April 30 – Read the newsletter below for the latest Mortgage Banking and Consumer Finance industry news, written by Ballard Spahr attorneys. In this issue, our lawyers examine OFAC’s advisory warning on sham transactions, FinCEN’s proposed rule to increase whistleblower incentives, NYC’s ‘click-to-cancel’ proposal signaling a new era in subscription regulation, and other notable updates.
- Podcast Episode: ‘True Lender’ Doctrine Back in the Spotlight: Key Takeaways on OppFi v. Hewlett Tentative California Superior Opinion
- Podcast Episode: Debt Sales 101 Mini-Series — Episode 4: The Regulatory Landscape for Debt Sales Today
- Podcast Episode: Debt Sales 101 Mini-Series — Episode 5: Closing the Deal: Key Contracting and Transaction Issues
- Podcast Episode: NYC DCWP at the Forefront of Consumer Protection: A Conversation with Commissioner Sam Levine
- D.C. Circuit Showdown Over CFPB: Plaintiffs Oppose Effort to Fast-Track Agency Downsizing but Surprisingly Support Remand to District Court for It to First Consider Modifying the Preliminary Injunction as CFPB Urged in Motion
- Fed Transfers Funds to CFPB for Agency Operations
- OFAC Issues Advisory Warning on Sham Transactions
- New Executive Order Targets ‘Racially Discriminatory DEI Activities’ by Federal Contractors
- FinCEN Proposes Rule to Increase Whistleblower Incentives
- OCC Enters Into Consent Order With Savings Bank Over VA Mortgage Refinance Loan Practices
- Alabama Passes a Comprehensive Privacy Law But Not Without Controversy
- New York City’s ‘Click-to-Cancel’ Proposal Signals a New Era in Subscription Regulation
- Legal Rulings Seek to Curtail LGBTQ Rights
- Court Denies Class Certification in Internet Tracking Case Over Individualized Statute of Limitations Issues
- Looking Ahead
The latest episode of the Consumer Finance Monitor Podcast being released today tackles one of the most consequential developments in bank–fintech litigation in recent years: the Los Angeles Superior Court’s tentative decision in Opportunity Financial, LLC v. Hewlett (read more here). This case squarely addresses the long-debated “true lender” doctrine which has for decades bedeviled banks and Fintechs and “bricks and mortar” nonbanks that have entered into joint ventures with one another to engage in interstate lending programs which take advantage of interest rate exportation rights afforded to banks. After applying application California and federal law, the Court granted summary judgment to OppFi and against the California Department of Financial Protection and Innovation (DFPI) which unsuccessfully maintained that OppFi is the true lender and not OppFi’s partner, FinWise Bank.
In this episode, host Alan Kaplinsky, founder and former chair of the Consumer Financial Services Group and now senior counsel, is joined by two leading voices with sharply contrasting perspectives: Professor Emeritus Arthur Wilmarth, a prominent critic of bank–fintech partnerships, and Ballard Spahr Senior Counsel Ron Vaske, who regularly advises banks and fintech companies on structuring such programs. Their discussion offers a deep and balanced exploration of the court’s reasoning and its broader implications.
A Tentative Decision with Significant Implications
At the center of the case is a partnership between OppFi, a fintech platform, and FinWise Bank, a Utah-chartered, FDIC-insured institution. The program allowed FinWise to originate consumer loans at interest rates permissible under Utah law and export those rates nationwide under Section 27 of the Federal Deposit Insurance Act.
The DFPI challenged the arrangement, arguing that OppFi—not FinWise—was the “true lender,” which would subject the loans to California’s 36% interest rate cap.
In a tentative ruling, the court rejected the DFPI’s position and granted summary judgment in favor of OppFi. The court emphasized traditional indicia of lending authority, including:
- FinWise’s role in funding the loans
- Its control over underwriting criteria
- Its retention of a 5% ownership interest
- Its ongoing oversight of compliance and marketing
Critically, the court also relied on the longstanding California law principle that usury is determined at the inception of the loan. (See the discussion below.) Because FinWise originated the loans, the court concluded they were not rendered unlawful by OppFi’s subsequent purchase of a 95% participation interest giving which gave it a predominant economic interest.
Competing Views on ‘True Lender’
The podcast highlights a fundamental divide in how courts and commentators approach the true lender doctrine.
Professor Wilmarth argues that the court failed to meaningfully engage with the “predominant economic interest” test, which focuses on who bears the majority of the economic risk and reward. In his view, OppFi’s 95% participation interest suggests that it—not the bank—is the real lender in substance. He also raises broader concerns about whether such arrangements undermine state usury laws and expose consumers to excessively high-cost credit.
Ron Vaske, by contrast, emphasizes the legal and structural realities of the transaction. He underscores that FinWise is the named lender, funds the loans, and remains legally responsible to borrowers. From this perspective, the allocation of economic interests after origination should not redefine the identity of the lender or override federal law permitting rate exportation.
The Role of ‘Valid When Made’
Another key related theme explored in the episode is the “valid when made” doctrine—the principle that a loan that is lawful at origination remains lawful after assignment. The court’s reliance on this concept reinforces the importance of determining lender status at the moment the loan is made, rather than based on subsequent transfers or participations.
The discussion also touches on the interplay between state and federal law, as well as the continuing relevance of regulatory interpretations following the Supreme Court’s decision in Loper Bright, which curtailed Chevron deference.
What Comes Next?
It is important to note that the court’s ruling is still tentative. In accordance with California procedure, OppFi must submit a proposed final opinion and order to the Court. If adopted, an appeal by the DFPI appears likely—potentially setting the stage for further appellate guidance on the true lender doctrine in California and beyond.
Why This Matters
This case is part of a broader and ongoing policy debate:
- Supporters of bank–fintech partnerships argue they expand access to credit and operate within well-established federal banking frameworks.
- Critics contend they can be used to circumvent state consumer protection laws, particularly interest rate caps.
As the regulatory and judicial landscape continues to evolve, OppFi v. Hewlett represents a significant—and closely watched—development.
It may be significant to note that, unlike several other states, California does not have a statute stating that the holding of a “predominant economic interest” in a loan makes the holder the true lender
Be sure to listen to the full podcast episode for a deeper dive into the case and the competing legal and policy perspectives shaping the future of bank–fintech partnerships.
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 4 of our Debt Sales 101 mini-series, we focus on the current regulatory landscape governing debt sales and how recent developments are shaping the market. We discuss how oversight has become more fragmented, more active, and increasingly driven by state regulators and attorneys general, and how that shift is affecting both buyers and sellers.
A central theme in this episode is that regulation is no longer a background consideration. It is a primary driver of pricing, deal structure, and buyer participation. We walk through key regulatory themes, including the importance of documentation and chain of title, increased product-specific scrutiny, and the growing focus on consumer outcomes and potential UDAAP risk. Regulators are increasingly looking upstream at sellers and their diligence, documentation, and oversight practices, rather than focusing solely on collectors.
We also discuss how these regulatory developments are affecting the economics of debt sales. Changes at the state level, as well as evolving rules in areas such as medical debt and student loans, have introduced additional compliance complexity and, in some cases, reduced pricing or limited buyer participation. At the same time, emerging product areas continue to evolve as buyers assess regulatory risk and opportunity.
