Mortgage Banking Update - June 4, 2026

June 4 – 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 a request to revisit Cantero, a new partial claim home foreclosure protection program for veterans, the proposed overhaul of the CAMELS rating system, John Crews NCUA board nomination, and other notable updates.

• Consumer Finance Monitor Podcast Ranks Among the Top Business and Financial Services Podcasts in the Nation and Number One in Pennsylvania
• Podcast Episode: AI Liability Comes Into Focus – A Conversation With Mark Geistfeld on the ALI’s Civil Liability Principles Project
• Podcast Episode: Consumer Protection, Democracy, and the CFPB – A Thought-Provoking Debate With Amelia O’Rourke-Owens
• CFPB Finalizes Revised 1071 Rule
• Advocacy Groups and Private Companies File Lawsuit Against Revised ECOA Rule
• Round Two in Cantero: New Cert Petition Seeks U.S. Supreme Court Resolution of Mortgage Escrow Interest Circuit Split Regarding National Bank Act Preemption
• Virginia Class Action Bill Vetoed By Governor
• CAMELS Reform Arrives: Federal Regulators Propose Sweeping Supervisory Changes
• California Court Issues Final Statement of Decision Rejecting DFPI ‘True Lender’ Theory Against OppFi
• Executive Order Signals Major Shift in Federal Expectations for AML, Customer Identification, and Credit Underwriting
• VA Announces Launch of New Partial Claim Program to Help Protect Veterans From Foreclosure with VA Home Loans
  
• President Trump Nominates John Crews to Serve on NCUA Board

All content can be found previously published on Ballard Spahr’s Insights page.

 

Consumer Finance Monitor Podcast Ranks Among the Top Business and Financial Services Podcasts in the Nation and Number One in Pennsylvania

We are proud to announce that podcast database service Million Podcasts has ranked Ballard Spahr’s Consumer Finance Monitor podcast among the top business and financial services podcasts in the country.

Most recently, Million Podcasts ranked Consumer Finance Monitor as the number one podcast in its Top 70 Pennsylvania Business Podcasts list. In addition, Million Podcasts previously ranked Consumer Finance Monitor in the top 25 among hundreds of financial services podcasts nationally in its Top 100 Finance Podcasts rankings.

The rankings are especially significant because Consumer Finance Monitor is the highest-ranked law firm podcast in these categories and the only podcast devoted exclusively to consumer financial services law and regulation. Million Podcasts evaluates podcasts using a broad range of metrics, including listener engagement, ratings and reviews, topical authority, publishing consistency, and overall influence. Its rankings are derived from a database of more than 2.5 million podcasts across industries.

The Million Podcasts recognition is the latest in a series of top industry rankings for Consumer Finance Monitor. In 2023, digital media consultancy Good2bSocial ranked the podcast as the top law firm podcast devoted exclusively to consumer financial services, based on reach and engagement.

Produced by Ballard Spahr’s nationally recognized Consumer Financial Services Group, the Consumer Finance Monitor podcast launched in September 2017 and has become a leading source of analysis and commentary on the rapidly evolving consumer financial services industry. The podcast complements the Consumer Finance Monitor blog, which launched in July 2011, shortly after the CFPB opened its doors, and has long been regarded as one of the leading industry resources covering consumer financial services developments.

The podcast is hosted by Alan S. Kaplinsky, founder and former practice group leader for 25 years and now senior counsel in Ballard Spahr’s Consumer Financial Services Group. Through weekly episodes featuring leading voices from government, industry, academia, consumer advocacy, and private practice, Consumer Finance Monitor provides timely analysis of the issues that matter most to financial services providers, including:

• CFPB and state regulatory developments
• Federal and state enforcement trends
• Emerging technologies and Fintech innovation
• Bank partnership and marketplace lending issues
• AI and digital finance developments
• Class action litigation and arbitration
• Fair lending and UDAAP developments
• Payments, credit reporting, debt collection, and bankruptcy issues

Described by listeners as “timely, practical, and valuable for industry pros,” the podcast continues to expand its audience and influence. Consumer Finance Monitor maintains a near-perfect listener rating on major podcast platforms and consistently publishes new episodes each week featuring practical insights and thought leadership for banks, Fintech companies, nonbank providers, and other participants in the consumer financial services industry.

To stay current on breaking developments in consumer financial services law, regulation, and litigation, subscribe to the Consumer Finance Monitor blog and the Consumer Finance Monitor podcast on our website or your favorite podcast platform.

Ballard Spahr’s Consumer Financial Services Group represents traditional and nontraditional financial services providers, ranging from the largest financial institutions to emerging Fintech companies and internet-based providers. The Group advises clients on regulatory compliance, product development, licensing, enforcement matters, class action litigation, government investigations, and appellate litigation nationwide.

Please direct media inquiries to: Bill Shralow, Marketing Communications Manager, shralowb@ballardspahr.com, 215.864.8195

Consumer Financial Services Group

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Podcast Episode: AI Liability Comes Into Focus – A Conversation With Mark Geistfeld on the ALI’s Civil Liability Principles Project

Artificial intelligence (AI) is rapidly transforming consumer financial services and countless other industries. As AI systems become more autonomous, adaptive, and deeply integrated into commercial decision-making, courts, regulators, and industry participants are increasingly confronting a critical question: when AI causes harm, who should be held responsible?

In our latest episode of our award-winning, weekly Consumer Finance Monitor Podcast, our host Alan Kaplinsky (the founder, Chair for 25 years, and now senior counsel of our Consumer Financial Services at Ballard Spahr LLP) had the pleasure of speaking with Mark Geistfeld, the Sheila Lubetsky Birnbaum Professor of Civil Litigation at New York University School of Law and the reporter for the American Law Institute (ALI)’s groundbreaking new project, Principles of the Law, Civil Liability for Artificial Intelligence.

The discussion explored one of the most consequential emerging legal issues in the AI era: how traditional tort law doctrines, including duty, reasonable care, causation, foreseeability, product liability, and allocation of responsibility, should apply to AI systems.

Professor Geistfeld explained why the ALI chose to pursue a “principles” project rather than a traditional restatement. Because there is still relatively little AI-specific case law, the project is intended to provide a forward-looking framework that adapts existing tort doctrines to emerging AI technologies. As Mark noted during the discussion, the project seeks to determine “what existing law, properly adapted to this new technology, would require.”

Their conversation covered a wide range of timely and challenging issues, including:

• Whether AI systems should be treated as “products” or “services” for purposes of tort liability;
• How liability may be allocated among foundation model developers, deployers, integrators, and end users;
• The role of reasonable care obligations in AI development and deployment, including testing, monitoring, and guardrails;
• The growing importance of transparency and industry best practices;
• The “black box” problem and the difficulty of proving causation when even developers may not fully understand AI outputs;
• The tension between fostering innovation and ensuring accountability; and
• How tort liability and regulatory frameworks can operate together in a complementary manner.
• How rapidly advancing AI capabilities, including developments involving autonomous agents and cybersecurity vulnerabilities, are accelerating the urgency of creating coherent legal frameworks.

