul’s budget priorities, which includes reforms of the insurance industry to make it more affordable, coordination with other state and federal regulators, and what industry participants should expect from DFS in the months ahead.
This episode offers practical insights for banks, nonbanks, fintech companies, and their counsel, particularly those focused on compliance, product development, and regulatory strategy. Max’s candid and thoughtful perspectives provide a valuable window into the thinking of DFS at a time when state-level regulation is playing an increasingly prominent role.
We hope you enjoy the conversation. This is the second of our three-part series focused on agencies in New York City and State which have a major impact on banks and nonbanks who do business with New York City and State residents. On February 12, we released a podcast show, hosted by Alan Kaplinsky, featuring Jane Azia, Chief of the Bureau of Consumer Frauds and Protection and Alec Webley, Assistant Attorney General of the New York Attorney General’s Office. Among other things, Jane and Alec discussed the New York FAIR Business Practices Act which expanded the scope of New York’s consumer protection law to cover unfair and abusive acts and practices as well as deceptive acts and practices.
Part 3 of the series will be a conversation between Alan and Commissioner Sam Levine, the head of the New York City Department of Consumer and Worker Protection.
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
In Episode 2 of our Debt Sales 101 mini-series, we move from the “why” behind debt sales to the “what.” Specifically, we discuss what types of debt can be sold, how portfolios are typically composed, and the legal and regulatory considerations that determine whether debt is appropriate for sale.
Not all debt is equally marketable, and not all accounts within a portfolio carry the same legal, regulatory, or operational risk. In this episode, we discuss the types of consumer and small business debt that are commonly sold, the types of specialty accounts that buyers may still be willing to purchase, and the categories of accounts that often raise diligence concerns, including accounts involving fraud, deceased consumers, pending legal matters, or other issues that can affect collectability or compliance.
We also discuss how buyers evaluate portfolios from both a business and regulatory perspective, including the importance of documentation, data quality, servicing history, and chain of title. Buyers are not just underwriting credit risk. They are underwriting legal and regulatory risk, and that evaluation directly affects pricing, deal structure, and whether certain accounts can be included in a sale at all.
A key theme in this episode is that portfolio composition is not just a business issue. It is a compliance and risk management issue as well. The types of accounts included in a sale, how those accounts were serviced prior to sale, and the documentation that supports them all play a significant role in determining how a portfolio is valued and how a transaction is structured.
This episode builds on the foundation from Episode 1 and sets up the next stage of the process. In Episode 3, we discuss who buys debt and how debt sale transactions are typically structured, including spot sales, forward flow arrangements, and how risk allocation and pricing are negotiated in those structures.
To listen to this episode, click here.
Consumer Financial Services Group
In this episode of the Consumer Finance Monitor Podcast, host Alan Kaplinsky is joined by colleagues Pilar French and Burt Rublin to unpack a rapidly evolving issue at the intersection of bank–Fintech partnerships and interstate lending: the renewed exercise of state opt-out authority under Section 525 of the Depository Institutions Deregulation and Monetary Control Act of 1980 (DIDMCA). Colorado enacted an opt-out statute in 2023 that is the subject of ongoing litigation before the entire Tenth Circuit Court of Appeals, and very recently the Oregon Legislature passed an opt-out bill as well.
The podcast discussion highlights how a little-used statutory provision is now at the center of a major legal and policy debate—one that could reshape the landscape for state-chartered banks and the broader consumer finance industry.
The Foundation: Interest Rate Exportation Under DIDMCA
For decades, state-chartered, FDIC-insured banks have relied on Section 27 of the Federal Deposit Insurance Act—enacted through DIDMCA—to “export” interest rates permitted in their home states to borrowers nationwide. This authority mirrors the power granted to national banks under the National Bank Act and has been a cornerstone of interstate lending.
However, DIDMCA also includes a lesser-known provision—Section 525—that allows states to opt out of this federal framework for state banks with respect to “loans made in such state.” For years, this provision attracted little attention. That is now changing.
Oregon’s House Bill 4116: A New Wave of Opt-Out Activity
Oregon’s recently passed House Bill 4116 represents one of the most significant modern uses of the DIDMCA opt-out provision. If signed into law, it would:
- Reimpose Oregon’s interest rate caps (generally 36%) on certain loans made to Oregon residents;
- Apply broadly to consumer finance loans of $50,000 or less;
- Expand the definition of where a loan is “made” to include the borrower’s location—such as where the consumer resides or enters into the loan agreement.
Surprisingly, the law applies to state-chartered banks but excludes credit unions.
The legislation appears driven by concerns over high-interest, short-term lending, though testimony suggested that such loans represent only a small portion of the market. Critics argue that the bill oversimplifies complex lending structures—particularly bank–Fintech partnerships—through politically appealing but potentially misleading narratives.
The Core Legal Dispute: Where Is a Loan ‘Made’?
At the heart of both the Oregon legislation and ongoing litigation in the Tenth Circuit concerning the Colorado opt-out statute is a fundamental interpretive question: where is a loan “made” for purposes of Section 525 of DIDMCA?
- Industry Position: A loan is “made” where the bank is located, because the bank is the entity that extends credit. Therefore, an opt-out by a state only enables it to impose its own usury laws on loans made by its own state banks and eliminates their ability to charge interest pursuant to Section 27 of the Federal Deposit Insurance Act.
- Opt-out State/Consumer Advocate Position: A loan is “made” both where the bank is located and where the borrower resides. This means that an opt-out state can apply its own usury laws to interstate loans made to its citizens by state banks located in other states.
This distinction is critical. If the broader interpretation prevails, states that opt out of DIDMCA could effectively regulate interest rates charged by out-of-state banks to their residents—significantly curtailing interstate lending.
The Colorado Litigation: A Pivotal Case
Colorado’s opt-out statute has become the testing ground for this issue, as it raises an issue that all sides agree is one of first impression.
- A federal district court sided with industry plaintiffs, granting a preliminary injunction against enforcement of the opt-out statute and holding that only the bank’s location determines where a loan is made.
- A divided panel of the Tenth Circuit reversed that decision, adopting Colorado’s argument that a loan is made in both the borrower’s location and where the bank is located.
- In a significant and very unusual development, last week the Tenth Circuit granted rehearing en banc, vacating the panel decision and ordering additional briefing for consideration by the entire court.
The case has attracted substantial attention, including numerous amicus briefs on both sides from bank trade associations, consumer organizations, numerous red and blue state attorneys general, and federal bank regulators.
Federal Bank Regulators Weigh in With Amicus Briefs Supporting Rehearing En Banc
Both the FDIC and the Office of the Comptroller of the Currency have criticized the broader interpretation of DIDMCA’s opt-out provision adopted in the now-vacated majority panel opinion by the Tenth Circuit.
- The FDIC originally supported Colorado during the Biden administration but then shifted its support to the banks’ position during the second Trump administration and filed an amicus brief that supported rehearing en banc and aligned with the industry view.
- The OCC emphasized that the panel decision could undermine the goal of Section 521 of DIDMCA to create parity between state and national banks and would undermine the dual banking system and introduce significant uncertainty into the lending market.
These positions underscore the potential systemic impact of the case.
Practical Implications for State Banks Engaged in Interstate Lending
As a result of the enactment of the Oregon law and if additional states enact similar legislation, out-of-state banks lending to residents of a state which has enacted an opt-out statute may face difficult choices:
- Comply with state-specific rate caps;
- Exit certain markets altogether;
- File a declaratory judgment action seeking injunctive relief against the state agency charged with enforcing the opt-out statute based on Federal preemption of such statute under Section 27 of the Federal Deposit Insurance Act.