The key takeaway from this episode is that understanding the regulatory environment upfront is critical to executing a successful debt sale. A well-structured process, supported by strong diligence, documentation, and contractual protections, is essential to managing risk and achieving expected value.
To listen to this episode, click here.
Consumer Financial Services Group
In Episode 5 of our Debt Sales 101 mini-series, we turn to contracting and closing, where legal structure, regulatory expectations, and commercial terms come together to define the transaction. We discuss the key provisions in a debt purchase and sale agreement and how those provisions allocate risk between buyers and sellers.
From a regulatory perspective, the contract is more than a commercial document. It is also an artifact that regulators expect to review. We explain how representations and warranties, indemnification provisions, buyback mechanics, and audit rights are used to address regulatory risk, confirm the scope of assets being transferred, and establish expectations around compliance and oversight. These provisions are central to demonstrating that both parties have appropriately considered legal and regulatory requirements.
We also discuss how contractual terms can directly impact pricing and execution. Restrictions on collection activity, credit reporting, or other post-sale actions can significantly affect the value of a portfolio. In addition, we cover key transaction mechanics such as data transfers, cutoff timing, and how contracts are introduced during the bidding process to align commercial and risk considerations early.
The key takeaway from this episode is that a well-drafted purchase and sale agreement does not just enable the transaction. It mitigates risk. By aligning regulatory expectations with commercial objectives, parties can create repeatable and scalable debt sale programs.
To listen to this episode, click here.
Consumer Financial Services Group
In this episode of the Consumer Finance Monitor Podcast, host Alan Kaplinsky (founder, former chair for 25 years and now senior counsel) had the pleasure of speaking with Sam Levine, Commissioner of the New York City Department of Consumer and Worker Protection (DCWP), about the agency’s evolving role as one of the most active local consumer protection regulators in the country.
Important note: This podcast was recorded prior to DCWP’s April 8, 2026, release of its proposed “click-to-cancel” rule addressing subscription practices. Alan recorded a description of the proposed rule which is at the end of the recording. We also wrote a separate blog about that significant development.
A Local Regulator With National Influence
From the outset, Commissioner Levine emphasized that DCWP is not simply a municipal agency focused on traditional licensing and enforcement, but rather a modern regulator tackling complex consumer protection issues that increasingly mirror those addressed at the federal level.
“Local enforcement can be incredibly impactful—we’re often closest to consumers and can move quickly to address emerging harms.”
He noted that New York City’s scale and diversity make it a uniquely important testing ground for innovative consumer protection strategies.
Executive Orders Driving Enforcement Priorities
A key backdrop to DCWP’s current activity is a pair of mayoral directives—Executive Order 9 and Executive Order 10—issued by New York City Mayor Zohran Mamdani on January 5, 2026 (shortly after he took office), which we have discussed in a prior blog post.
These executive orders signal a clear policy direction to fulfill his campaign promise to make life more affordable for everyday New Yorkers: an intensified focus on consumer protection, particularly in areas involving deceptive practices, hidden or “junk” fees, and recurring payment models. Executive Order 10, in particular, directs DCWP to prioritize enforcement against “subscription traps” and misleading recurring charge practices—laying the groundwork for the Department’s subsequent proposed “click-to-cancel” rule published on April 8, 2026.
Commissioner Levine made clear that these directives are not merely aspirational, but are actively shaping the agency’s enforcement and rulemaking agenda:
“We’re aligning our work with the Mayor’s directive to go after practices that frustrate consumers and undermine fair competition.”
Enforcement Priorities: Targeting Deceptive Practices
A central theme of our discussion was DCWP’s aggressive focus on deceptive and unconscionable trade practices, particularly in areas where consumers are most vulnerable.
Commissioner Levine highlighted the agency’s work in combatting:
- Hidden fees and misleading pricing practices
- Predatory lending and financial services abuses
- Worker exploitation in the gig economy
- Emerging digital marketplace risks
“We’re focused on conduct that distorts consumer choice—where people think they’re getting one thing but end up locked into something very different.”
He underscored that transparency and fairness are guiding principles behind DCWP’s enforcement agenda.
Final Debt Collection Rules: A Significant Regulatory Development
We also discussed DCWP’s recently finalized debt collection regulations, which we have analyzed in prior blog coverage. These rules represent one of the most significant updates to New York City’s debt collection framework in years.
Commissioner Levine emphasized that the rules are designed to modernize existing requirements and address evolving industry practices, including the increased use of digital communications.
“The goal is to ensure that debt collection practices keep pace with how consumers actually communicate today, while maintaining strong protections against harassment and abuse.”
Among other things, the rules clarify permissible communications, reinforce substantiation and disclosure requirements, and strengthen consumer protections in line with broader trends seen at the federal level.
These rules, which go effective later this year, apply not only to third-party collectors and buyers of consumer debt, but also to creditors of consumers whenever the debtor resides or is located in New York City.
Collaboration With Federal and State Regulators
Drawing on his prior experience at the Federal Trade Commission (FTC) as Director of the Bureau of Consumer Protection, Levine discussed the importance of coordination across jurisdictions.
“There’s a real opportunity for federal, state, and local regulators to work together and reinforce one another’s efforts.”
He explained that DCWP frequently collaborates with the FTC, the New York State Attorney General’s Office, and other enforcement bodies, particularly in cases involving multi-state or national conduct.
At the same time, he made clear that local regulators can lead:
“We don’t have to wait. If we see harm affecting New Yorkers, we’re going to act.”
Rulemaking as a Strategic Tool
In addition to enforcement, Levine emphasized DCWP’s increasing use of rulemaking to shape market behavior proactively.
“Rules give clarity to businesses and protections to consumers—they’re an important complement to case-by-case enforcement.”
He noted that clear rules can help level the playing field for companies that are already trying to do the right thing.
Focus on Financial Services and Marketplace Innovation
The conversation also explored DCWP’s interest in financial services, particularly as new products and delivery models emerge.
Levine pointed to risks associated with:
- Fintech innovations that may outpace regulatory frameworks
- Online platforms that obscure key terms or pricing
- Products that rely heavily on consumer inertia or behavioral biases
“Innovation can be a good thing—but it can’t come at the expense of transparency or fairness.”
Practical Takeaways for Industry
For companies operating in or serving New York City, the message from DCWP is clear:
- Expect active enforcement of deceptive practices
- Monitor local regulatory developments, including mayoral directives and rulemaking initiatives
- Prioritize clear disclosures and consumer-friendly processes
- Anticipate continued focus on digital and subscription-based business models
“Our goal is straightforward: markets should work for consumers, not against them.”
Looking Ahead
Although our discussion did not cover it because it happened after our podcast was recorded, DCWP has since proposed a significant new rule targeting subscription practices—further underscoring the agency’s commitment to addressing modern consumer risks and reflecting the policy direction set by Executive Order 10.
Given Commissioner Levine’s leadership and experience, including his prior role at the FTC, DCWP is likely to remain at the forefront of consumer protection innovation.