One particularly interesting aspect of the discussion involved Professor Geistfeld’s explanation of how AI liability differs from traditional product liability analysis because AI systems evolve, adapt, and operate probabilistically. He emphasized that many of the challenges courts will face resemble issues already encountered in pharmaceutical litigation, toxic torts, and medical malpractice cases involving probabilistic causation.

The ALI project remains in development, but preliminary drafts are already beginning to shape legal and academic discussions. Given the pace of AI advancement, courts and policymakers are likely to confront these issues long before a final completed volume is published.

This podcast continues our ongoing intensive coverage of artificial intelligence and consumer financial services, including our recent programs discussing the White House AI Action Plan (listen to part 1 here and part 2 here), the White House AI Framework (listen here), and other AI regulatory developments.

The episode provides valuable insights for financial institutions, Fintech companies, AI developers, compliance professionals, litigators, and anyone interested in the future legal framework governing artificial intelligence.

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

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Podcast Episode: Consumer Protection, Democracy, and the CFPB – A Thought-Provoking Debate With Amelia O’Rourke-Owens

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CFPB Finalizes Revised 1071 Rule

On May 1, 2026, the CPFB published in the Federal Register the revised Small Business Data Collection Rule, or “1071 Rule” (the 2026 Final Rule), which it had proposed revising in November 2025. The 2026 Final Rule becomes effective June 30, 2026, although as discussed below, the compliance date is January 1, 2028. As indicated in the preamble, the CFPB revised the initial 1071 Rule (the 2023 Final Rule) based on the industry’s reactions and ongoing litigation. Upon reflection, the Bureau found that the approach it took in the 2023 Final Rule— including a broad initial coverage of credit products, lenders, small businesses and data points—was not conducive to the long-term success of the data collection regime. The 2026 Final Rule reflects the CFPB’s current belief that an “incremental approach” will better serve the statutory purposes of section 1071. The CFPB highlighted the value of adopting an incremental approach by comparing the approach taken under the Home Mortgage Disclosure Act (HMDA). The data reporting requirements under HMDA were gradually increased over time following its adoption in 1975. Although Congress voted to rescind the 2023 Final Rule (which action was vetoed by President Biden), the CFPB does not cite this as a basis for the 2026 Final Rule.

The 2026 Final Rule alters coverage of certain credit transactions and financial institutions, amends the definition of a “small business”, and narrows the data points that must be collected and reported to those statutorily required under section 1071 of Dodd-Frank and fewer number of discretionary data points.

Webinar

We held a webinar on the 2026 Final Rule on May 27, 2026. Click here to register for a recording.

Key Definition Changes

Covered Credit Transactions

The Bureau concluded that the initial iterations of data collection under the rule should focus on the core, widely used lending products most likely to be foundational to small businesses’ formation and operation. To that end, the 2026 Final Rule excludes merchant cash advances (MCAs), agricultural lending, and small dollar loans from the definition of a “Covered Credit Transaction.”

The Bureau remarked that the 2023 Final Rule’s broad definition of “credit” included MCAs without taking into account their terms and features. The CFPB now believes that MCAs differ from traditional lending products, such that collecting data on MCA transactions under section 1071 may not produce information that is comparable to data collected on other types of transactions. The CFPB also noted that because MCAs have not been widely regulated, many smaller MCA providers may lack the infrastructure needed to manage compliance with regulatory requirements. Therefore, the Bureau concluded that requiring MCAs to be reported could lead to data quality issues contrary to the purposes of section 1071.

In the 2023 Final Rule the CFPB declined to exclude agricultural credit because it was not excluded under the Equal Credit Opportunity Act (ECOA). The CFPB now has decided to exempt such credit from the 2026 Final Rule and defines “agricultural lending” as “a transaction to fund the production of crops, fruits, vegetables, and livestock, or to fund the purchase or refinance of capital assets such as farmland, machinery and equipment, breeder livestock, and farm real estate improvements.” The Bureau reasoned that “agricultural loans are often secured by biological-based assets such as crops or livestock, which are subject to variables and risk from weather and disease. These characteristics create unique underwriting challenges that make such loans difficult to compare to those in other industries.” The Bureau believes this will simplify the rule by narrowing its scope to avoid covering a distinct and specialized lending sector that is already subject to a different regulatory reporting scheme.

The 2026 Final Rule additionally adopts the proposal to exclude small dollar loans of $1,000 or less. The Bureau asserted that loans of this size are typically “auxiliary features of business deposit accounts, such as overdraft facilities.” It concluded that a $1,000 threshold better distinguishes between credit that is circumstantial or ancillary to a deposit account and the more purposeful commercial credit that section 1071 is intended to monitor. The Bureau declined to adopt any of the higher thresholds recommended by commenters because it is concerned about losing data necessary to fulfill the statutory purposes of section 1071. The $1,000 amount will adjust for inflation in $100 increments every five years after January 1, 2030.

The Bureau also declined to adopt the additional categorical product exclusions suggested by commenters, including indirect lending transactions, trade credit provided by financial institutions, and loans secured by non-owner-occupied commercial real estate.

Covered Financial Institutions

The 2026 Final Rule makes two key changes to the term “Covered Financial Institution.” The term now excludes Farm Credit System (FCS) lenders from coverage. The CFPB noted that the 2023 Final Rule failed to account for the differences between FCS lenders and other types of lenders. Specifically, FCS borrowers typically include agricultural businesses and rural homeowners. The Bureau reasoned that “as owners of the FCS lending associations, these borrowers can receive patronage dividends that reduce borrowing costs and make FCS loans difficult to compare to loans issued by non-FCS lenders.” Moreover, the fact that FCS lenders are subject to a separate regulatory regime underscored the Bureau’s rationale for excluding FCS lenders.

The 2026 Final rule also raises the origination threshold from 100 to 1,000 covered credit transactions for each of the two preceding calendar years. The 2023 Final Rule prioritized the collection of data from the largest volume lenders first because they have more resources, and account for the bulk of small business lending volume. However, the Bureau now believes a single 1,000-transaction threshold is more appropriate. While the 1,000-origination threshold will carve out many smaller volume lenders, the Bureau emphasized that the 2026 Final Rule will still cover the vast majority of small business loan originations (approximately 92 to 93 percent, compared to approximately 94 to 95 percent at the 100-origination threshold).

The Bureau further declined to adopt an asset-based threshold, in lieu of or in addition to an origination-based threshold, for defining the term “Covered Financial Institution.” It maintains that a threshold based on lending activity is more directly related to a financial institution’s role in the small business lending market than is a measurement of the financial institution’s size based on total assets, particularly for nonbanks.