The uncertainty extends beyond origination. Secondary market participants may face increased due diligence burdens, as determining where a loan is “made” becomes more complex—especially in an era of digital lending and mobile consumers.
Broader Industry Impact
The implications could be far-reaching:
- Reduced interstate lending by state-chartered banks;
- Migration to national bank charters to preserve rate exportation authority;
- Fragmentation of the regulatory landscape, with a patchwork of state rules;
- Increased compliance complexity for bank–FinTech partnerships and loan purchasers.
In short, the dual banking system could face renewed pressure if state-chartered banks cannot export their home state interest rates when making interstate loans to borrowers in opt-out states, which would deprive them of competitive parity with national banks.
What Comes Next?
Several developments will be critical to watch:
- The outcome of the Tenth Circuit’s en banc review;
- Whether additional states follow Oregon’s lead;
- The potential for U.S. Supreme Court review;
- Federal legislative proposals that could eliminate the opt-out provision altogether (though prospects for passage appear uncertain).
Key Takeaways
- The DIDMCA opt-out provision, long dormant, is reemerging as a potential tool for states to regulate interest rates charged to their citizens by out-of-state state banks.
- The determination of where a loan is “made” for purposes of Section 525 of DIDMCA is now a central legal battleground.
- The forthcoming Tenth Circuit en banc decision will set an important precedent with nationwide implications.
- A growing patchwork of state laws could significantly complicate interstate lending.
- The future of bank–Fintech partnerships and the dual banking system may hinge on how these issues are resolved.
As these developments continue to unfold, financial institutions, regulators, and policymakers alike will need to navigate an increasingly complex and uncertain legal environment—one that may redefine the rules of interstate lending in the United States.
To listen to this episode, click here.
Consumer Financial Services Group
Podcast Episode: Debt Sales 101 Mini-Series — Episode 3: Who Buys Debt and How Deals Are Structured
In Episode 3 of our Debt Sales 101 mini-series, we discuss who buys charged-off debt and how debt sale transactions are typically structured. We explain how different buyers specialize in different asset classes and how buyers evaluate portfolios from legal, regulatory, and commercial perspectives.
From a buyer’s perspective, purchasing debt is not just a credit decision. Buyers are underwriting legal and regulatory risk as much as they are underwriting expected recoveries. In this episode, we discuss the key factors buyers consider, including transferability and chain of title, collectability and applicable statutes of limitation, licensing requirements, and the broader regulatory environment that affects how accounts can be collected. These factors often drive pricing and determine whether certain buyers will participate in a particular sale process.
We also discuss how sellers identify the right buyer and why working with well-capitalized and experienced buyers can have a significant impact on execution and pricing. From there, we walk through the primary transaction structures used in the market, including spot sales and forward flow arrangements, and discuss how risk allocation, repricing risk, and portfolio segmentation are addressed in these structures.
The key takeaway from this episode is that debt sales are not one-size-fits-all transactions. The identity of the buyer, the structure of the deal, and the allocation of regulatory and commercial risk all directly affect pricing, execution, and long-term success of a debt sale program. In the next episode, we turn to the regulatory landscape and discuss how recent regulatory developments are shaping the debt sale market.
To listen to this episode, click here.
Consumer Financial Services Group
Consumer Finance Monitor Podcast Draws Coverage from ‘Inside the CFPB’: A First for Our Platform
We are pleased to share a notable milestone for the Consumer Finance Monitor podcast: for the first time, a leading industry publication “Inside the CFPB” has written about one of our episodes.
In its April 6, 2026, issue, “Inside the CFPB,” a widely-read subscription publication published by “Inside Mortgage Finance Publications” highlighted our recent podcast episode released on April 2, 2026, featuring discussion of emerging regulatory developments in the buy now, pay later (BNPL) space. The article references insights shared by Max Dubin, the Chief of Staff to the Acting Commissioner of the New York State Department of Financial Services (NYDFS), who joined our podcast to discuss the state’s efforts to develop a regulatory framework tailored to BNPL products. Alan Kaplinsky, the founder and former chair and now senior counsel of the Consumer Financial Services Group at Ballard Spahr, hosted the podcast show.
“Inside the CFPB” reported on comments made during the podcast by Mr. Dubin who emphasized that regulators are seeking to avoid forcing BNPL products into “outdated regulatory boxes,” instead aiming to craft a framework that reflects how these products function in today’s marketplace. The article also noted the scale and growth of the BNPL market, including estimates that nearly 40% of Americans have used such products and that originations exceeded $500 billion last year.
The “Inside the CFPB” coverage further summarized aspects of the NYDFS proposal discussed on our podcast, including:
- Treating BNPL products as credit subject to regulatory oversight
- Requiring underwriting based on consumers’ income and debt
- Imposing limits on interest rates and fees
- Enhancing disclosure and transparency obligations
While speakers on our podcast have frequently been quoted in other media outlets over the years, this marks the first time that a publication has specifically covered the podcast itself as a source of news and analysis. That distinction is meaningful.
From its inception on July 21, 2011, (on the very same day that the CFPB became operational), the Consumer Finance Monitor podcast has aimed not only to analyze developments in consumer financial services law, but also to serve as a platform for timely, substantive conversations with regulators, industry participants, and other thought leaders. The recognition by “Inside the CFPB” underscores that the podcast is increasingly being viewed as a source of original insight—one that can help shape broader industry dialogue.
We view this development as further validation of our commitment to delivering high-quality, forward-looking content to our listeners. We look forward to continuing to host conversations on our blog and podcast show that inform, challenge, and occasionally break news in the evolving world of consumer financial services.
If you have not yet listened to the episode highlighted by “Inside the CFPB”, we encourage you to do so.
We release a new episode of our podcast show every Thursday (with occasional other shows being released on other days of the week). Our show is available on the Ballard Spahr website and on all other major podcast platforms.
Consumer Financial Services Group
Ballard Spahr is pleased to announce that Adam Maarec, a member of the Consumer Financial Services Group, has been admitted as a Fellow of the American College of Consumer Financial Services Lawyers, a prestigious, invitation-only organization that recognizes preeminent lawyers in the field of consumer financial services law.
The College is widely regarded as the leading professional association in this area. As described on its website (ACCFSL.org), fellowship is limited to attorneys who have achieved exceptional professional distinction, demonstrated deep experience in consumer financial services law, and made meaningful contributions to the field through scholarship, teaching, or public service. Admission follows a rigorous vetting process and is reserved for those whose careers reflect the highest standards of excellence, integrity, and leadership.
Adam’s election as a Fellow is a testament to his outstanding reputation and accomplishments in consumer financial services law. Since joining Ballard Spahr, Adam has played a key role in expanding the firm’s nationally recognized Consumer Financial Services Group. Adam brings extensive experience advising financial institutions, fintech companies, and other market participants on complex regulatory, enforcement, and transactional matters.
Adam’s practice spans a broad range of issues, including compliance with federal and state consumer protection laws, navigating supervisory and enforcement actions, and structuring innovative financial products. His ability to provide practical, business-oriented counsel—combined with his deep understanding of the evolving regulatory landscape—has made him a trusted advisor to clients across the industry.
In addition to his client work, Adam has been an active contributor to the broader consumer financial services community. His thought leadership, speaking engagements, and engagement with industry stakeholders reflect the type of professional commitment that the College seeks to recognize through fellowship.
Adam is Vice Chair, Electronic Financial Services Subcommittee & Digital Currency, Consumer Financial Services Committee, American Bar Association; General Counsel, Women in Housing and Finance; and Member, Emerging Payments Advisory Committee, Nacha Payments Innovation Alliance.