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
A high-stakes procedural battle is unfolding in the en banc U.S. Court of Appeals for the District of Columbia Circuit that could determine the near-term fate of the Consumer Financial Protection Bureau (CFPB).
In a newly filed response, the National Treasury Employees Union (NTEU) and other plaintiffs are pushing back forcefully against efforts by Acting CFPB Director Russell Vought and the government to modify an existing preliminary injunction that has, to date, prevented large-scale layoffs at the agency.
The filing tees up a critical question: whether the government can move forward—now—with a sweeping reduction in force (RIF) based on a newly unveiled “streamlining” plan, or whether it must first return to the district court and satisfy traditional standards for modifying an injunction.
Background: Alleged Effort to Shut Down the CFPB
The litigation stems from actions taken shortly after Vought became Acting Director. According to the district court’s findings—repeated prominently in the plaintiffs’ brief—the government pursued a plan that would have effectively dismantled the CFPB within weeks, including:
- Terminating probationary and term-limited employees
- Planning a large-scale RIF affecting the vast majority of staff
- Taking steps that, absent judicial intervention, would have “wiped out” the agency in approximately 30 days
The district court issued a preliminary injunction to preserve the status quo, concluding that the government had been engaged in a “concerted, expedited effort to shut the agency down” and, notably, expressing skepticism about the government’s credibility.
A D.C. Circuit panel reversed the district court by a 2-1 vote, but maintained the district court’s preliminary injunction regarding the RIF in place pending the outcome of a petition for rehearing en banc.
The full court later took the case en banc and the injunction regarding the RIF remains in place.
The Government’s New Strategy: A ‘Streamlining’ Plan
More than a year after the injunction was entered—and a month after en banc oral argument—the government introduced a new RIF plan, asserting that it reflects a shift away from shutting down the CFPB toward “streamlining” its operations.
Based on that development, the government is seeking a modification by the DC Circuit of the stay pending appeal of the preliminary injunction barring the RIF or, in the alternative, a limited remand to the district court, with a 45-day deadline for the district court to rule.
The plaintiffs agree with the request for a limited remand to the district court, but not the 45-day deadline.
Plaintiffs’ Core Arguments
The response advances three principal arguments, each with broader implications for administrative law and appellate procedure.
1. No Justification for an ‘Emergency Timeline
As noted, the plaintiffs do not oppose a limited remand to allow the district court to consider the new RIF plan. But they strongly object to the government’s request for a 45-day deadline.
Their argument is straightforward: urgency is self-inflicted and not credible. They argue that the government:
- Waited over a year after the injunction to file this new motion
- Waited a month after en banc argument to introduce the new plan
- Offers no explanation for why immediate action is now required
Imposing an accelerated schedule, the plaintiffs argue, would disrupt the district court’s docket and prejudice both the plaintiffs and other litigants.
2. The Government Must First Go to the District Court
A central theme of the brief is procedural. Under Federal Rule of Appellate Procedure 8, requests to modify or stay an injunction must be presented to the district court “in the first instance.”
The plaintiffs argue that:
- The government has never asked the district court to approve this specific RIF plan
- The current motion, insofar as it requests the Court of Appeals to grant relief, improperly seeks to bypass the requirement that the district court must be given the first opportunity to modify or stay an injunction
- Recharacterizing the request as a “modification” of an appellate stay does not change its substance
The plaintiffs argue that the district court, having developed the factual record and conducted prior evidentiary hearings, is best positioned to evaluate:
- Whether circumstances have actually changed
- Whether the new RIF plan differs meaningfully from prior shutdown efforts
- Whether factual disputes require further development
3. The Government Cannot Satisfy the Stay Standard
Even if the D.C. Circuit were to consider the request directly, the plaintiffs argue that the government has failed to meet the traditional stay factors set forth in the Supreme Court’s Nken v. Holder ruling, 556 U.S. 418 (2009). In the case, the Court addressed the four factors that apply to a court’s consideration of whether to grant a party’s request for a stay, with the first two factors being the most critical: (1) a strong showing that the party is likely to succeed on the merits, (2) whether the party will be irreparably injured absent a stay, (3) whether issuance of the stay will substantially injure the other parties interested in the proceeding and (4) where the public interest lies. The Court also noted then when the government is the party opposing the stay, the third and fourth factors merge.
The plaintiffs argue that the government does not “even attempt to argue that they have a likelihood of success on appeal” nor goes the government “attempt to demonstrate irreparable harm,” which claim they assert is undermined by the government’s delay. They also argue that while the government does not address other Nken factors, it does address the balance of the equities. The plaintiffs assert that this does not overcome the failure to address other factors and that, in any event, the equities are not in the government’s favor. Finally, the plaintiffs assert that the government concedes the employee plaintiffs would be harmed by the implementation of the RIF plan, and that the government makes “no effort at all to demonstrate that the public would not be harmed.”
The plaintiffs emphasize that the court previously rejected a similar effort to permit mass terminations, particularly after the government attempted to use a partial stay to justify layoffs that would have effectively shuttered the agency.
A Credibility Undercurrent
One of the most striking aspects of the filing is its repeated emphasis on credibility.
The plaintiffs juxtapose:
- Litigation positions denying any intent to shut down the CFPB
- Public statements by Vought and others indicating the opposite
They argue that the new “streamlining” plan should be viewed in light of that history—raising implicit questions about whether the new proposal is substantively different or simply a rebranded version of earlier efforts.
Key Takeaways
This filing highlights several broader themes worth watching:
- Procedural rigor matters: The case underscores the importance of Rule 8 and the expectation that trial courts evaluate new factual developments first.
- Delay cuts against emergency relief: Courts remain skeptical of claims of urgency when parties have delayed action.
- Agency restructuring through litigation is fraught: Efforts to dramatically reshape (or potentially dismantle) an agency face heightened judicial scrutiny, particularly where factual disputes and credibility concerns are present.
- The en banc court’s posture remains critical: The D.C. Circuit has already shown sensitivity to preserving “meaningful final relief,” suggesting caution about allowing actions that could moot the case.
What the Plaintiffs Did Not Address
A key point argued by the government is that the One Big Beautiful Bill passed by Congress last year reduced the maximum amount of funding that the CFPB may request annually from the Federal Reserve from 12% to 6.5% of the Fed’s 2009 operating expenses, adjusted for inflation. The government asserts that the preliminary injunction requires the CFPB to maintain funding at the original level, which would be $677.5 million for the current fiscal year, but that the statutory change reduced the amount for the year to $466.8 million. The government also asserts that the CFPB “expects that by the fourth quarter of calendar year 2026 (i.e., the first quarter of fiscal year 2027) its cash on hand will no longer be sufficient to comply with both the injunction and the statutory funding cap Congress has now imposed.” While the fourth quarter is further away than the 45-day deadline requested by the government, if the government’s claims are accurate, there is a real-world timing issue that the district court will need to take into consideration. As a result, it is a bit perplexing that the plaintiffs did not address this issue in their opposition to the government’s motion.