Small Business

The 2023 Final Rule defined a “small business” as any business with gross annual revenue in the preceding fiscal year of $5 million or less. The 2026 Final Rule decreases gross annual revenue from $5 million to $1 million or less. According to the CFPB, this threshold will capture most small businesses as defined by the Small Business Administration’s (SBA) size standards, while also reducing the regulatory burden on financial institutions. The Bureau has obtained SBA approval for this alternate small business size standard pursuant to the Small Business Act. The $1 million amount will adjust for inflation in $100,000 increments (rather than $500,000 increments) every five years after January 1, 2030.

Data Points

In the 2023 final rule, the Bureau included several discretionary data points—that is, data points not required by section 1071 but added under the CFPB’s authority to include additional data points. The discretionary data points were for pricing information, time in business, three digit North American Industry Classification System (NAICS) code, number of non-owner workers, application method, application recipient, denial reasons, and number of principal owners. For consistency with executive orders concerning the collection of demographic data and to minimize regulatory burdens, the 2026 Final Rule focuses on the statutory data points required by the Dodd-Frank, and a limited number of discretionary data points needed to facilitate the collection of data. The CFPB notes that “[t]he Bureau does not believe that alignment with the statutory purposes of section 1071 requires the use of its discretionary authority to collect data with such a breadth of scope.” The following discretionary data points were removed: application method, application recipient, denial reasons, pricing information, and number of workers.

Several key changes were made to the demographic data points.

• The 2026 Final Rule no longer requires Covered Financial Institutions to obtain information about LBGTQI+-owned status, although it continues to require the collection of information on women-owned or minority-owned status. This change reflects the Bureau’s current belief that the sensitivities involved in this inquiry exceed any utility this data point might provide.
• The sample data form was revised to replace the free form text field for a principal owner’s sex/gender with a designation of the owner’s sex using the categories Male and Female (or the option not to provide the information). The CFPB stated that this change was made to be more consistent with section 1071 and the Defending Women Executive Order (14168).
• All disaggregated categories of race and ethnicity were removed from the sample data collection form.

As was the case with the 2023 Final Rule, under the 2026 Final Rule an applicant may refuse to provide any or all demographic information, and the Covered Financial Institution must inform the applicant of their right to refuse before presenting the ethnicity, race, and sex categories. However, the 2026 Final Rule provides that when requesting demographic information orally a financial institution must present the applicant’s right to decline to provide such information before listing the aggregate ethnicity, race, and sex categories that may be selected. Additionally, the sample data collection form was revised to highlight the applicant’s right to decline to provide the information.

Discouragement Provisions, Time and Manner of Data Collection

The 2023 Final Rule included provisions prohibiting a Covered Financial Institution from discouraging applicants from responding to requests for information. However, in the November 2025 proposed amendments the Bureau questioned whether “[a] low response rate for applicant-provided data may indicate discouragement or other failure by a Covered Financial Institution to maintain procedures to collect applicant-provided data that are reasonably designed to obtain a response.” Accordingly, it proposed removing the discouragement provisions, believing that they were “redundant and add[ed] unnecessary regulatory complexity.”

The Bureau maintained this mindset after its review. After reviewing comments from various community groups and trade associations, it concluded that “the prescriptive monitoring requirements and rigid time and manner restrictions in the 2023 final rule created redundant layers of compliance.” Moreover, it noted that “penalizing lenders or mandating strict peer comparisons based on response rates could lead to misleading conclusions and unjustified burden.” Therefore, the 2026 Final Rule removes the anti-discouragement and monitoring requirements, a change that we support. Based on the low response rates to requests for demographic information under HMDA, we were critical of the 2023 Final Rule provision that a low response rate may indicate improper discouragement efforts by a financial institution.

In the 2026 Final Rule the Bureau further acknowledged that “in certain instances, where an application is forwarded by an intermediary, the reporting financial institution may have no direct contact with the applicant until after notifying the applicant of the credit decision.” Therefore, it agreed that requiring data collection from an applicant by the reporting financial institution prior to notification of the credit decision may be impractical. To address this, the Bureau revised the timing requirement to provide that the initial request for information must occur “prior to notifying an applicant of final action taken on [a] covered application, or at another time reasonably designed to obtain a response.”

Compliance Dates and Grace Period

All Covered Financial Institutions that originate at least 1,000 covered credit transactions in 2026 and 2027 must comply with the 2026 Final Rule starting on January 1, 2028. For purposes of determining whether a financial institution is a Covered Financial Institution as of January 1, 2028, a financial institution is permitted to use its originations of covered credit transactions for small businesses in 2025 and 2026, rather than 2026 and 2027. The 2026 Final Rule maintains a 12-month grace period for data collected in 2028. During the grace period, any errors in a Covered Financial Institution’s initial submission will not require resubmission unless the errors are material. The CFPB does not intend to assess any penalties for unintentional and good faith errors. The Bureau hopes that Covered Financial Institutions will take advantage of the grace period to identify any gaps that may hinder implementation of the Final Rule and make improvements in their compliance management systems for future data submissions.

Litigation Update

The RISE Economy v. Vought lawsuit seeking to force the CFPB to implement the 2023 Final Rule was dismissed without prejudice on May 15, 2026, by the federal district court for the District of Columbia.

The Monticello Banking Co. v. CFPB lawsuit challenging the 2023 Final Rule was stayed until June 30, 2026, by the federal district court for the Eastern District of Kentucky.

A status report must be filed by June 3, 2026, with the U.S. Court of Appeals for the Fifth Circuit in the Texas Bankers Association v. CFPB lawsuit challenging the 2023 Final Rule.

A status report must be filed by June 30, 2026, with the federal district court for the Southern District of Florida in the Revenue Based Finance Coalition v. CFPB lawsuit challenging the 2023 Final Rule.

Richard J. Andreano, Jr., John L. Culhane, Jr., Aja D. Finger, and Kaley Schafer

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Advocacy Groups and Private Companies File Lawsuit Against Revised ECOA Rule

As expected, advocacy groups and private companies have filed a lawsuit challenging the CFPB’s recent final rule (Final Rule) revising Regulation B, which implements the Equal Credit Opportunity Act (ECOA). The lawsuit was filed in the federal district court for the District of Columbia by the National Fair Housing Alliance, Rise Economy (fka California Reinvestment Coalition), BLDS, LLC, and SolasAI. The first two entities are nonprofit organizations focusing on the provision of various services to communities. According to the complaint, BLDS and SolasAI are both private companies, with the former conducting and providing statistical, economic, and quantitative analyses to clients such as financial institutions, governmental entities, and others and the latter developing software and providing other services to help financial institutions and other companies detect, explain, and reduce discrimination and bias in credit models and other algorithms, particularly in machine learning models that use artificial intelligence.