Adam’s admission to the American College of Consumer Financial Services Lawyers places him among an elite group of practitioners who are shaping the future of consumer financial services law. It is also a reflection of Ballard Spahr’s continued strength and leadership in this space.
Other Fellows of the College in the Consumer Financial Services Group are: Alan Kaplinsky (the first President of the College, recipient of the Lifetime Achievement Award and Chair of the Fellows Nominating Committee for many years), John Culhane, John Socknat, Richard Andreano, Dan McKenna, and Joseph Schuster.
We congratulate Adam on this well-deserved honor. He will be honored on April 18 at a meeting of the College in Atlanta.
Consumer Financial Services Group
A significant new filing on March 31 in the D.C. Circuit Court of Appeals, National Treasury Employees Union v. Vought (Case No. 25-5091), purportedly provides the most up-to-date, detailed picture yet of how leadership of the Consumer Financial Protection Bureau (CFPB) intends to dramatically scale back the agency’s operations—if permitted to do so by the courts. Acting Director Vought adopted, subject to court approval a Workforce Restructuring Plan (WRP) which, he states, “supersedes any and all previous plans regarding reductions-in-force and any prior decisions about the proper size or functioning of the agency that may have motivated any such plans or instructions. Such plans and decisions are null and void. I intend to fulfill CFPB’s statutory obligations in the most efficient manner possible, as the recommended restructuring plan indicates and would permit.”
Based on the WRP, the CFPB filed a motion before the DC Circuit to modify the stay pending appeal of the preliminary injunction barring reductions-in-force entered long ago by the Federal District Court for the District of Columbia (the WRP is attached as an exhibit to the filing). Alternatively, the motion requests the DC Circuit to grant a limited 45-day remand to the district court with instructions to reconsider its preliminary injunction in light of intervening developments.
Plaintiffs are expected to file their reply brief by April 17.
Reasons for Filing the Motion
The motion sets forth three reasons why the circuit court should grant this motion.
- The first reason given by Vought is the WRP (discussed below) is that Vought does not intend to shut down the Bureau, which was the purported legal violation identified by the district court as the basis for the injunctive relief. According to Vought, “[t]he plan also leaves no doubt that CFPB will continue to perform its statutory obligations as required by law.
- The second reason is that on July 4 of last year, Congress enacted the One Big Beautiful Bill Act, which substantially reduced the annual cap on funding transfers from the Federal Reserve from 12% to 6.5% of the Federal Reserve’s 2009 expenses, adjusted for inflation. This change limits Fiscal Year 2026 transfers to $466.8 million. However, according to Vought, the annual funding the agency needs to continue complying with the injunction is $677.5 million. In light of the substantial statutory reduction in funding cap, the CFPB expects that by the fourth quarter of calendar year 2026, its cash on hand will no longer be sufficient to comply with the injunction.
- The third reason is that on June 27, 2025, several months after the District Court issued the preliminary injunction, the Supreme Court decided Trump v. CASA, Inc., 606 U.S. 832 (2025). In that case, the Court held that federal courts generally lack the authority to issue universal injunctions. The Supreme Court ruled that injunctions must be limited to providing “complete relief” to the plaintiffs, rather than enjoining policies for the entire nation. Vought argues that the district court needs to carefully consider whether the injunction it granted goes beyond that required to provide “complete relief” to the plaintiffs.
Breakdown of Reductions Across Core Divisions
The WRP makes clear that the restructuring plan reaches deeply into the CFPB’s core operational functions. The plan would reduce the number of employees from FY 2025, which was 1,723, to 556. That is about a 68% reduction as opposed to about a 90% reduction as contemplated by Vought shortly after he became Acting Director. By virtue of attrition, the table indicates that the headcount now is 1,174. Thus, the reduction based on that number is about 53% Moreover, as stated above, the CFPB’s budget was reduced in the Big Beautiful Bill from 12% to 6.5% of the Fed’s 2009 expenses, which is about a 46% reduction, in and of itself. In this context, the 556 number appears to be reasonable.
Here is a chart which breaks down the staff reductions in each division:
|
Division |
FY25 |
FY26 |
Retain |
|
CONSUMER RESPONSE EDUCATION DIV |
152 |
127 |
90 |
|
DIRECTOR |
73 |
62 |
15 |
|
ENFORCEMENT DIVISION |
254 |
137 |
50 |
|
EXTERNAL AFFAIRS DIVISION |
45 |
30 |
5 |
|
LEGAL DIVISION |
87 |
60 |
60 |
|
OPERATIONS DIVISION |
341 |
255 |
133 |
|
OTHER PROGRAMS |
5 |
11 |
1 |
|
RESEARCH MONITORING AND REGULATIONS DIV |
228 |
142 |
125 |
|
SUPERVISION DIVISION |
523 |
350 |
77 |
|
Grand Total |
1723 |
1174 |
556 |
1. Research, Monitoring and Regulations Division (RMR)
Although RMR’s retention of 125 employees is only a 43% reduction in staff from the authorized headcount in the 2025 Fiscal Year, and is only a 12% reduction in staff from current staffing, it is still unclear whether that will be sufficient to achieve the very ambitious regulatory agenda which the CFPB established for itself. The agenda includes both two major statutorily-required regulatory initiatives and a host of industry-supported deregulatory initiatives. The two regulations required by Dodd-Frank are (a) open banking (Section 1033 of Dodd-Frank) and (b) data collection with respect to small business loans (Section 1071 of Dodd-Frank). In light of the high attrition from RMR staff during the Chopra era, there is an issue as to whether the staff being retained are qualified to carry out the large and sophisticated regulatory agenda in which many of the final regulations are bound to be challenged in court.
2. Supervision Division
The Supervision Division, which conducts examinations of banks and nonbanks, is targeted for major cuts:
- The plan contemplates terminating a large percentage of supervisory staff, including examiners.
- Only a fraction of current personnel would be retained.
This suggests a fundamental shift away from routine supervisory examinations toward a more limited or targeted oversight model.
The WRP states, in relevant part:
“In line with the Bureau’s revised 2025 Supervision and Enforcement priorities, and consistent with the Dodd-Frank Act, it is also recommended that both the quantity and scope of supervision matters should be reduced, while enabling the Bureau to perform its statutorily required functions. Whereas in 2024, the total number of exams was 107, with 46 at depository institutions and 61 at non-depository institutions, in 2026, the total exams will be 64, with 42 at depository institutions and 22 at non-depository institutions. ‘[T]he public interest in the democratically-elected President’s prerogative to pursue his policy objectives” “bears heavily on” evaluating “whether agency resources should be allocated to facilitate more robust supervision of non-traditional, non-depository, lenders.” NTEU v. CFPB, 774 F.Supp.3d 1, 81 (D.D.C. 2025).’”
Although not mentioned in the WRP, based on prior information provided, we expect most examinations to be virtual in nature and not in person.
In line with the CFPB’s 2025 Supervision and Enforcement Priorities, which we blogged about last year, the following things are highlighted in the WRP:
- Focus on depository institutions. If the CFPB actually examines 42 depository institutions, that represents about 25% of the total number of depository institutions subject to supervision by the CFPB. Only 22 out of about 5,000 or so non-depository institutions (less than half of 1%) will be examined
- Focus of exams will be on “actual consumer fraud, and on areas that are clearly within its statutory authority.” The CFPB will not “pursue supervision under novel legal theories” and will avoid “duplicating similar oversight either at the federal or state level.” The supervisory focus will be “on conciliation, correction, and remediation of harms subject to consumer complaints.”