What Comes Next
The most likely near-term outcome is a limited remand to the district court, where the government will need to:
- Formally present its new RIF plan
- Demonstrate that circumstances have materially changed
- Address concerns that the plan would effectively replicate prior shutdown efforts
Alan S. Kaplinsky and Richard J. Andreano, Jr.
Fed Transfers Funds to CFPB for Agency Operations
The Federal Reserve has transferred funds to the Federal Reserve Bank of New York to pay the expenses of the CFPB for the third quarter of this fiscal year, according to a letter posted on the agency’s website.
The letter from Federal Reserve Chief Financial Officer Rendell Jones to CFPB Chief Financial Officer Janfar Gueye does not disclose the amount of the deposit, but the Bureau requested $75.8 million.
That compares with $104.2 million the CFPB received during the 3rd Quarter of Fiscal Year 2024, $248.9 million for the 1st Quarter of FY 2025, $0 during the 3rd Quarter of Fiscal Year 2025, $0 during the 1st quarter of Fiscal Year 2026 and $145 million during the 2nd Quarter of Fiscal Year 2026. 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). According to the government’s March 31 filing in the Treasury Union case, the maximum the CFPB can request from the Fed for Fiscal Year 2026 is $466.8 million. Based on the requests made so far, the maximum that the CFPB can request for the remainder of the fiscal year is $246 million.
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, at the time he made the request Acting CFPB Director Russell 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 statement by Vought that the CFPB can perform its statutory functions with less than $75.8 million is interesting in view of the government’s assertion in the recent filing in the Treasury Union case that the preliminary injunction requires the CFPB to maintain funding at the level provided before the One Big Beautiful Bill, which the government claims is $677.5 annually.
Richard J. Andreano, Jr., John L. Culhane, Jr., and Alan S. Kaplinsky
OFAC Issues Advisory Warning on Sham Transactions
On March 31, 2026, the U.S. Department of the Treasury’s Office of Foreign Assets Control (OFAC) issued an advisory on sham transactions, highlighting the compliance risks financial institutions must navigate when facilitating international property transactions.
What Is a Sham Transaction?
OFAC defines a “Sham Transaction” as one in which a blocked person, typically operating through proxies or intermediaries, effectuates the transfer or concealment of a continuing interest in property, without genuinely extinguishing said interest, in an attempt to evade U.S. sanctions. In other words, sham transactions are those in which an individual appears to relinquish property on paper but remains effectively in control of it.
Who Do Sham Transactions Apply to?
OFAC publishes a List of Specially Designated Nationals and Blocked Persons (SDN List) that is intended to restrict the access of the named individuals to the American financial system by preventing them from transferring, withdrawing, or otherwise dealing with any property and interests that are within the United States or within the possession or control of a U.S. person and prohibiting U.S. persons from transacting with them.
If an individual is blocked, their assets are frozen, and they are unable to exercise the powers and privileges of their property and interests without authorization from OFAC.
How Do Sham Transactions Operate?
OFAC identifies numerous methods by which blocked persons conceal their property interest, often by manipulating opaque legal structures and working with proxies. The following are some examples of sham transactions:
- A blocked oligarch transferred ownership of his private jet to a trust, whose sole beneficiary was his unsanctioned wife, while the oligarch continued to use the jet for travel.
- A blocked person transferred millions of dollars of funds into trusts held for his minor children and then attempted to move these funds through U.S. banks.
- Following its designation, a company sanctioned for narcotics trafficking was reincorporated under a different name with new nominal owners while continuing the blocked company’s operations.
How Can Financial Institutions Recognize a Sham Transaction?
OFAC’s advisory highlights a non-exhaustive set of red flags that may indicate a sham transaction. The advisory stresses the importance of employing a functional approach, considering the totality of the circumstances, when evaluating a potential sham transaction.
For additional analysis on OFAC guidance, see our related posts here.
The following are some indications financial institutions should be aware of when evaluating a transaction:
- Commercially Unreasonable Transactions: Transfers of property in which a blocked person once held an interest on terms that are commercially unreasonable or at odds with fair market value may indicate a sham transaction.
- Transfer to Family Members or Close Associates: Transfers of property to an individual with close personal or professional ties may indicate that the receiving party is acting as a nominal owner and may be acting on behalf of the transferring party.
- Unclear Purpose: Transfers to an individual with no clear business purpose or relevant expertise with respect to the property at issue may be evidence of a sham transaction.
- Complex Corporate Structures and High-Risk Jurisdictions: The presence of unnecessarily complex corporate structures, particularly in jurisdictions that lack robust regulatory oversight, may suggest an effort to conceal true ownership interests.
- Involvement of a Blocked Person: If the circumstances indicate that a blocked person remains involved in the operation of a property, they may hold a concealed interest. The use of evasive or vague responses regarding the extent of a blocked person’s involvement may present further indicia of a concealed interest.
- Transfer at Time of Designation: If a property or interest is transferred immediately preceding or following a person’s designation by OFAC, the transaction may warrant additional scrutiny.
Guidance for Financial Institutions
If financial institutions become aware that a blocked person once held an interest in property, OFAC recommends reviewing the available information to see if any of the above-listed red flags are present. OFAC acknowledges in its advisory that institutions may encounter legitimate business transactions where this occurs and does not wish to interfere with parties and institutions who seek to comply with OFAC sanctions in good faith.
If institutions become aware that a blocked person retains an interest in property that is held within the United States or is in the possession or control of a U.S. person, the property must be blocked and reported to OFAC.
If you would like to remain updated on these issues, please click here to subscribe to Money Laundering Watch. Please click here to find out about Ballard Spahr’s Anti-Money Laundering Team.
New Executive Order Targets ‘Racially Discriminatory DEI Activities’ by Federal Contractors
On March 26, 2026, President Trump signed Executive Order 14398, “Addressing DEI Discrimination by Federal Contractors,” the latest in a series of executive actions targeting DEI practices in the federal contracting space. This latest executive order requires federal contractors and subcontractors to affirmatively agree to not participate in “racially discriminatory” activities or risk legal and financial consequences.
New Mandatory Contract Clause—Effective April 25, 2026
The EO directs all executive departments and agencies to incorporate a new compliance clause into federal contracts—including subcontracts and lower-tier subcontracts—by April 25, 2026. The clause, the text of which is set forth in the EO itself, requires contractors to: (1) refrain from engaging in “racially discriminatory DEI activities (as defined in the EO); (2) provide agencies access to books, records, and accounts to verify compliance; (3) acknowledge that noncompliance may result in contract termination, suspension, or debarment from future government work; and (4) monitor and report subcontractors known or reasonably knowable violations of the clause. The Federal Acquisition Regulatory Council is also directed to issue deviation and interim guidance within 60 days—by May 25, 2026—and to amend the Federal Acquisition Regulation (FAR) to incorporate the clause and remove any conflicting provisions.
Defining ‘Racially Discriminatory DEI Activities’
The EO broadly defines racially discriminatory DEI activities as “disparate treatment based on race or ethnicity in the recruitment, employment (e.g., hiring, promotions), contracting (e.g., vendor agreements), program participation, or allocation or deployment of an entity’s resources.”