As previously reported, the CFPB issued the Final Rule in April 2026 revising Regulation B in significant respects. We addressed the revisions in depth during a podcast. Briefly, the Final Rule made three significant changes to Regulation B:

• It removed the “effects test” references from Regulation B and added to the Regulation the following: “[ECOA] does not provide that the ‘‘effects test’’ applies for determining whether there is discrimination in violation of the Act.” “Effects test” is another term for referencing disparate impact liability, thus, the revisions are intended to provide that disparate impact claims may not be brought under ECOA. The Final Rule also adds the following to the Regulation B Commentary: “[ECOA] does not provide for the prohibition of practices that are facially neutral as to prohibited bases, except to the extent that facially neutral criteria function as proxies for protected characteristics designed or applied with the intention of advantaging or disadvantaging individuals based on protected characteristics.”
• It clarified and limited what is considered discouragement of an applicant or prospective applicant on a prohibited basis. We provide additional details regarding these revisions below.
• It prohibited the use of the race, color, national origin, or sex, or any combination thereof, of the applicant as a common characteristic or factor in determining eligibility for a special purpose credit program (SPCP) offered by a for-profit entity. While the Final Rule allows the use of religion, marital status, age or the receipt of public assistance income, or any combination thereof, in a SPCP offered by a for-profit entity, it adds more stringent requirements. No changes were made regarding SPCPs offered by governmental or nonprofit entities.

The plaintiffs challenge the Final Rule on substantive grounds and on grounds that the rulemaking process was deficient.

Disparate Impact

In the preamble to the Final Rule, the CFPB set forth its view that the “text of ECOA does not state that disparate-impact claims are cognizable under ECOA, nor does it contain effects-based language of the type that has been found in other statutes to invoke disparate-impact liability. However, in promulgating Regulation B, the Board relied on legislative history to support authorizing disparate-impact liability.” The plaintiffs disagree, arguing that the “Final Rule’s assertion that ECOA does not provide for disparate-impact liability is contradicted by the plain language of the statute, which is not limited to intentional discrimination. ECOA prohibits discrimination ‘on the basis of’ certain protected classes. ‘On the basis of’ is the same effects-based language the Supreme Court used in Griggs [v. Duke Power Co.] when it determined that Title VII requires ‘the removal of artificial, arbitrary, and unnecessary barriers to employment when the barriers operate invidiously to discriminate on the basis of racial or other impermissible classification.’ (Emphasis added). Congress expressly modeled ECOA’s discrimination prohibition with Griggs’s approach to antidiscrimination law in mind.”

Among various other arguments, the plaintiffs also argue that the Final Rule is “fundamentally at odds with ECOA’s purpose because elimination of disparate impact liability will result in more credit discrimination” and that “[d]isparate impact compliance remains critical today to ensure equality of credit opportunity in a rapidly expanding world of automated models and targeted digital advertising that decide who gets credit offers, which applicants are approved, and the price each pays for credit.” Additionally, the plaintiffs assert that the Final Rule “similarly fails to provide an answer to comments that pointed out that, prior to ECOA’s enactment, Congress deleted from the draft ECOA legislation language that would have signaled an intentional discrimination limitation, and that, after enactment, Congress twice rejected attempts to narrow ECOA’s reach to intentional discrimination.” The plaintiffs further assert that the CFPB ignored comments raising various points supporting the existence of disparate impact liability under ECOA.

The Trump administration might actually welcome the challenge. Since the CFPB proposed the removal of disparate impact from ECOA, we suspected that an underlying goal was to trigger litigation that would be a vehicle to get before the Supreme Court the issue of whether disparate impact claims may be brought under ECOA. The Supreme Court has never addressed the issue, although lower courts have determined that disparate impact claims may be brought under ECOA. Should the district court and then the U.S. Court of Appeals for the District of Columbia Circuit address the substantive issue of whether disparate impact claims may be brought under ECOA, we view it as likely that both courts rule that such claims are allowed under ECOA. However, should the issue reach the Supreme Court, we view it likely that such position would face strong headwinds.

Discouragement

While the CFPB modified the Regulation B provisions prohibiting the discouragement of applicants or prospective applicants from applying for credit, it did not seek to remove the prospective applicant reference from Regulation B. That is interesting given that ECOA refers to “applicants” and only Regulation B refers to both “applicants” and “prospective applicants” in terms of discouragement. We revisit this issue further below.

In the preamble to the Final Rule the CFPB observed that the Federal Reserve Board, which had rulemaking authority under ECOA before such authority was transferred to the CFPB by Dodd-Frank, believed that including discouragement provisions in Regulation B was necessary to protect applicants against discriminatory acts occurring before an application is initiated.’’ While the CFPB indicated that it shares this concern, it stated that “in the years since the Board first adopted the discouragement provision, the provision has been interpreted to prohibit conduct that is not necessary or proper to prohibit in order to prevent the circumvention or evasion of ECOA’s purposes. The Bureau is concerned that this, in turn, has had an unnecessarily chilling effect on creditors’ business practices and exercise of their rights to speak about matters of public interest.”

The Final Rule replaces the prior discouragement provision—“[a] creditor shall not make any oral or written statement, in advertising or otherwise, to applicants or prospective applicants that would discourage on a prohibited basis a reasonable person from making or pursuing an application”—with “[a] creditor shall not make any oral or written statement, in advertising or otherwise, directed at applicants or prospective applicants that the creditor knows or should know would cause a reasonable person to believe that the creditor would deny, or would grant on less favorable terms, a credit application by the applicant or prospective applicant because of the applicant or prospective applicant’s prohibited basis characteristic(s).”

The Final Rule also provides that for purposes of the revised discouragement provision, “oral or written statements are spoken or written words, or visual images such as symbols, photographs, or videos.” Addressing this provision the CFPB explains that “[a]s a result, certain business practices, such as business decisions about where to locate branch offices, where to advertise, or where to engage with the community through open houses or similar events, would not constitute prohibited discouragement even if they had some communicative effect that some consumers could arguably find discouraging.”

Additionally, the Final Rule replaces the affirmative advertising provision—“[a] creditor may affirmatively solicit or encourage members of traditionally disadvantaged groups to apply for credit, especially groups that might not normally seek credit from that creditor” with the following example of a statement that does not violate the discouragement provision: “Statements directed at one group of consumers, encouraging that group of consumers to apply for credit.” The example is not limited to affirmative marketing to traditionally disadvantaged groups. Other examples of statements that do not violate the discouragement provision that were added by the Final Rule include “[s]tatements in support of local law enforcement” and “[s]tatements recommending that, before buying a home in a particular neighborhood, consumers investigate, for example, the neighborhood’s schools, its proximity to grocery stores, and its crime statistics.”

The plaintiffs challenge all of these revisions. The plaintiffs state that changes made by the Final Rule “are not the result of reasoned expert agency decision-making. Rather, in a remarkable abdication of agency responsibility, the CFPB acknowledges that the Final Rule fosters the very circumvention and evasion of ECOA that Congress directed the CFPB to prevent.”