New priorities for supervision are;
- Providing redress to servicemembers, veterans, and their families;
- Mortgages;
- Fair Credit Reporting Act (FCRA) and Regulation V data furnishing violations;
- Fair Debt Collection Practices Act (FDCPA) and Regulation F violations relating to consumer contracts and debts;
- Fraudulent overcharges and fees; and
- Inadequate controls to protect consumer information resulting in actual loss to consumers.
Moreover, the Bureau explained that it will focus on actual intentional discrimination with actual identified victims. “Unlike in the past, [the Bureau] will not engage in or facilitate unconstitutional racial classification or discrimination in its enforcement of fair lending laws. That is, the Bureau will not engage in bias assessment supervisions or enforcement based solely on statistical evidence and/or stray remarks that may be susceptible to adverse inference.”
“Matters Requiring Attention (MRAs) will focus on pattern and practice violations of law where there is substantive and identifiable consumer harm or clear violations of the disclosure requirements. . . . In the past, nearly every matter, regardless of its significance, severity, pervasiveness or duration, required an MRA. This resulted in unnecessary and highly burdensome MRAs on supervised entities for matters that could be corrected in the normal course of business and would sometimes include matters that were identified by the entity themselves.”
3. Enforcement
The Enforcement Division, which is responsible for investigations and litigation, is likewise significantly reduced:
- The restructuring plan calls for substantial personnel reductions, eliminating a large number of attorneys and support staff.
- A smaller enforcement team would remain to handle what the Bureau presumably views as core or statutorily essential cases.
The priorities will be very similar to the new Supervision priorities. This aligns with a broader strategy of narrowing enforcement activity, potentially focusing on fewer, high-priority matters. Most of the lawsuits pending at the end of Chopra’s term have been dismissed or resolved.
The WRP states that the goal of Enforcement “is to take a collaborative and conciliatory approach. That means that our success is measured by issues resolved, such as by an entity voluntarily undertaking consumer redress and implementing changes to align with the law, instead of number of cases filed that could last years and drain resources on all sides.”
We believe that the number of new enforcement lawsuits will be few and far between and that the CFPB will very seldom seek civil money penalties to resolve an enforcement investigation or lawsuit.
Procedural Posture of NTEU v. Vought
Despite the breadth of the proposed reductions, none of these changes have taken effect and cannot take effect until the district court or circuit court vacates or significantly modifies the injunction
For now:
- The status quo remains in place at the CFPB.
- The restructuring plan is adopted but not implemented.
- The D.C. Circuit’s forthcoming decision with respect to the rehearing en banc or the CFPB’s new motion may determine whether the Bureau may proceed with the WRP.
Why This Matters
This filing goes well beyond internal agency management. It tees up a fundamental legal question:
Can an agency dramatically reduce its workforce—including in core functions like complaints, supervision, and enforcement—while still satisfying its statutory mandate?
The CFPB’s position, as reflected in this plan, is clearly yes. Although the plaintiffs have not yet responded to the motion, we expect the plaintiffs to oppose it and argue that such reductions would effectively disable the agency.
Consumer Advocacy Groups React to CFPB Workforce Reduction Filing
Consumer advocacy organizations, including the National Consumer Law Center, Consumer Federation of America, and Americans for Financial Reform, have strongly criticized the CFPB’s recent filing and WRP, arguing that the Plan would significantly weaken the CFPB’s ability to fulfill its statutory mission. In public statements, these groups contend that reducing staffing to minimal levels—such as those reflected in the attached exhibit to the motion—would undermine supervision, enforcement, and consumer complaint handling, ultimately harming consumers and frustrating congressional intent under the Dodd-Frank Act. They also express skepticism of the Bureau’s efficiency rationale and have urged the court to maintain the existing injunction, warning that the loss of personnel and institutional capacity could not easily be reversed.
Professor Jeff Sovern of the University of Maryland Law School states in a recent edition of the Consumer Law & Policy Blog:
“The proposal reduces the Office of Fair Lending and Equal Opportunity to four people. Dodd-Frank says that office is supposed to conduct oversight and enforcement of Federal fair lending laws, coordinate with other Federal agencies and the states, work with private industry and consumer advocates on compliance and education, and give Congress annual reports. Those four people are going to be busier than a two-armed paperhanger, much less a one-armed one, as the saying goes. And that’s without taking into account the administration’s debanking initiatives, which they may be charged with enforcing. That’s just one office. The proposal needs to explain how the Bureau will accomplish each of its statutory obligations with this staffing level. It doesn’t, almost certainly because it can’t.”
Observations
- Although we think that the CFPB’s motion makes a lot of sense (in light of the new proposed RIF, the new budget cap and the Supreme Court opinion in Trump v. CASA), we doubt that the DC Circuit will at this stage change course abruptly, particularly if the plaintiffs oppose the motion as we anticipate We still believe that the DC Circuit will remand the case to the district court to reexamine the terms of the injunction but that it will do that based on the record in front of the Court before the motion was filed.
- We think that the plaintiffs would be wise to agree to a limited remand since they have had a good track record so far with the rulings by Judge Jackson than they have had before the circuit court. Judge Jackson may give the plaintiffs the right to conduct discovery regarding the new RIF in order to test whether the number of employees is sufficient to perform the CFPB’s statutory duties. The district court might also permit the plaintiffs to conduct discovery about whether the people they propose to retain in each division are qualified to perform the tasks assigned to them. The latter is particularly important in the Regs division which, as noted above, has a very ambitious regulatory agenda. We also see the limited remand as a way for the parties to potentially settle this case. While Judge Jackson may tweak the WRP, we think it unlikely that she will make significant changes to it. Courts, in general, are very reluctant to micromanage agencies.
- We were very impressed by the detail and apparent thoroughness of the revised RIF. It is a huge improvement over the prior RIF. It is clear to us that the CFPB has abandoned any hope of shuttering the CFPB. Based on the WRP, it appears the CFPB now has a fuller understanding of what is statutorily required. It likely will be much harder than it was a year ago for the plaintiffs to ultimately receive the relief provided by the preliminary injunction.
We will continue to monitor this case closely as it develops.
Alan S. Kaplinsky, Richard J. Andreano, Jr., and Joseph J. Schuster
Vought Requests $75.8 Million for CFPB for Third Quarter of Fiscal Year
Acting CFPB Director Russell Vought has requested $75.8 million from the Federal Reserve for operations of the Bureau in the 3rd Quarter of the government’s current fiscal year (April 1, through June 30, 2026).
That compares with $104.2 million the CFPB received during the 3rd Quarter of Fiscal Year 2024, $0 during the 3rd Quarter of Fiscal Year 2025 and $145 million during the 2nd Quarter of the 2026 Fiscal Year. However, the One Big Beautiful Bill enacted last year reduced the CFPB’s funding from 12% to 6.5% of the Fed’s 2009 total operating expenses (adjusted for inflation).
While Section 1071 of Dodd-Frank requires that the amount requested “be reasonably necessary to carry out the authorities of the Bureau under Federal consumer financial law, Vought said in a letter to Fed Chairman Jerome Powell that he is confident that the Bureau could operate on even less money than $75.8 million.
“The number does not reflect the amount that I believe to be necessary for the Bureau to perform its statutory functions,” Vought wrote, in the letter. He said he believes that the Bureau can perform its duties with a “significantly smaller budget.”
Vought said he was making the request in response to a preliminary injunction issued by U.S. District Judge Amy Berman Jackson, who has said that massive layoffs and other actions to cut back the Bureau would amount to shutting it down.