“Program participation” is defined broadly to include access to training, mentoring or leadership development programs, educational opportunities, clubs, associations, and similar opportunities sponsored or established by the contractor. The term “disparate treatment” is not defined in the EO, but under federal anti-discrimination law it refers to intentional, differential treatment on the basis of a protected characteristic.
Critically, the EO explicitly states that contractor compliance with the new clause is “material to the Government’s payment decisions” under the False Claims Act (FCA).
What This Means for Employers
EO 14398 creates binding contract terms for contractors and potential liability under the FCA. But, the EO’s scope is limited—focused strictly on race and ethnicity based disparate treatment. Programs addressing other diversity categories (e.g. gender, veteran status, or disability) fall outside the order’s express coverage.
Federal contractors and subcontractors face a tight compliance window. Organizations with formal DEI goals, race-based program participation criteria, or diversity-focused hiring practices should conduct a comprehensive, enterprise-wide review of their employment and contracting practices now and consult legal counsel on FCA compliance to mitigate exposure.
Elliot I. Griffin, Brian D. Pedrow, and Shirley S. Lou-Magnuson
FinCEN Proposes Rule to Increase Whistleblower Incentives
FinCEN has published a Notice of Proposed Rulemaking (NPRM) that would formalize and expand its whistleblower program, offering potentially substantial financial payouts to whistleblowers reporting certain financial crimes. According to FinCEN’s announcement, this initiative is designed to incentivize and protect individuals who report violations of major financial crime laws—specifically, the Bank Secrecy Act (BSA), the International Emergency Economic Powers Act (IEEPA), the Trading With the Enemy Act (TWEA), and the Foreign Narcotics Kingpin Designation Act (the “Kingpin Act”). Treasury Secretary Scott Bessent has said that through this rule, “Treasury will reward whistleblowers who provide timely, actionable information on fraud, sanctions violations, and other significant illicit finance activity[.]”Under the proposed rule, whistleblowers could be entitled to 10-30 percent of monetary penalties the government collects as a result of whistleblower tips.
The NPRM, which notably requires a 120-day waiting period for whistleblowers involved in certain fiduciary and compliance functions, highlights the importance of investing in robust compliance programs. It signals heightened enforcement interest in financial crimes, and advertises weighty incentives to motivate potential whistleblowers.
Overview and Legal Authority
FinCEN cites to the BSA, as strengthened by the Anti-Money Laundering Act of 2022 and the Anti-Money Laundering Whistleblower Improvement Act of 2022 (codified at 31 U.S.C. § 5323), for its authority to implement the proposed rule. The relevant statutory provision states:
In any covered judicial or administrative action, or related action, the Secretary, under regulations prescribed by the Secretary, in consultation with the Attorney General and subject to subsection (c), shall pay an award or awards to 1 or more whistleblowers who voluntarily provided original information to the employer of the individual, the Secretary, or the Attorney General, as applicable, that led to the successful enforcement of the covered judicial or administrative action, or related action, in an aggregate amount equal to—
(A) not less than 10 percent, in total, of what has been collected of the monetary sanctions imposed in the action or related actions; and
(B) not more than 30 percent, in total, of what has been collected of the monetary sanctions imposed in the action or related actions.
FinCEN established an Office of the Whistleblower, which began receiving whistleblower tips in 2021. This proposed rule would formalize and significantly enhance this program. The proposed rule:
- Defines key terms, such as “covered action”, “original information”, “voluntary submission”, “monetary sanctions”, and “related action;”
- Provides for submission through a standardized, secure online form;
- Outlines requirements to apply for an award;
- Sets forth eligibility criteria for awards and the process for adjudicating award applications;
- Details confidentiality and anti-retaliation protections; and
- Implements a system for appealing adverse determinations, and for barring bad-faith or abuse of the whistleblowing program.
Eligibility Requirements for Whistleblower Award
The rule details four requirements for a whistleblower to be eligible for an award: (1) voluntary submission of original information; (2) the whistleblower is the original source of the original information; (3) the original information led to the successful enforcement of a covered action or related action; and (4) the whistleblower provides certain additional information to Treasury and DOJ upon request.
One key function of the proposed rule is to thoroughly define what qualifies as “original information.” It identifies four elements that must be met for FinCEN to find that a whistleblower provided qualified original information. These elements are:
- The information must be “derived from the independent knowledge or independent analysis of [the] whistleblower.” In the NPRM, FinCEN explains that independent knowledge does not require the whistleblower to have direct, first-hand knowledge of potential violations. Rather, their knowledge must be obtained from their own experiences, observations, or communications, and not from public sources. On the other hand, independent analysis may be based on information that is generally available or known, as long as the analysis “results in material insights” that are not generally known or available to the public.
- The information is not already known to Treasury or DOJ.
- The information is not exclusively derived from an allegation made in a publicly available source, including judicial or administrative hearings.
- The information is provided to Treasury or DO,J after the enactment of the statutes that established the Whistleblower Program and amended its scope (January 1, 2021, for violations of the BSA, and December 29, 2022 for violations of the IEEPA, TWEA, and the Kingpin Act).
Equally important is the proposed rule’s definition of voluntariness. In the proposed rule, FinCEN explains that a submission is voluntary if it is made before the whistleblower receives any request for information about the subject matter. Thus even an informal request for information would negate the voluntariness requirement.
The proposed rule also defines “covered action” as “an administrative or judicial action taken by Treasury or DOJ under certain ‘covered statutes’ … the BSA, IEEPA, TWEA, and the Kingpin Act” where monetary sanctions exceed $1,000,000. Notably, the proposed rule grants FinCEN the discretion to treat multiple actions as a single “covered action” if they arise out of substantially the same facts, such that those actions could collectively exceed the $1,000,000 threshold.
Through these regulatory definitions, FinCEN seeks to establish clear standards for the circumstances under which a whistleblower may be entitled to an award, as well as situations in which a whistleblower may be excluded from participation.
One key limitation FinCEN proposes is a 120-day waiting period for whistleblowers involved in fiduciary or compliance roles within an entity. The proposed rule would prevent whistleblowers from receiving an award where their position in certain key roles within an entity—such as serving as a director or trustee, participating in internal compliance processes, or serving as an employee or outside contractor with duties involving audit or compliance responsibilities—is the reason the whistleblower obtained the potentially reportable information, and they report the information within 120 days of learning it. According to FinCEN’s announcement, this waiting period seeks to provide entities an opportunity to address issues or voluntarily disclose information to the government, and to avoid incentives for whistleblowers to undermine effective compliance programs.
Implications
Through this proposed rule, FinCEN clearly seeks to signal renewed, enhanced enforcement of financial crimes, and incentivize whistleblowers to come forward.
In addition to spelling out eligibility criteria, which in theory lessens the uncertainty potential whistleblowers may feel about their opportunity to gain from acting as a whistleblower, the proposed rule contains numerous provisions detailing procedural and operational implementation of the program. These provisions, which, for example, identify a secure portal for submitting information, detail the process for submitting and adjudicating award applications, and spell out confidentiality and anti-retaliation protections, seek to provide even further comfort for potential whistleblowers and establish a robust program for soliciting and processing tips.