Addressing the CFPB’s rationale for narrowing the discouragement provisions, which is set forth above, the plaintiffs state that “[t]he CFPB proffered no factual support, data, evidence, or even hypotheticals for these sweeping statements, nor any information suggesting that any changed facts or circumstances support this departure from its longstanding position on discouragement.” The plaintiffs also state that the Final Rule “drastically restricts” the ability of Regulation B to prevent redlining, pointing to the CFPB’s statement that under the Final Rule business decisions about where to locate branch offices, where to advertise, or where to engage with the community through open houses or similar events will not constitute discouraging statements.

Turning to the replacement of the affirmative marketing provision with the “[s]tatements directed at one group of consumers, encouraging that group of consumers to apply for credit” as an example of a statement that does not constitute discouragement, the plaintiffs assert that “[t]he difference made by the Final Rule is that creditors can now target consumers because of their protected class with the intent of discriminating against others, whereas before creditors could do so only to reach disadvantaged or neglected groups. The CFPB does not explain why that is a benefit to consumers or to creditors.” The plaintiffs also state that a “sign announcing that ‘whites Are Encouraged to Apply’ could certainly discourage Black applicants.”

The final assertion made by the plaintiffs regarding the discouragement revisions is that the CFPB failed to respond to comments noting that the examples quoted above of statements that do not violate the discouragement provision actually can convey a discriminatory intent.

As noted above, the CFPB did not propose removing the reference to “prospective applicant” from Regulation B, even though ECOA refers to only “applicants.” As previously reported, in the CFPB v. Townstone Financial case, the U.S. Court of Appeals for the Seventh Circuit held that ECOA applies to prospective applicants. We were critical of the decision, and believed that the opinion of the district court in the case, holding that ECOA does not apply to prospective applicants, was the better reasoned ruling. Potentially, the revisions to the discouragement provisions made by the Final Rule are a backdoor way to have the prospective applicant issue reassessed. If so, the plaintiffs may have enhanced the potential for a reassessment by leaning heavily on the need for ECOA to apply to prospective applicants.

For-Profit Entity SPCPs

The plaintiffs assert that the Final Rule’s prohibition on the use race, color, national origin, or sex, or any combination thereof, of the applicant as a common characteristic or factor in determining eligibility for a SPCP offered by a for-profit entity is contrary to the express authorization of such programs under ECOA. Addressing the more stringent requirements imposed by the Final Rule on the use of religion, marital status, age or the receipt of public assistance income, or any combination thereof, in a SPCP offered by a for-profit entity, the plaintiffs state that “[t]hese new standards and requirements are so stringent that they make it essentially impossible for any for-profit lender to establish any SPCP whatsoever, thus effectively nullifying the statutory provision establishing them.”

The CFPB’s rationale for prohibiting the use race, color, national origin, or sex, or any combination thereof, of the applicant as a common characteristic or factor in determining eligibility for a SPCP offered by a for-profit entity was that “an SPCP offered or participated in by a for-profit organization that uses race, color, national origin, or sex as eligibility criteria is beyond what is presently necessary to meet the expressly limited congressional intent for such SPCPs.” Addressing this position, the plaintiffs state that “the Final Rule justifies ignoring statutory text because the CFPB believes that it can unilaterally determine when the policies that Congress enacted are no longer needed.”

Oddly, the plaintiffs note that the CFPB did not propose any changes regarding SPCPs offered by governmental or nonprofit entities, and state that the CFPB did not provide “any reason for targeting only for-profit organizations.” This position appears to ignore the fact that under ECOA the CFPB has greater authority to regulate SPCPs offered by for-profit entities than SPCPs offered by governmental and nonprofit entities. Specifically, ECOA provides for only for-profit entity SPCPs that they must meet “standards prescribed in regulations by the Bureau.”

Rulemaking Process

As noted above, in addition to making substantive challenges to the Final Rule, the plaintiffs also raise challenges on grounds that the rulemaking process was deficient. Allegations made by the plaintiffs include that the CFPB failed to:

• Engage in a meaningful analysis of the Final Rule’s costs and benefits.
• Comply with the Regulatory Flexibility Act because it did not seek required input from small businesses.
• Provide adequate time for notice and comment, as the comment period was only 32 days and included the Thanksgiving holiday. The comment period also overlapped with the comment period on the CFPB’s proposed revisions to the section 1071 small business lending data collection and reporting rule.
• The plaintiffs note that despite the short comment period, 64,000 comments were received. Based on our observation, many comments were received after the comment deadline and many comments were brief statements of opposition to the proposal from consumers.
• Respond to significant comments.

The plaintiffs also assert that the Final Rule is invalid because Acting CFPB Director Russell Vought lacks lawful authority to direct the CFPB. The plaintiffs state that Vought has never been confirmed by the Senate and that none of the circumstances contemplated by the Federal Vacancies Reform Act (FVRA) apply. Addressing the FVRA claim, the plaintiffs note that former Director Rohit Chopra was fired by President Trump and because he “did not die or resign, and he remained able to perform the functions and duties of the office, and in fact did perform his duties for the first week of the current administration. President Trump’s authority to name an acting director under the Federal Vacancy Reform Act was therefore not triggered.”

Guidance from the Department of Justice regarding the FVRA notes that a vacancy arises for purposes of the Act “when a relevant officer ‘dies, resigns, or is otherwise unable to perform the functions and duties of the office’.” Addressing the otherwise unable to perform aspect, the opinion, referring to legislative history, indicates this includes when an officer is fired, imprisoned or sick.

Based on the June 2020 decision of the Supreme Court in Seila Law v. CFPB, the President has the authority to remove the CFPB Director at will. The plaintiffs basically are arguing that if the President has the authority to remove an agency head at will and does so, then there is no vacancy for purposes of the FVRA that allows the President to appoint an acting head of the agency. It appears that argument will encounter judicial skepticism.

Should the Final Rule be invalidated on one or more of the deficient rulemaking claims raised by the plaintiffs, that would send the rule back to the CFPB for further consideration. If so, at least for now, the Final Rule would not be a path for Supreme Court review of the disparate impact and prospective applicant issues.

Richard J. Andreano, Jr. and John L. Culhane, Jr.

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Round Two in Cantero: New Cert Petition Seeks U.S. Supreme Court Resolution of Mortgage Escrow Interest Circuit Split Regarding National Bank Act Preemption

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Virginia Class Action Bill Vetoed By Governor

On May 29, 2026, Governor Abigail Spanberger vetoed Virginia’s closely watched class action legislation, preserving Virginia’s status as one of only two states in the country (the other one being Mississippi) without a general state-court class action procedure. The veto halts what would have been a major shift in Virginia civil litigation and consumer protection law.

As discussed in our prior blog, Senate Bill 229 and House Bill 449 would have created a comprehensive framework for class action litigation in Virginia state courts modeled in significant part on Federal Rule of Civil Procedure 23. The legislation also would have expanded the availability of class wide relief under the Virginia Consumer Protection Act and likely would have made Virginia state courts a substantially more attractive forum for consumer, privacy, and other aggregate litigation. Business groups and tort reform organizations strongly opposed the legislation, warning that it would increase litigation costs, encourage forum shopping, and expose businesses to potentially massive statutory damage awards.