The CFPB on March 31 filed a motion to stay the injunction or to remand the case to Judge Jackson to eliminate or modify the preliminary injunction. The CFPB attached to its motion a Workforce Reduction Plan which contains detailed information about its staffing and funding needs for the balance of the 2026 Fiscal Year ending September 30, 2026.
Alan S. Kaplinsky, Richard J. Andreano, Jr., and John L. Culhane, Jr.
2025 HMDA Modified Loan Application Register Data Published
The CFPB has announced that Home Mortgage Disclosure Act (HMDA) Modified Loan Application Register (LAR) data for 2025 are now available on the Federal Financial Institutions Examination Council’s (FFIEC) HMDA Platform for about 4,768 HMDA filers.
The data published contains loan-level information filed by financial institutions and is modified to protect consumer privacy.
For increased access to the public, the annual loan-level LAR data for each HMDA filer are available online. In the past, users could only obtain LAR data by making requests to specific institutions for their annual data.
To allow for easier public access to all LAR data, the CFPB’s 2015 HMDA rule made the data for each HMDA filer available electronically on the FFIEC’s HMDA Platform.
Also, in addition to institution-specific modified LAR files, users can download one combined file that contains all institutions’ modified LAR data.
HMDA data users may find the CFPB’s Beginner’s Guide to Accessing and Using HMDA Data useful for background on HMDA and tech tips for understanding and analyzing the data.
Tenth Circuit Grants Rehearing En Banc in Colorado Opt-Out Litigation
Earlier today, the Tenth Circuit entered an Order which granted the Petition for Rehearing En Banc filed by the plaintiff bank trade associations in the Colorado opt-out litigation, National Ass’n of Industrial Bankers v. Weiser. As we have previously reported, on November 10, 2025, the Tenth Circuit issued a 2-1 decision which addressed Colorado’s 2023 opt-out from Section 27 of the Federal Deposit Insurance Act (FDIA), pursuant to the opt-out right conferred by Section 525 of the Depository Institutions Deregulation and Monetary Control Act of 1980 (DIDMCA). In that important decision of first impression, the majority concluded that a loan is “made in” an opt-out state if either the lender or the borrower is located there. As a result, Colorado’s opt-out from Section 27 would strip out-of-state state banks of their usual ability under Section 27 to “export” their home-state interest rates to Colorado borrowers, and instead they would have to comply with Colorado usury ceilings.
A Petition for Rehearing En Banc was filed by the plaintiffs, which are several bank trade associations, and it was supported by a number of amici, including the FDIC; OCC; American Bankers Association; Bank Policy Institute and 52 state bankers associations (all represented by Ballard Spahr); and 20 state Attorneys General. Colorado filed an opposition to the rehearing petition.
A majority of the non-recused active judges on the Tenth Circuit voted to grant rehearing en banc. The effect of this order is to vacate the panel decision and to continue to leave in place the district court’s preliminary injunction against enforcement of the Colorado opt-out statute. The Tenth Circuit’s order specifically directed the parties to address the following issues in their forthcoming briefs:
- Does the phrase “loans made in such State” in Section 525 of the Depository Institutions Deregulation and Monetary Control Act of 1980 (DIDMCA) refer to “an executed loan” and encompass “loans in which either the lender or the borrower is located in the opt-out state”? Nat’l Ass’n of Indus. Bankers v. Weiser, 159 F.4th 694, 714 (10th Cir. 2025).
- How, if at all, should the reference in Section 521 of DIDMCA to “the State … where the bank is located” inform the meaning of “loans made in such State” in Section 525?
- How, if at all, is DIDMCA’s enactment history instructive to interpreting the phrase “loans made in such State”?
- How, if at all, is the regulatory guidance instructive to interpreting the phrase “loans made in such State”?
- Is the phrase “loans made in such State” ambiguous?
- Does a presumption against preemption apply in this case?
The plaintiff trade groups’ brief is due in 30 days; Colorado’s brief is due 30 days later; and the trade groups’ reply brief is due 14 days thereafter.
The court’s order concludes by stating that “Amicus participation is encouraged.”
A grant of a petition for rehearing en banc is exceptionally difficult to obtain, particularly in the Tenth Circuit.
As we reported previously, the Oregon legislature recently passed legislation (House Bill 4116) that opts-out of DIDMCA. The bill is awaiting the Governor’s signature. The Tenth Circuit’s grant of rehearing en banc today certainly changes the legal landscape considerably for both the proposed Oregon legislation and any other potential state opt-out.
Burt M. Rublin and Alan S. Kaplinsky
District Court’s Ruling Could Signal New Wave of CCPA Litigation
When the CCPA was first enacted, it was seemingly clear that its right to private action would be limited to traditional data breaches. Over the past two years, however, some courts have called this interpretation into question by expanding the CCPA’s private right of action clause beyond the traditional breach scenario—and instead into alleged privacy violations. A recent holding from the Northern District of California could signal that more of those claims could be tacked onto the wiretap cases that are already flooding dockets.
In many ways, Allison v. PHH Mortgage is a fairly standard website tracking case predicated on allegations that tracking devices on a business’s website disclosed users’ personal information without their knowledge or consent. However, in addition to CIPA, ECPA, and the usual accompanying claims, the plaintiffs also brought a claim under the CCPA. On March 27, 2026, the Northern District of California denied PHH Mortgage’s motion to dismiss the CCPA claim, finding that the express language of the statute does not limit private rights of action to traditional data breaches. The court held that “[n]othing in the plain language of the provision limits its application to data breaches by third parties.” Instead, the court held that the CCPA’s private right of action covers unauthorized disclosure of personal information regardless of whether the disclosure was intentional or negligent, and regardless of whether it was made by a third party or the business’s own agents.
Although earlier cases such as Shah v. Capital One Financial Corp. and M.G. v. Therapymatch Inc. came to similar outcomes, the Allison holding shows that courts continue to consider broadening the scope of the CCPA’s private right of action and that they will do so with more reasoned opinions. Businesses with an online presence should take time to audit their use of third-party tracking technologies and privacy disclosures now to help ensure privacy compliance and make conscious decisions regarding risk moving forward.
Gregory P. Szewczyk and Rebecca Krikorian Clary
FDIC, OCC Adopt Debanking Final Rule
The FDIC and the OCC have adopted a joint final rule that will prohibit the agencies from criticizing or taking adverse action against a financial institution based on reputation risk. The rule is effective June 6.
The rule will also prohibit the agencies from “requiring, instructing, or encouraging an institution to close customer accounts or take other actions on the basis of a person or entity’s political, social, cultural, or religious views or beliefs, constitutionally protected speech, or solely on the basis of politically disfavored but lawful business activities perceived to present reputation risk,” according to a statement from the agencies.
The rule forbids the agencies from “taking any supervisory action or other adverse action against an institution, a group of institutions, or the institution-affiliated parties of any institution that is designed to punish or discourage an individual or group from engaging in any lawful political, social, cultural, or religious activities, constitutionally protected speech, or, for political reasons, lawful business activities that the agencies or its personnel disagree with or disfavor,” according to a summary of the rule.
“While a bank’s reputation is critically important, and many financial institutions over the years have failed due to a loss of confidence, supervisory focus on ‘reputation risk’ outside of traditional risk channels (such as credit risk or market risk) adds little value to promoting safety and soundness,” FDIC Chairman Travis Hill said. “On the other hand, an explicit or implicit focus on ’reputation risk’ untethered from other risk channels can pressure banks into debanking law-abiding customers who are viewed unfavorably by supervisors.”