FinCEN is accordingly projecting a substantial increase in the number of whistleblower tips it receives, estimating that it will receive approximately 250 original submissions and 150 supplemental submissions annually within three years of the rule’s effective date. This is a dramatic increase from the approximately 90 submissions it received per year between 2021 and 2024.
As the rule is not yet final (it is subject to a 60-day notice and comment period), some of the details may change. Nonetheless, the proposed framework provides substantial insight into the direction FinCEN is moving, and suggests is quite possible that there will be a notable increase in whistleblower activity following the rule’s implementation.
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.
OCC Enters Into Consent Order With Savings Bank Over VA Mortgage Refinance Loan Practices
The Office of the Comptroller of the Currency (OCC) recently entered into a consent order with The Federal Savings Bank in Chicago, Illinois (Bank) to settle allegations of false or misleading statements regarding cash-out mortgage refinance loans guaranteed by the Department of Veterans Affairs (VA). The consent order includes typical allegations of improper marketing of VA cash-out loans, although the remedy provisions have drawn the ire of at least one consumer group.
As previously reported, the CFPB has entered into consent orders with lenders to settle allegations of false and misleading advertising to servicemembers and veterans regarding VA refinance loans. The allegations made by the CFPB in the prior consent orders are similar to certain of the allegations made by the OCC in the recent consent order.
The OCC consent order addresses the Bank’s VA refinance loan activity between 2022 and 2024. Among other allegations, which the Bank neither admitted nor denied, the OCC asserts that:
- “The Bank sent consumers millions of deceptive advertisements that stated the consumer had “available funds” and instructed the consumer to contact the Bank. In reality, the advertisement was a solicitation for a VA cash-out refinance loan and a new loan was required to access the funds.” No copies of the advertisements are included, and no other details of the advertisements are provided in the consent order.
- “Certain Bank employees made deceptive statements to consumers indicating that the Bank maintained a special relationship with the VA.” No details of the statements are provided in the consent order.
- “Certain Bank employees made deceptive statements to consumers regarding the terms of the VA cash-out refinance loans that created the impression that the consumer’s interest rate or monthly payment would significantly decrease within a defined time period. However, the cash-out refinance loan was a permanent loan with a fixed interest rate and mortgage payment, and the Bank could not in fact guarantee that the consumers would be able to refinance their loans with the lower interest or monthly payments as stated or implied by Bank employees.”
- “The Bank’s deceptive statements induced consumers to obtain VA cash-out refinance loans, which resulted in certain consumers paying significant origination fees and receiving refinanced mortgage loans with significantly increased interest rates and monthly payments.”
The OCC observes that the “Bank is taking corrective actions to remedy the deficiencies identified in” the consent order.
The consent order does not provide for a specific dollar amount of remediation or any type of penalty. Rather, the consent order provides that within 30 days of the order, and thereafter within 30 days after the end of each quarter, the Bank’s board of directors must submit to the Assistant Deputy Comptroller a written progress report setting forth in detail:
(a) a description of the corrective actions needed to achieve compliance with the order, (b) the specific corrective actions undertaken to comply with the order and (c) the results and status of the corrective actions.
Additionally, within 30 days of the consent order the Bank must submit to the OCC the name of a proposed independent, third-party consultant to plan and oversee the payment of restitution to eligible consumers. Within 60 days of the OCC making a written determination of no supervisory objection to the restitution consultant, the Bank must engage the consultant and submit to the OCC, for review and prior written determination of no supervisory objection, a written methodology prepared by the consultant to identify eligible consumers. The methodology must define the scope of the eligible consumers to be identified by the consultant and include a proposed timeline for the commencement and the completion of the identification of eligible consumers.
After the consultant provides a written report to the Bank that identifies eligible consumers, the Bank must submit to the OCC, for review and prior written determination of no supervisory objection, a written methodology prepared by the consultant to determine the appropriate amount of restitution and to pay restitution to eligible consumers. The methodology may take into consideration any amounts the Bank has previously paid in restitution, apparently referring to the corrective actions already undertaken by the Bank. The methodology must include a proposed timeline for the commencement and completion of the restitution of eligible consumers, and the Bank must pay restitution to eligible consumers in accordance with the methodology, following its receipt of the OCC’s written determination of no supervisory objection.
The OCC expressly reserves its right to assess civil money penalties or take other enforcement actions if the OCC determines that the Bank has continued, or failed to correct, the violations described in the consent order, or that the Bank otherwise is violating or has violated the consent order.
The fact that the OCC and Bank will privately establish the amount and details of the consumer remediation was criticized by the National Consumer Law Center (NCLC). According to a report by LAW360, NCLC senior attorney Andrew Pizor stated “I don’t think there’s any legitimate reason for this level of secrecy,” and that “[w]e have a right to know that the agencies are doing their job, and if everything they do is secret, we have no way of knowing whether they’re upholding the law.” According to the report Pizer also stated that disclosing aggregate restitution amounts and methodologies “lets other industry players know the consequences for wrongdoing.” The report adds that, addressing the Trump administration’s approach to regulation, Pizer stated that “[t]here’s just been a pattern of very weak consumer protection, which basically sends a message to most of the financial services industry that they can get away with a lot, and no one’s looking over their shoulder.”
Interestingly, the CFPB VA refinance loan consent orders noted above occurred during the first Trump administration. While the CFPB in its recent Workforce Reduction Plan stated that providing redress to servicemembers, veterans and their families is a priority, which is a common theme of the second Trump administration, whether the CFPB will engage in the same oversight of VA loan refinance activity that it did in the first Trump administration remains to be seen.
Richard J. Andreano, Jr. and John L. Culhane, Jr.
Alabama Passes a Comprehensive Privacy Law But Not Without Controversy
On April 7, 2026, the Alabama legislature unanimously passed House Bill 351, the Alabama Personal Data Protection Act, sending it to Governor Kay Ivey for approval. The bill cleared the Alabama House 104-0 and the Alabama Senate 34-0, and if Governor Ivey signs the bill, Alabama will join the growing list of states that have enacted a comprehensive consumer privacy statute. If enacted, the law would take effect on May 1, 2027.
On its surface, the bill largely follows Virginia-model framework and lays out core consumer rights, AG-exclusive enforcement, no private right of action, and a 45-day cure period. However, the Alabama bill differs in a number of key aspects.
1. Low Applicability Threshold
The Act sets out one of the lowest data threshold in the country. Specifically, the law applies to entities that control or process data of more than 25,000 Alabama consumers. Separately, the law applies if a business earns at least 25% of its revenue from selling personal data regardless of consumer count.
2. Definition of ‘Sale’
The Act defines a “sale” as the exchange of personal data for monetary or other valuable consideration where the controller receives a material benefit and the third party is unrestricted in its use. This definition is narrower than the CCPA but broader than monetary-only states like Virginia and Iowa. More importantly, the Act carves out two exceptions for data transfers that are found in no other state law: disclosures for “providing analytics services” and for “providing marketing services solely to the controller.”