Governor Spanberger previously attempted to narrow the legislation through substitute amendments. Among other things, her proposed amendments would have limited venue for class actions to certain regional circuit courts and would have provided courts with enhanced summary judgment authority designed to dispose of meritless claims earlier in the litigation process. The General Assembly rejected those amendments and returned the original legislation to the Governor.

In her veto explanation, Governor Spanberger stated:

“I support the General Assembly’s goal of providing a class action mechanism that can be used by plaintiffs in Virginia courts. I offered amendments to ensure that when Virginia adopts its first-ever class action procedure, we do so in a tailored and judicious way — building on longstanding, federal precedent while providing regional circuit courts an opportunity to develop expertise. The General Assembly did not accept these amendments.”

The veto represents a significant victory for the Virginia business community and organizations that argued the legislation would fundamentally alter the Commonwealth’s historically business-friendly litigation environment. Industry groups including the Virginia Chamber of Commerce, the American Tort Reform Association, and insurance industry organizations urged the Governor to reject the bill.

For now, consumer plaintiffs seeking to pursue class claims involving alleged violations of Virginia state law generally will be able to file in federal district court only in those limited situations permitted under the Class Action Fairness Act or where there is “diversity of citizenship.” The veto also avoids, at least temporarily, what many observers expected would have been a substantial increase in state-court consumer class action litigation in Virginia.

Given the strong support for the legislation among consumer advocates and Democratic legislative leaders, however, this issue is unlikely to disappear. Supporters of the legislation have already indicated that they intend to revisit class action legislation in future sessions of the General Assembly.

Thomas Burke, Alan S. Kaplinsky, and John Sadler

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CAMELS Reform Arrives: Federal Regulators Propose Sweeping Supervisory Changes

The federal banking agencies have proposed on May 19, 2026, the most significant overhaul of the CAMELS supervisory rating system in nearly 30 years, signaling a major philosophical shift in bank supervision under the Trump administration. The proposal, issued by the Federal Financial Institutions Examination Council (FFIEC), would revise the Uniform Financial Institutions Rating System (UFIRS) to place greater emphasis on material financial risks and less emphasis on process-oriented supervisory criticisms. The FFIEC is a formal interagency body empowered to prescribe uniform principles, standards, and report forms for the federal examination of financial institutions. The FFIEC is composed of the following five voting members: Federal Reserve Board, the Federal Deposit Insurance Corporation, the National Credit Union Administration, the Office of the Comptroller of the Currency, and the Consumer Financial Protection Bureau.

The CAMELS framework, which evaluates a financial institution’s Capital Adequacy, Asset Quality, Management, Earnings, Liquidity, and Sensitivity to Market Risk, has long been one of the most consequential supervisory tools used by federal and state banking regulators. CAMELS ratings can affect merger approvals, branching authority, expansion activities, enforcement exposure, and whether a bank is considered “well managed” for purposes of federal banking law.

The proposal represents the first comprehensive revision to the system since 1996. According to the FFIEC, the revised framework is intended to “strengthen the link between CAMELS ratings and a financial institution’s safety and soundness” by focusing ratings on factors that materially affect a bank’s financial condition and risk profile while improving supervisory transparency and predictability.

One of the most important aspects of the proposal is the reduced prominence of the “Management” component. Banking industry participants have long complained that examiners have used management criticisms, often tied to documentation, governance, policies, procedures, or compliance process concerns, to downgrade composite ratings even where a bank remained financially strong. The proposal appears designed to address those concerns.

Under the current framework, “special consideration” is given to the Management component when determining a bank’s composite CAMELS rating. The proposed changes to the evaluation factors limit the Management component’s evaluation factors to the most material aspects of risk management, helping to strengthen the link between supervisory ratings and safety and soundness. Specifically, the proposal would remove factors related to: “Management depth and succession,” “Responsiveness to recommendations from auditors and supervisory authorities,” and “Demonstrated willingness to serve the legitimate banking needs of the community.” Additionally, the factor related to the overall performance of the institution and its risk profile would be removed to limit redundancy, since it would be addressed through the composite and other component ratings. Finally, a material financial risk threshold would need to be met for assigning Management ratings of or worse based on risk management weaknesses.

The proposal also would revise component and composite rating definitions to focus more explicitly on material financial risk. Regulators stated that institutions with strong financial performance and only weak or moderate risk-management concerns generally should remain eligible for stronger ratings, while institutions with significant financial weaknesses or significant legal noncompliance would receive lower ratings. The proposal would change the composite 3 definition to state that financial institutions that receive this rating should exhibit less than satisfactory financial performance or inadequate risk management practices that result in material financial risk to the institution.

The initiative reflects a broader supervisory reform effort being led by Michelle Bowman Vice-Chair for Supervision of the Federal Reserve Board of Governors, and supported by other President Trump-appointed financial regulators. In announcing the proposal, Bowman stated that the revised framework “marks a decisive shift toward transparency, quantitative factors, and predictability of supervisory oversight.”

Similarly, Jonathan Gould, Comptroller of the Currency, emphasized that the revisions would move supervision “away from process-heavy oversight toward a stronger focus on material financial risk.”

Although the proposal may be embraced by banks that have expressed frustration in recent years with what they viewed as increasingly subjective supervisory expectations, it remains unclear how much practical change the proposal ultimately will produce. Even under the revised framework, examiners would still evaluate governance, risk management, internal controls, audit functions, and legal compliance. Critics may argue that supervisory judgments inevitably involve qualitative assessments and that reducing emphasis on management-related weaknesses could diminish supervisory effectiveness. The proposed changes are especially noteworthy because CAMELS ratings are confidential. Unlike many other regulatory actions, banks generally cannot publicly challenge examination ratings. As a result, revisions to the standards governing those ratings can have enormous practical significance for supervised institutions.

Comments on the proposal are due by August 17, 2026.

The proposal can be viewed in the Federal Register here: Federal Register Notice on the Uniform Financial Institutions Rating System

Scott A. Coleman, Beau Hurtig, and Alan S. Kaplinsky

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California Court Issues Final Statement of Decision Rejecting DFPI ‘True Lender’ Theory Against OppFi

In a significant victory for bank-Fintech partnership models, the Los Angeles County Superior Court on May 19, 2026, has now issued its final Statement of Decision granting summary judgment in favor of Opportunity Financial, LLC (OppFi) in its long-running litigation with the California Department of Financial Protection and Innovation (DFPI). The final opinion follows the court’s February 24, 2026, tentative ruling, which we previously discussed on this blog.

The case, Opportunity Financial, LLC v. Hewlett, concerns loans originated by Utah-chartered FinWise Bank through OppFi’s lending platform. DFPI alleged that OppFi, not FinWise, was the “true lender” and therefore subject to California’s Fair Access to Credit Act (AB 539), which caps interest rates on certain consumer loans at 36%.