Comptroller of the Currency Jonathan V. Gould agreed that reputation risk is not a sound basis for supervision. “Regulators and banks have too often used it as a pretext for decisions that have nothing to do with safety and soundness, financial risk, or even BSA/AML compliance,” he said. “The result, in too many cases, has been lawful businesses and individuals denied access to banking services. Supervisory action should be grounded in less subjective measures.”
The actions follow an executive order that President Trump signed on August 7. That order, “Guaranteeing Fair Banking for All Americans,” prohibits financial institutions of any size from denying services to individuals or businesses based on political or religious prohibits financial institutions of any size from denying services to individuals or businesses based on political or religious beliefs, orientation, or lawful industry involvement.”
The executive order directed banking agencies to adopt policies to ensure that financial institutions do not use reputational risk as a basis for restricting access to banking services.
Several financial regulators have taken action to delete reputational risk from their policies. The Federal Reserve Board announced last year that it would eliminate reputational risk as a component of examination programs in its supervision of banks. It has subsequently requested comments on a proposed rule that would codify the removal of reputational risk from all of its supervisory programs.
The NCUA has also issued a Notice of Proposed Rulemaking (NPRM) to codify the elimination of reputational risk from its supervisory program, becoming the latest federal financial regulator to do so.
In March 2025 the OCC began removing references to reputation risk from its handbooks and guidance documents. The agency said at the time that it also was developing a rule that will delete reputational risk references from its regulations. It has now done so, along with the FDIC.
Scott A. Coleman, Richard J. Andreano, Jr., and John L. Culhane, Jr.
FTC Sends Debanking Letters to PayPal, Stripe, Visa, Mastercard
FTC Chairman Andrew N. Ferguson has sent letters to four major financial services providers warning them that they may not engage in debanking—disqualifying potential and current customers from receiving services based on religious, or political views.
The letters were sent to the CEOs of PayPal, Stripe, Visa, and Mastercard and cite publicly reported instances of debanking by PayPal and Stripe.
Ferguson’s letters cite an executive order that President Trump signed on August 7. That order, “Guaranteeing Fair Banking for All Americans,” prohibits financial institutions of any size from denying services to individuals or businesses based on political or religious beliefs, orientation, or lawful industry involvement.
The executive order directed banking agencies to adopt policies to ensure that financial institutions do not use reputational risk as a basis for restricting access to banking services.
Several financial regulators have taken action to delete reputational risk from their policies. The Federal Reserve Board announced last year that it would eliminate reputational risk as a component of examination programs in its supervision of banks. It has subsequently requested comments on a proposed rule that would codify the removal of reputational risk from all of its supervisory programs.
The NCUA has also issued a Notice of Proposed Rulemaking (NPRM) to codify the elimination of reputational risk from its supervisory program, becoming the latest federal financial regulator to do so.
In March 2025 the OCC began removing references to reputation risk from its handbooks and guidance documents. The agency said at the time that it also was developing a rule that will delete reputational risk references from its regulations. In October 2025, the OCC and FDIC issued a joint NPRM.
The FDIC Board considered a final version of the rule at its April 7 meeting and voted unanimously to approve the final rule.
“Full participation in commerce and public life necessarily requires that law-abiding individuals can access, and freely participate in, our financial system,” Chairman Ferguson wrote, in the letters to the four financial services providers.
“It is inconsistent with American values to deny law-abiding individuals the ability to run their legitimate businesses and feed their families because they attracted the ire of rogue American officials, overzealous activists, or, more worryingly, foreign governments seeking to control public discourse,” he continued.
The letters warn the companies that any act or practice to de-platform customers or deny them access to financial services that is inconsistent with the terms of service or a customer’s reasonable expectations could violate the FTC Act and lead to an FTC investigation and potential enforcement actions.
Presumably, the reference to the FTC Act in the letters is to Section 5 of that Act which proscribes “unfair and deceptive” acts or practices. While the FTC has previously taken the position that discrimination is considered an “unfair” act, that theory is untested in court. The CFPB’s initiative under Director Chopra to characterize discrimination as a violation of its authority to proscribe “unfair” acts or practices under its UDAAP provision failed in court.
The district court relied upon the “major questions doctrine” in invalidating the CFPB’s position:
The major questions doctrine is a principle which states that courts will presume that Congress does not delegate to executive agencies issues of major political or economic significance. The “major questions doctrine” is derived from the Supreme Court opinion in FDA v. Brown & Williamson Tobacco Corp. (2000): “[W]e must be guided to a degree by common sense as to the manner in which Congress is likely to delegate a policy decision of such economic and political magnitude to an administrative agency.” It was relied upon in a recent Supreme Court opinion in State of W.VA v. the Environmental Protection Agency, where the Court “recognize[d] that sweeping grants of regulatory authority are rarely accomplished through ‘vague terms’ or ‘subtle device[s].’ Courts must ‘presume that Congress intends to make major policy decisions itself, not leave those decisions to agencies.’ If that major questions canon applies, ‘something more than a merely plausible textual basis for the agency action is necessary. The agency instead must point to clear congressional authorization for the power it claims.” The doctrine was also relied upon in Biden v Nebraska, where the Court likewise recognized that “the economic and political significance [of the agency’s forgiveness of federal student loans] is staggering by any measure” and that “the basic and consequential tradeoffs” that are necessarily part of the action “are ones that Congress likely would have intended for itself.”
Under the circumstances, it may be that the FTC will consider debanking to be unfair and deceptive to the extent that it targets individuals or companies engaging in protected speech or otherwise exercising their constitutional rights.
Alan S. Kaplinsky, Richard J. Andreano, Jr., and John L. Culhane, Jr.
FTC Sends Warning Letters About Pricing to 97 Auto Groups
The FTC has sent letters to 97 auto groups, warning them that they must advertise the total price of vehicles that consumers will be required to pay; that figure must include all mandatory fees.
“When consumers do not know the true price of a car—or any product—consumers and others suffer related consequences, including that consumers cannot comparison-shop and make informed decisions, sellers trying to deal honestly with consumers are put at a competitive disadvantage, and the market cannot operate efficiently,” Christopher Mufarrige, Director of the FTC’s Bureau of Consumer Protection, wrote, in a template of the letter being sent to the auto groups.
The letters encourage auto dealers to review their advertising and pricing practices, including making certain that advertised prices match actual prices that consumers will be charged. FTC officials said they will continue to monitor the marketplace and will take other action to ensure that dealers are in compliance with the FTC Act and other rules.
“The Trump-Vance FTC is committed to preventing auto dealers from misleading consumers with low advertised prices and then adding on mandatory fees at the end of the purchasing process,” said Mufarrige said, in a statement. “The FTC will remain focused on monitoring auto dealerships to ensure that the market functions efficiently and competitors are transparently competing on price.”
The letters cite several examples of illegal pricing practices in the auto industry, including:
- “Advertising a price that reflects rebates or discounts not available to all consumers.
- Advertising a price that fails to take into account the amount of an additional required down-payment.
- Conditioning the advertised price on consumers using dealer financing.
- Requiring consumers to buy additional items not reflected in the advertised price, and
- Advertising unavailable or non-existent vehicles.”
Many of these practices would have been prohibited under the FTC’s CARS Rule. However, the Fifth Circuit overturned the Rule on procedural grounds over a year ago. Instead of reissuing the Rule, it appears that the FTC will now follow its more traditional path of issuing warning letters to industry members. While warning letters are not formal enforcement actions, recipients are typically directed to correct any problems and to confirm to the FTC that they have done so, although that apparently was not the case with the auto dealer letters.