First, if a business shares consumer data with a third-party analytics provider, that transfer is not considered a “sale,” even if the analytics company keeps and uses the data. Second, if a business shares consumer data with a third party that provides marketing services back to that business, such as a firm running targeted ad campaigns on the business’s behalf, that transfer is also excluded. The result is that a large volume of data sharing that would give consumers opt-out rights in states like California, Colorado, or Connecticut falls entirely outside the scope of Alabama’s Personal Data Protection Act.
3. Exemptions
Entity Exemptions: Businesses with fewer than 500 employees and nonprofits with fewer than 100 employees are exempt, provided they do not engage in the sale of personal data. The Act also exempts defined political organizations, a complication that has derailed privacy legislation in other states like Maine.
Data Exemptions: The Act exempts data already governed by federal law, as well as HR and B2B data. Specifically, the following federal-law data is carved out:
- HIPAA-regulated health data
- FCRA-covered consumer reports
- DPPA-protected motor vehicle records
- FERPA-covered education records
- Farm Credit Act data
- Airline Deregulation Act data
Children’s Data: Alabama sets the “known child” threshold at under 13 and treats COPPA compliance as sufficient for parental consent obligations under the Act. Consent is required for targeted advertising or sale of data for consumers ages 13 to 15, but, unlike Colorado, Connecticut, and Virginia, which have added heightened protections for minors beyond the COPPA baseline, the Alabama Act stops there.
4. Enforcement Framework
The Act sets out a lighter compliance burden and does not require data protection impact assessments, universal opt-out signal mandate, or a permanent cure period. Under Alabama’s law, there will always be a chance to fix violations before facing enforcement.
The Act also does not require opt-outs when targeted ads are based on pseudonymous data—such as alphanumeric mobile device identifiers—as long as that data is stored separately from identifiable information. Most state privacy laws require opt-outs for behavioral targeting regardless of pseudonymity; Alabama joins only Kentucky, Iowa, and Tennessee in creating this gap. For the ad-tech industry, this is a welcome carveout; for consumer advocates, it is one of the bill’s biggest loopholes.
Lastly, civil penalties are also capped at $15,000 per violation, making this one of the softest enforcement postures in the state privacy landscape.
5. Industry and Advocacy Response
Consumer Reports has urged Governor Ivey to veto the bill, calling it a “lowest-common-denominator approach to privacy” riddled with loopholes, including but not limited to, the weak “sale” and “targeted advertising” definitions, the lack of universal opt-out or authorized agent provisions, and the pseudonymous data gap. On the other hand, the bill’s sponsor, Representative Mike Shaw, has framed it as a practical approach shaped by two years of collaboration with the attorney general’s office.
6. What Businesses Should Do Now
Companies that assumed they were too small for state privacy law should take a closer look. The 25,000-consumer threshold is one of the lowest in the country, and businesses with any meaningful contact with Alabama residents may well be covered. The separate 25%-of-revenue trigger could also sweep in niche data brokers with relatively few Alabama contacts. Before May 1, 2027, companies that touch consumer data should evaluate whether they cross the 25,000-consumer line, whether their data-sharing arrangements genuinely fit within the analytics and marketing carveouts rather than relying on loopholes that may not hold up under AG scrutiny, and whether their pseudonymous data practices are truly pseudonymous enough to qualify for the targeted-advertising gap. The Act’s enforcement posture is lighter than most states, but $15,000-per-violation penalties still accumulate quickly.
Brianna Howard, Gregory P. Szewczyk, and Mudasar KhanNew York City’s ‘Click-to-Cancel’ Proposal Signals a New Era in Subscription Regulation
In a move that could bolster efforts to reshape the landscape of subscription-based commerce, New York City Mayor Zohran Kwame Mamdani and Department of Consumer and Worker Protection (DCWP) Commissioner Samuel A.A. Levine recently unveiled a proposed “Click-to-Cancel” rule that would position New York City at the forefront of consumer protection in this space. Announced by the DWCP on April 9, 2026, the rule aims to eliminate so-called “subscription traps” by requiring businesses to make cancellation as simple as enrollment. The full text of the proposed rule appears here.
The proposal follows Executive Order 10, aptly titled “Fighting Subscription Tricks and Traps,” and reflects a broader regulatory push to address practices that critics argue are designed to frustrate consumers into maintaining unwanted subscriptions. As Mayor Mamdani put it, if a consumer can sign up with a click, they should be able to cancel with a click—a principle that sits at the heart of the proposed rule.
Key Features of the Proposed Rule
The proposed rule would apply broadly to automatic renewals and continuous service offers, covering a wide range of industries—from gyms to digital platforms. The proposal also directly targets practices such as “free trials” that convert into paid subscriptions without meaningful consumer awareness, as well as cancellation processes that are intentionally difficult to navigate. Among the consequences, should the rule be adopted as proposed:
- Simple Cancellation Mechanisms: Businesses will have to provide a clear, straightforward way for consumers to cancel subscriptions, eliminating multi-step or opaque processes.
- Enhanced Disclosures: Companies will be required to clearly inform consumers of subscription terms at sign-up, including renewal and cancellation rights.
- Greater Enforcement Authority: DCWP will have citywide authority to enforce compliance, with penalties starting at $525 per violation, along with potential restitution to affected consumers.
A First-of-Its-Kind Municipal Initiative
Notably, this would appear to be the first municipal rule of its kind in the United States, underscoring the increasingly prominent role of state and local regulators in consumer protection. Advocacy groups, including the National Association of Consumer Advocates and the Consumer Federation of America have praised the proposal as both innovative and necessary, particularly at a time when federal regulatory activity in this space has been perceived as uneven.
The rule may also serve as a template for other jurisdictions. As momentum builds nationwide to address deceptive subscription practices, New York City’s approach could become a model for state legislatures and local governments seeking to enhance consumer safeguards.
What Comes Next
The proposed rule was published in the City Record on April 8, 2026, triggering a 30-day public comment period under the City Administrative Procedures Act along with a virtual hearing on May 8, which will be accessible by phone and videoconference. Thereafter, DCWP will evaluate feedback and determine whether to finalize the rule, potentially with revisions.
Why It Matters for Businesses
While a final rule may ultimately be challenged, at least in part because it would be based on an unspecified but apparently relatively small number of complaints in such a populous city (only “more than 100” last year), for companies operating in or marketing to New York City residents, the proposal is a clear signal: subscription practices are under heightened scrutiny. Businesses should begin working with counsel now to assess their enrollment flows, disclosure practices, and cancellation mechanisms to ensure they align with the rule’s anticipated requirements.
More broadly, the proposal reflects a continuing shift toward “symmetry” in consumer transactions—where ease of entry must be matched by ease of exit. Whether at the municipal, state, or federal level, regulators are increasingly focused on ensuring that consumer consent is both informed and revocable without friction.
If adopted, New York City’s “Click-to-Cancel” rule will not only impact local businesses but could also help accelerate a nationwide rethinking of how subscription services are offered—and how they must be unwound.
Federal Context and Commissioner Levine’s Prior Role
The New York City proposal comes against the backdrop of recent—and somewhat turbulent—federal efforts to regulate subscription or “negative option” cancellation practices. The Federal Trade Commission had finalized a sweeping “click-to-cancel” rule designed to require clear disclosures, express informed consent, and cancellation mechanisms that are as easy to use as the sign-up process.