The court ultimately rejected DFPI’s position and concluded that the record did not support DFPI’s claim that FinWise was merely a “dummy” lender or that the bank-Fintech arrangement was a sham designed to evade California usury limits.

Court Focuses on Whether the Loans Were ‘Usurious at Inception’

The court framed the dispositive issue as whether the loans were usurious when made. Relying heavily on longstanding California usury precedent, including Sharp v. Mortgage Security Corp. of America, Strike v. Trans-West Discount Corp., Montgomery v. GCFS, and WRI Opportunity Loans II LLC v. Cooper, the court reiterated the traditional principle that a loan “not usurious in its inception does not become usurious by subsequent events.”

Applying that principle, the court concluded that DFPI failed to raise a triable issue of material fact showing that FinWise was merely a sham lender. The court emphasized multiple undisputed facts demonstrating FinWise’s substantive lending role, including:

• FinWise was identified as the lender on the promissory notes;
• FinWise independently underwrote and approved the loans;
• FinWise funded the loans with its own money;
• FinWise retained ownership interests in the receivables;
• FinWise bore economic risk and received financial benefits from the program;
• FinWise controlled marketing approvals and compliance oversight; and
• FinWise conducted ongoing audits and supervision of OppFi.

The court contrasted these facts with the classic “dummy lender” arrangement in Janisse v. Winston Investment Co., where the purported lender contributed no capital, bore no risk, and merely served as a nominal intermediary.

Court Rejects DFPI’s Receivables and Funding Arguments

One of DFPI’s principal arguments was that OppFi’s prearranged purchase of loan receivables effectively made OppFi the real lender. The court rejected that theory, explaining that California law and federal law both recognize that a valid loan does not become usurious merely because receivables are later assigned or sold.

Importantly, the court again relied on Section 27 of the Federal Deposit Insurance Act and the FDIC’s “valid-when-made” regulation, 12 C.F.R. § 331.4(e), which provides that the permissibility of interest is determined when the loan is made and is not affected by a subsequent sale or transfer of the loan.

The court also rejected DFPI’s attempt to argue that OppFi effectively funded the loans because OppFi affiliates maintained collateral accounts tied to receivable purchases. The court found no evidence that OppFi’s funds were actually used to originate the loans and noted evidence showing the collateral accounts were often insufficient to cover FinWise’s funding obligations.

Court Declines to Reach Broader Statutory and APA Issues

Although OppFi advanced multiple independent grounds for summary judgment, including arguments that:

1. the California Financing Law’s bank exemption independently barred DFPI’s claims, and
2. DFPI’s “true lender” theory constituted an unlawful underground regulation under the California Administrative Procedure Act,

The court expressly stated that it was unnecessary to reach those issues because OppFi prevailed on the “dummy lender” analysis alone.

That aspect of the ruling is noteworthy because it leaves unresolved broader questions regarding the legality of DFPI’s asserted “true lender” doctrine under California administrative law.

Important Changes From the Tentative Decision

The final Statement of Decision appears largely consistent with the court’s February 24 tentative ruling, but several notable refinements and additions were made before entry of the final decision.

1. Expanded Discussion of Federal Preemption and FDIC Regulations

The final opinion adds more extensive discussion of Section 27 of the FDIA and the FDIC’s interest-rate exportation regulations, including explicit citation to 12 C.F.R. § 331.4(e). The court emphasized that interest permissibility is determined at origination and is unaffected by subsequent loan sales or assignments.

The final opinion also strengthened its discussion of potential federal preemption concerns, stating that interpreting California law to invalidate loans after assignment “may stand as an obstacle to the full purposes and objectives of Congress.”

2. Greater Reliance on Prior Preliminary Injunction Findings

The court repeatedly incorporated and reaffirmed factual findings from its October 30, 2023, order denying DFPI’s preliminary injunction motion. The final decision expressly states that DFPI failed to provide any basis for the court to reconsider those earlier determinations regarding FinWise’s substantive role in the lending program.

3. More Detailed Rejection of DFPI’s Evidentiary Arguments

The final decision methodically addressed each of DFPI’s remaining factual theories concerning receivables sales, title transfers, collateral accounts, and underwriting control. The court repeatedly characterized DFPI’s theories as unsupported speculation insufficient to create a triable issue of material fact.

4. Clarification that the Decision Resolves the Entire Case

The final opinion expressly notes that both parties agreed during the summary judgment hearing that granting OppFi’s motion would dispose of the entire case.

Implications

The decision represents one of the most important state-court victories to date for bank-Fintech partnership programs facing “true lender” attacks by state regulators. The court’s analysis strongly reinforces several principles that have become central to modern bank partnership litigation:

• loans are evaluated for usury at inception;
• subsequent assignment of receivables does not retroactively create usury;
• federally insured state banks retain broad authority under Section 27 to export interest rates; and
• courts will examine whether the bank meaningfully participates in underwriting, funding, compliance, and risk retention when evaluating “true lender” claims.

The ruling will likely be cited extensively in future litigation involving state efforts to challenge bank-Fintech lending programs. At the same time, because the court declined to decide the broader APA and statutory interpretation issues, those questions may continue to surface in future California enforcement actions and litigation.

An appeal by DFPI to the California Court of Appeals, Second Appellate District appears highly likely. DFPI has 60 days to file an appeal.

Alan S. Kaplinsky, Ronald K. Vaske, Adam Maarec, and Joseph J. Schuster

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Executive Order Signals Major Shift in Federal Expectations for AML, Customer Identification, and Credit Underwriting

President Trump’s May 19, 2026, Executive Order, Restoring Integrity to America’s Financial System, directs Treasury, FinCEN, the CFPB, and the federal banking agencies to reassess how financial institutions identify and manage risks associated with non-work authorized populations and related cross border financial activity. The order reflects a significant shift in federal expectations across BSA/AML compliance, customer identification, and consumer credit underwriting. It also establishes short deadlines that will drive rapid regulatory and supervisory developments through the remainder of 2026.

The order frames these issues as national security and public safety concerns. It cites analyses linking low dollar cross border transfers to terrorist financing, narcotics trafficking, and human trafficking. It highlights Chinese money laundering networks that allegedly used U.S. accounts held by foreign passport holders to launder more than $312 billion for criminal organizations. It also identifies fentanyl-related financial activity tied to Mexico based cartels as a priority area for regulatory attention.

At the same time, the order directs regulators to treat lending to non-work authorized individuals as a structural safety and soundness concern. It characterizes potential deportation and loss of wages as creating a fundamental ability to repay deficiency. This framing signals a broader policy shift that will affect both consumer credit markets and fair lending supervision.

Key Directives and Deadlines

The order requires several regulatory actions on compressed timelines.