Importantly, warning letters are not the same as penalty offense notices, which list conduct that the FTC has specifically determined to be unfair or deceptive in one or more administrative orders (other than consent orders). Companies that receive penalty offense notices from the FTC, and that continue to engage in the same conduct, can be subject to civil penalties that, as of January 17, 2025, were up to $53,088 per violation, under Section 5(m)(1)(B) of the FTC Act and the Federal Civil Penalties Inflation Adjustment Act Improvements Act of 2015. (The FTC has yet to announce any inflation adjustments for 2026.)
John L. Culhane, Jr. and Joseph J. Schuster
FinCEN’s Residential Real Estate Rulemaking Vacated
Recently, a federal judge in the Eastern District of Texas vacated FinCEN’s residential real estate rule (the Rule) finding that the agency exceeded its statutory authority under the Bank Secrecy Act (the BSA). Flowers Title Companies, LLC v. Bessent, Case No. 6:25-cv-127 (E.D. Tex. Mar. 19, 2026). Since finalization in 2024, the Rule has been subject to litigation in various jurisdictions. The Rule requires the collection and reporting of information to FinCEN in connection with transfers of residential real estate to entities and certain trusts that do not involve financing by a lender subject to anti-money laundering requirements under the BSA.
FinCEN’s website was subsequently updated with an alert indicating that “[i]n light of a federal court decision, reporting persons are not currently required to file real estate reports with FinCEN and are not subject to liability if they fail to do so while the order remains in force.”
While the decision affords reporting persons a reprieve from filing requirements, this is not likely the end for the real estate sector. FinCEN and the Financial Action Task Force (FATF) have long recognized anti-money laundering risks posed by the real estate market. We have previously blogged about FATF’s guidance related to the real estate sector here.
Flowers Title Companies, LLC v. Bessent
The Plaintiffs challenged the Rule under the Administrative Procedures Act (APA), claiming that the Rule exceeded FinCEN’s statutory authority under the BSA. Plaintiffs alternatively claimed that if the BSA does authorize the Rule, then the BSA violates the “nondelegation doctrine” of the Commerce Clause, exceeds Congress’s enumerated powers, and violates the Fourth Amendment.
FinCEN relied on following two provisions of the BSA as justification of their authority to promulgate the Rule:
31 U.S.C. § 5318(g)(1)
Section 5318(g)(1) of the BSA states that FinCEN “may require financial institution, and any director, officer, employee, or agent of any financial institution, to report any suspicious transaction relevant to a possible violation of law or regulation.” FinCEN argues that non-financed transfers of residential real estate are a type of suspicious transaction that requires reporting.
The court held that FinCEN failed to show how non-financed residential real estate transactions were categorically suspicious pursuant to 31 U.S.C. § 5319(g)(1). The court acknowledged that there may be bad actors conducting suspicious non-financed real estate transactions, but that does not make them categorically suspicious, and FinCEN failed to provide sufficient evidence showing otherwise.
31 U.S.C. § 5318(a)(2)
Section 5318(a)(2) of the BSA states that FinCEN may “require a class of domestic financial institutions or nonfinancial trades or businesses to maintain appropriate procedures, including the collection and reporting of certain information[.]” The court held that 31 USC § 5318(a)(2) does not provide FinCEN with the appropriate authority to adopt the Rule, but instead gives FinCEN the authority to require financial institutions to maintain procedures to comply with the BSA.
The decision in Flowers differs from a recent Florida case where the Margistrate Judge’s Report and Recommendation concluded that FinCEN’s motion for summary judgment should be granted and that the Rule was statutorily authorized by the BSA. Fid. Nat’l Fin., Inc. v. Bessent, case No. 3:25-cv-554 (M.D. Fla. Dec. 9, 2025). FinCEN relied on similar statutory provisions as justification of the Rule.
At the time of the writing of this blog post, FinCEN had not filed a notice of appeal.
If you would like to remain updated on these issues, please click here to subscribe to Money Laundering Watch. And please click here to find out about Ballard Spahr’s Anti-Money Laundering Team.
FinCEN’s Proposed Rule to Reform Financial Institution AML/CFT
As part of the U.S. Department of Treasury’s efforts to modernize the U.S. anti-money laundering regulatory and supervisory framework, the Financial Crimes Enforcement Network (FinCEN) has issued a proposed rule that would reform how financial institutions design and operate their anti-money laundering and countering the financing of terrorism (AML/CFT) programs. Though not a wholesale rebuild of the existing framework, FinCEN and the banking regulators are signaling a new emphasis on an approach that prioritizes risk-based effectiveness over process-driven compliance and establish FinCEN’s central role in AML/CFT supervision among the Federal bank regulators.
The Current Regulatory Landscape for AML/CFT Programs
Under the Bank Secrecy Act (BSA), financial institutions are required to establish AML/CFT programs designed to identify, prevent, and report financial crime. FinCEN, as the administrator of the BSA, plays a principal role in setting program standards and coordinating with federal banking supervisors – including the Federal Reserve, the Federal Reposit Insurance Corporation (FDIC), the Office of the Comptroller of Currency (OCC), and the National Credit Union Administration (NCUA) – who examine the institutions they oversee for compliance.
Historically, institutions’ compliance has been measured in part on whether they are adequately managing their AML / CFL responsibilities, with regulators assessing the design and operation of compliance programs. Much of the reform is aimed at moving away from a framework that critics argue encourages “check-the-box” compliance, focusing instead on achieving meaningful results. As Treasury Secretary Scott Bessent put it, “For too long, Washington has asked financial institutions to measure success by the volume of paperwork rather than their ability to stop illicit finance threats.” Bessent added that, “Our proposal restores common sense with a focus on keeping bad actors out of the financial system, not burying America’s banks in more red tape.”
What’s Driving the Rulemaking?
The proposed rule is part of Treasury’s broader effort to modernize the AML/CFT regulatory and supervisory framework. It also implements key provisions of the Anti-Money Laundering Act of 2020 (AML Act), which, among other things, directed FinCEN and federal regulators to consider that compliance programs should be “risk-based, with more financial institution attention and resources directed toward higher-risk customers and activities…rather than toward lower-risk customers and activities.”
Results Over Process
FinCEN’s Fact Sheet accompanying the proposed rule identifies six key reforms that, taken together, signal a regulatory philosophy focused on outcomes rather than procedural box-checking:
- Refocusing compliance obligations and expectations on effectiveness by distinguishing between deficiencies stemming from program design (establishment) and program implementation (maintenance);
- Reinforcing Treasury’s belief that financial institutions are best positioned to identify and evaluate their money laundering, terrorist financing, and illicit finance risks;
- Empowering financial institutions to direct more attention and resources toward higher-risk customers and activities;
- Clarifying expectations related to certain program requirements and functions – including independent testing and audit functions – to ensure that examiners and auditors do not substitute their subjective judgment in place of financial institutions’ risk-based and reasonably designed AML/CFT programs;
- Affirming FinCEN’s central role in AML/CFT supervision, including through the introduction of a notice and consultation framework between Federal banking supervisors and FinCEN with respect to significant AML/CFT supervisory actions;
- Incorporating the AML/CFT Priorities in both AML/CFT program requirements and considerations involving significant supervisory or enforcement actions.
Three Areas of Significant Impact
Among these reforms, three are likely to have the most immediate impact on day-to-day compliance.
First, the proposed rule would make FinCEN the gatekeeper for significant supervisory and enforcement actions. Under a new notice and consultation framework, federal banking supervisors would be required to give FinCEN’s Director at least 30 days’ advance written notice before initiating a significant AML/CFT supervisory action under delegated authority. For banks, this suggests that FinCEN—not any single prudential regulator—will increasingly set the tone for AML/CFT supervision. Both the American Bankers Association and Bank Policy Institute welcomed this development citing FinCEN’s “elevated role” as a step toward “ensur[ing] greater alignment and consistency across agencies.”