However, that final rule was vacated by the United States Court of Appeals for the Eighth Circuit, which held that the FTC failed to adhere to required procedural safeguards in promulgating the rule. In particular, the court found deficiencies in the FTC’s rulemaking process under Section 22 of the FTC Act, which requires a preliminary economic analysis when a rule would have an annual impact on the economy surpassing $100 million.
In response, the FTC has more recently signaled a renewed effort to advance a revised version of its negative option rule. On March 13 it published in the Federal Register an advance notice of proposed rulemaking requesting public comment on the extent to which businesses market goods and services through negative options, the nature and prevalence of problematic practices, and specific ways to address unfairness or deception in the marketplace.
The FTC is expected to continue focusing on core themes reflected in the New York City proposal—namely, requiring clear and conspicuous disclosure of material terms, obtaining consumers’ express informed consent, and ensuring simple, symmetrical cancellation mechanisms—while attempting to address the procedural and substantive concerns identified by the court. Notably, Sam Levine previously served as Director of the FTC’s Bureau of Consumer Protection during the development of its rule.
Commissioner Levine is Guest on Consumer Finance Monitor Podcast Show
On April 23, 2026, Levine was interviewed by Alan Kaplinsky (founder, former Chair and now senior counsel of our Consumer Financial Services Group) on our weekly podcast show, Consumer Finance Monitor, about other important developments at the DCWP. You can access the podcast HERE after it is released.
Alan S. Kaplinsky and John L. Culhane, Jr.
Legal Rulings Seek to Curtail LGBTQ Rights
Consistent with the Trump administration’s longstanding stance on “gender ideology,” several recent legal developments have curtailed or sought to limit LGBTQ rights. Collectively, these actions reflect a broader trend of renewed efforts to limit LGBTQ protections at the federal and state levels. Despite these efforts, sexual orientation and gender identity remain protected characteristics under federal and many state and local antidiscrimination laws.
Transition Care. On March 26, 2026, the EEOC ruled that the federal government has the right to limit federal workers’ health care plans from covering gender-affirming care without running afoul of antidiscrimination laws, including Title VII. The workers had enrolled in Federal Employees Health Benefits plans, at a time when the plans covered certain gender-affirming services and procedures. However, the latest guidance removes any coverage. According to the ruling: “It is not inherently suspicious for a health insurance plan to make distinctions based on medical diagnosis and treatment purposes. And it is not illogical for a health plan to cover surgical procedures when used to treat severe physical ailments but decline to underwrite the risk from these procedures when used to treat ‘conditions [like gender dysphoria] that only manifests themselves through psychological or psychosocial symptoms.’” It is unclear whether the EEOC’s ruling will be subject to legal challenges. However, the EEOC’s ruling is limited to federal workers, so private employers and health care providers may be subject to differing state or local laws regulating the availability of gender-affirming care for transgender individuals.
Transgender Student Athletes. The Trump administration filed a lawsuit on March 30, 2026, against the Minnesota Department of Education and the Minnesota State High School League challenging state laws and guidance allowing transgender girls to play on sports teams and use locker rooms that align with their gender identities. According to the lawsuit, this law constitutes “unapologetic sex discrimination against female student athletes” and violates Title IX and the contractual assurance agreements signed by Minnesota as a condition of receiving federal funding. The Trump administration’s lawsuit is not the only active challenge to Minnesota’s inclusion of transgender student athletes. A group of private plaintiffs filed suit in Female Athletes United v. Ellison, similarly alleging that Minnesota’s policy violates Title IX. However, the Court of Appeals for the Eighth Circuit issued an opinion on April 15, 2026, upholding the district court’s denial of the plaintiffs’ preliminary injunction, finding the plaintiffs have no right to sue under Title IX where their claims do not allege intentional discrimination. Both cases are pending in Minnesota federal court.
Conversion Therapy. The US Supreme Court on March 31, 2026, ruled (8-1) in Chiles v. Salazar that a Colorado law banning therapy to change a child’s sexual orientation or gender identity, known as “conversion therapy,” violates the First Amendment. The Colorado law bars treatment that “attempts or purports to change an individual’s sexual orientation or gender identity, including efforts to change behaviors or gender expressions or to eliminate or reduce sexual or romantic attraction or feelings toward individuals of the same sex.” The Court found that this ban censors speech based on viewpoint, according to Justice Neil Gorsuch’s majority opinion. He wrote: “The First Amendment stands as a shield against any effort to enforce orthodoxy in thought or speech in this country.” Justice Ketanji Brown Jackson was the Court’s sole dissent, arguing that Colorado’s ban on conversion therapy was consistent with the state’s lawful police power to regulate the medical profession. Based on the Supreme Court’s decision, it is likely that similar state laws banning conversion therapy will likewise be ruled unconstitutional.
Brian D. Pedrow, Shirley S. Lou-Magnuson, and Noah Jennings
A recent decision from the Northern District of California reminds corporate defendants in Internet tracking cases that strategies to defeat class certification based on individualized issues can be just as critical as merit-based defenses.
In In re Meta Pixel Tax Filing Cases, No. 22-cv-07557-PCP (N.D. Cal. Mar. 30, 2026), a group of plaintiffs sought to certify classes of individuals who visited tax-preparation websites where the Meta Pixel was deployed, alleging that user data—including URLs, browsing behavior, and potentially sensitive financial information—was transmitted to Meta in violation of the California Invasion of Privacy Act (CIPA), among other statutes. Plaintiffs’ original complaint defined the class to include individuals whose “tax filing information” was collected. But in their certification motion, plaintiffs sought to define the class as anyone whose data from visiting the websites appeared in Meta’s internal data tables—a significantly broader group.
The court held that by broadening the class, plaintiffs swept in putative class members whose claims were likely barred by CIPA’s one-year statute of limitations. Under American Pipe, class action filings toll the statute of limitations only for individuals who fall within the original class definition. Because the expanded classes included individuals from whom no tax-filing data was allegedly collected, those individuals were not entitled to tolling and their claims could be time-barred. Critically, resolving whether each class member fell within the original definition would require individualized inquiries—potentially a line-by-line review of terabytes of data—that would overwhelm common questions and defeat predominance under Rule 23(b)(3).
For companies facing internet tracking litigation, this decision underscores the importance of using discovery not only to support technical defenses but also to highlight individualized issues that might defeat class certification. Pay close attention to how plaintiffs define their proposed classes—particularly when definitions shift from the complaint to the certification stage. Expansions may create tolling gaps and undercut commonality arguments. Class certification is not a foregone conclusion in tracking technology cases, and rigorous attention to procedural requirements can yield significant results for defendants.
Nathaniel Cardinal and J. Matthew Thornton
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
May 4, 2026 – 2:00 PM EST
Speaker: Richard J. Andreano, Jr.
DATA PRIVACY, SECURITY & AI TRACK: AI In the Mortgage Industry
May 6, 2026 – 10:30 AM EST
Speaker: Gregory Szewczyk
Closing Super Session
May 7, 2026 – 11:15 AM EST
Speaker: John D. Socknat
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