Treasury Advisory (60 Days)

Within 60 days, Treasury must issue an Advisory describing red flags and typologies associated with six categories of suspicious activity:

• Payroll tax evasion by employers or labor brokers
• Use of foreign identity documents or nominee structures to conceal beneficial ownership or payroll disbursements
• Unregistered MSBs and third-party processors used for off the books wage payments intended to bypass BSA reporting thresholds
• Structuring and micro structuring correlated with payroll cycles
• Labor trafficking indicators where illicit proceeds are commingled with legitimate revenue
• Use of ITINs to obtain credit or open accounts without verified lawful immigration status

Although the Advisory will not be binding, examiners routinely treat Treasury Advisories as articulations of expected practice. Institutions should anticipate that the Advisory will influence SAR filing expectations and monitoring scenarios well before any rulemaking is complete.

BSA Due Diligence Regulations (90 Days)

Within 90 days, Treasury must propose amendments to strengthen risk-based customer due diligence. The proposal must ensure institutions collect and verify sufficient identity information to assess illicit finance, sanctions evasion, and fraud risks. It must also preserve institutional authority to obtain additional information, including information relevant to immigration status and employment authorization, when other risk indicators warrant it.

Customer Identification Program Requirements (180 Days)

Within 180 days, Treasury and the federal functional financial regulators must consider changes to CIP regulations, with specific attention to risks associated with foreign consular identification cards. Institutions that rely on these documents for account opening should prepare for potential verification or documentation changes.

Credit Risk Guidance (60 Days)

Within 60 days, the CFPB must consider clarifying that potential deportation and loss of wages may adversely affect a non-work authorized borrower’s ability to repay under Regulation Z. Each federal functional financial regulator must also issue guidance on managing credit risks associated with non-work authorized populations. This directive raises complex questions about how lenders may incorporate immigration-related risk factors while managing fair lending obligations.

Practical Implications for Financial Institutions

BSA/AML Programs

Institutions should begin reviewing transaction monitoring scenarios and SAR filing practices against the six categories of suspicious activity identified in the order. The forthcoming Treasury Advisory will likely establish new expectations for how institutions identify and report activity involving non-work authorized populations and their employers. Institutions should evaluate whether existing monitoring rules capture payroll related structuring, funnel account activity, and patterns associated with unregistered MSBs or third-party processors.

Customer Identification and Due Diligence

The order’s focus on consular identification cards and ITINs signals heightened scrutiny of identification documents commonly used by noncitizens. Institutions that accept these documents should assess whether existing CIP and CDD procedures address the risk indicators identified and whether additional verification steps may become necessary. Potential enhancements include supplemental non documentary verification, additional beneficial ownership inquiries, and review of employment authorization where risk indicators are present.

Credit Underwriting

Lenders offering consumer credit, particularly mortgage, auto, and credit card products, should evaluate whether underwriting models and ability to repay analyses account for the immigration related risk factors highlighted in the order. The CFPB’s forthcoming guidance will determine how lenders may incorporate these factors while managing fair lending obligations. Institutions should prepare for potential adjustments to income stability assessments, treatment of ITIN based applications, and portfolio level risk reviews.

Employer Related Risks

The order’s treatment of employer immigration law violations as a financial system vulnerability is notable. Institutions that bank employers in industries with high concentrations of non-work authorized labor should anticipate increased scrutiny of payroll irregularities, mismatched tax identification numbers, and unusual payment patterns. These considerations may affect risk rating methodologies and periodic reviews for certain commercial customers.

Fair Lending Considerations

Institutions should monitor how the CFPB and prudential regulators reconcile the order’s directives with existing fair lending requirements under the Equal Credit Opportunity Act and the Fair Housing Act. The intersection of immigration status considerations and prohibited basis discrimination will require careful navigation, particularly if regulators expect lenders to incorporate deportation risk into underwriting.

Looking Ahead

The compressed timelines in the executive order mean that financial institutions will face a rapidly evolving regulatory environment over the next two to six months. Institutions should begin assessing how their existing BSA/AML, CIP, CDD, and credit underwriting programs align with the issues highlighted in the order and prepare for increased supervisory attention as agencies issue Advisories, proposed rules, and credit risk guidance.

We will continue to monitor developments as agencies complete their reviews and begin implementing the Order. 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.

Kelly A. Lenahan-Pfahlert and Terence M. Grugan

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VA Announces Launch of New Partial Claim Program to Help Protect Veterans From Foreclosure with VA Home Loans

As previously reported, in July 2025 Congress passed legislation to reauthorize partial claims with U.S. Department of Veterans Affairs (VA) guaranteed home loans. The VA has now announced that the VA Partial Claim program will open for submissions on June 15, 2026, and that servicers will have until November 28, 2026, to implement the partial claim program into their systems.

Richard J. Andreano, Jr.

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President Trump Nominates John Crews to Serve on NCUA Board

President Donald Trump has nominated John Crews to serve on the NCUA board. If confirmed, Crews would replace Kyle Hauptman as the sole board member of the agency.

Hauptman’s term expired in August 2025, but he has stayed on the board as permitted by section 102(c) of the Federal Credit Union Act, which allows any board member to continue to serve after the expiration of their term until a successor has qualified.

In January the Securities and Exchange Commission nominated Hauptman to serve as a member of the Public Company Accounting Oversight Board. At the time, Hauptman said he intended to remain with the NCUA until a successor is chosen.

Crews currently serves as the Treasury Department’s deputy assistant secretary for financial institutions.

Before assuming his current position, Crews was policy director for House Majority Leader Steve Scalise, (R-La.), where he covered economic and financial services policy. Before joining Scalise’s staff, Crews served as policy director for the Senate Banking Committee. During the first Trump administration, Crews worked in the White House on the National Economic Council, where he served as a special assistant to the president for economic policy.

In commenting about the nomination, Scott Simpson, President/CEO of America’s Credit Unions said, “Crews understands the important role mission-driven lenders like credit unions play in helping families and small businesses get ahead. His experience at the Treasury Department reflects a thoughtful approach to innovation, safety, and expanding access to affordable financial services.” He added, “We look forward to working with him in this capacity to ensure credit unions have a modern regulatory framework that supports their ability to serve more than 146 million Americans who rely on them as trusted financial partners in uncertain times.”

If confirmed, Crews’s term would end in August 2031. He would serve as the sole member of the board because President Trump fired the two Democratic members of the NCUA board, Todd Harper and Tanya Otsuka.

After being notified that they had been fired, Harper and Otsuka sued in the District Court for the District of Columbia. The district court found in their favor, issued a permanent injunction, ordering their reinstatement and declined to stay that order.

The Trump administration then sought an emergency stay and a stay pending appeal from the U.S. Court of Appeals for the District of Columbia and told the Court of Appeals that federal law did not provide the ousted NCUA board members with protection from firing.

A panel of three judges granted the Administration’s request for an emergency stay, granted the request for a stay pending appeal, and then later issued an order holding the case in abeyance.

Subsequently, Otsuka and Harper filed their petition for a writ of certiorari before judgment, asking the Supreme Court to consider their firings on an expedited basis. The court declined to issue that writ.

John L. Culhane, Jr. and Joseph J. Schuster

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