Second, the rule would establish that only “significant or systemic failures” to maintain a properly established AML/CFT program would warrant enforcement or significant supervisory action. In practice, this could reduce enforcement risk for institutions with sound programs but experience isolated implementation issues.
Third, the rule would include the four “core pillars” that an AML/CFT program must incorporate pursuant to the BSA: (1) internal policies, procedures, and controls, including risk assessment processes; (2) independent program testing; (3) designation of a U.S.-based compliance officer; and (4) ongoing employee training. By standardizing these requirements across institution types, FinCEN aims to promote consistency and reduce the patchwork of obligations that currently exist.
What’s Next?
FinCEN is accepting public comments for 60 days following publication of the Notice of Proposed Rulemaking in the Federal Register. The federal banking supervisors—the Federal Reserve, FDIC, OCC, and the NCUA—are also expected to issue their own proposed rules in substantive alignment with FinCEN’s proposal. Financial institutions should begin evaluating how these changes may affect their programs and whether to weigh in during the comment period.
If you would like to remain updated on these issues, please click here to subscribe to Money Laundering Watch. And please click here to find out about Ballard Spahr’s Anti-Money Laundering Team.
Matthew T. Smith, Wilson Smerconish, Kelly A. Lenahan-Pfahlert, and Terence M. Grugan
Treasury Issues NPRM on State Oversight of Stablecoin Issuers Under the GENIUS Act
The U.S. Department of the Treasury has issued its first proposed rule under the Guiding and Establishing National Innovation for U.S. Stablecoins (GENIUS) Act, marking a key milestone in federal efforts to regulate payment stablecoins. The Notice of Proposed Rulemaking (NPRM) outlines the principles Treasury will use to assess whether a state’s regulatory regime is “substantially similar” to the federal framework, which determines whether certain stablecoin issuers may be supervised by states rather than the OCC or other federal agencies. Comments on the proposal are due by June 2, 2026.
Background: The GENIUS Act’s Federal–State Opt-In Model
Passed in July 2025, the GENIUS Act created the first comprehensive federal framework for stablecoin regulation. (See our blog post, here.) It allows “State qualified payment stablecoin issuers,” defined as issuers with up to $10 billion in outstanding issuance, to elect state-level supervision if their state’s regulatory regime is certified as “substantially similar” to the federal approach. The model is intended to balance innovation, flexibility, and uniformity while reducing opportunities for regulatory arbitrage.
Treasury published an Advance Notice of Proposed Rulemaking (ANPRM) in September 2025 to gather stakeholder feedback. The current NPRM reflects that input and begins the formal rulemaking process.
Scope and Structure of the NPRM
The proposed rule would add a new Subchapter C to Title 12 of the CFR, containing:
- Part 1520: Authority, purpose, and scope
- Part 1521: Core principles for determining substantial similarity between state and federal regimes
Part 1521 is the key component of the proposal and sets out how Treasury will evaluate whether a state’s regime meets or exceeds the standards required by section 4(a) of the Act.
Defining the Federal Regulatory Framework
A central question addressed by the NPRM is what constitutes the “Federal regulatory framework.” Treasury proposes a definition that extends beyond the statute and includes:
- The GENIUS Act
- OCC regulations and formal interpretations published in the Federal Register
- Treasury regulations and guidance implementing BSA, sanctions, and technological compliance requirements under sections 4(a)(5) and (6)
- Federal Reserve Board rules implementing the Act’s anti-tying provisions under section 4(a)(8)
Treasury explains that relying solely on statutory text would leave significant gaps, particularly in prudential areas such as capital, liquidity, and reserve diversification, where implementing detail resides in agency rules. The OCC’s framework serves as the primary baseline for comparison because most state-qualified issuers are nonbanks that would transition to OCC oversight if they exceed the $10 billion threshold.
Uniform Requirements and State-Calibrated Flexibility
The NPRM distinguishes between two categories of requirements:
- Uniform requirements: Areas where the Act provides no substantive discretion. State regimes must align with the federal framework. Examples include reserve asset requirements, AML/BSA/sanctions programs, and core disclosure and naming restrictions.
- State-calibrated requirements: Areas where states may tailor standards if the outcomes are at least as robust as the federal model. These include capital requirements, certain governance provisions, and some risk management practices.
Appendix A maps each statutory requirement to one of these categories and provides a practical guide for state regulators.
Federal Law and State Qualified Issuers
Treasury reiterates that state-supervised issuers remain subject to all applicable federal statutory requirements unless the Act expressly provides otherwise. State regimes cannot authorize activities prohibited under federal law, and federal disclosure and naming restrictions apply universally. The goal is to maintain a consistent baseline of protections regardless of supervisory regime.
Principles, Flexibility, and Ongoing Supervision
States may impose requirements beyond the federal baseline as long as they do not conflict with federal law or undermine substantial similarity. Statutes, regulations, and enforceable guidance may all serve as vehicles for compliance.
The NPRM also addresses how future federal legislation or rule changes could interact with state frameworks and seeks comment on definitional issues, classification of requirements, and whether rules for foreign issuers should be incorporated.
Next Steps in the Rulemaking Process
Treasury is seeking comment on all aspects of the proposal, including the scope of the federal regulatory framework, the division of statutory requirements into uniform and state-calibrated categories, the degree of flexibility states should retain, and the practical criteria for assessing substantial similarity. Comments are due June 2, 2026, according to the Federal Register notice.
Outstanding Issues and Policy Implications
Although the NPRM clarifies core structural elements, several practical questions remain:
- Supervision and enforcement: The proposal emphasizes supervisory design but is less specific about how Treasury will evaluate the strength or consistency of state enforcement.
- Durability of certification: The NPRM does not detail how Treasury will monitor state regimes over time or under what conditions certifications may be revisited or withdrawn.
- Regulatory competition: Allowing state-level supervision may encourage innovation but could also create competitive pressures among states. The rigor with which Treasury applies the “meet or exceed” standard will be central to preventing regulatory arbitrage.
- Issuer threshold management: The NPRM explains the $10 billion transition point but does not address how Treasury might respond if issuers structure operations to remain within the state-qualified category.
Conclusion
Treasury’s proposed rule provides the first detailed framework for harmonizing state and federal oversight of stablecoin issuers under the GENIUS Act. Its two-tier structure, which combines uniform requirements with calibrated flexibility, reflects an effort to maintain consistent protections while supporting regulatory innovation. Stakeholders should review the proposal closely and consider submitting comments by the June 2, 2026, deadline.
If you would like to remain updated on these issues, please click here to subscribe to Money Laundering Watch. And please click here to find out about Ballard Spahr’s Anti-Money Laundering Team.
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
Subscribe to Ballard Spahr Mailing Lists
Copyright © 2026 by Ballard Spahr LLP.
www.ballardspahr.com
(No claim to original U.S. government material.)
All rights reserved. No part of this publication may be reproduced, stored in a retrieval system, or transmitted in any form or by any means, including electronic, mechanical, photocopying, recording, or otherwise, without prior written permission of the author and publisher.
This alert is a periodic publication of Ballard Spahr LLP and is intended to notify recipients of new developments in the law. It should not be construed as legal advice or legal opinion on any specific facts or circumstances. The contents are intended for general informational purposes only, and you are urged to consult your own attorney concerning your situation and specific legal questions you have.