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Legal Alert

Mortgage Banking Update - August 27, 2026

by Richard J. Andreano, Jr. and John D. Socknat
August 27, 2026

August 27 – 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 current happenings at the CFPB, review proposed targeted amendments to the Community Reinvestment Act regulations, and spotlight upcoming breakout sessions from our HR Legal Summit, along with other noteworthy updates.

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

 

 

Consumer Finance Monitor Podcast: AI in Financial Services – Consumer Protection Challenges in the Age of Artificial Intelligence

Artificial intelligence is rapidly transforming consumer financial services. AI systems now influence decisions involving credit underwriting, fraud detection, customer service, pricing, marketing, and even personalized financial advice. While these technologies promise greater efficiency and innovation, they also raise profound questions about transparency, fairness, accountability, and consumer protection.

In this episode of the award-winning Consumer Finance Monitor Podcast, our host, Alan Kaplinsky (founder, chair for 25 years and now senior counsel of the Consumer Financial Services Group at Ballard Spahr LLP) is joined by Delicia Hand, a nationally recognized expert on digital civil rights, AI governance, and consumer protection who leads AI policy initiatives at Consumer Reports. The discussion centers on Consumer Reports’ recently released report, AI and Consumer Finance: A Landscape Analysis of Market Forces, Evaluation Frameworks, and Regulatory Gaps, and examines how AI is reshaping consumer finance while exposing important gaps in existing regulatory frameworks.

Among the many topics discussed are:

  • Why approximately 75% of consumers express concern that AI could result in bias or unfair treatment in financial services, while only 8% believe current laws adequately protect them.
  • Whether the rapid adoption of AI is being driven more by competitive pressures than by demonstrated consumer benefits.
  • Consumer Reports’ proposed framework for evaluating AI systems used in financial services, including twelve key dimensions designed to assess whether AI systems adequately protect consumers.
  • The growing use of AI in credit underwriting and lending, including both its potential to expand access to credit and its potential to perpetuate existing biases.
  • The increasing use of algorithmic and personalized pricing and the consumer protection concerns raised by AI-driven pricing models.
  • The risks associated with consumers relying on general-purpose AI systems as financial advisers despite the absence of traditional fiduciary obligations or regulatory oversight.
  • Privacy concerns arising from AI systems that access consumers’ financial account information through data aggregation services.
  • The need for meaningful consumer redress mechanisms when AI systems make mistakes, including access to human review and effective dispute resolution.
  • The absence of a comprehensive federal framework governing AI in financial services and the unresolved questions surrounding accountability among AI developers, financial institutions, and other participants in the AI supply chain.

The conversation also explores a number of emerging issues that are likely to become increasingly important as AI continues to evolve, including AI “sycophancy”—the tendency of some AI systems to tell users what they want to hear rather than what they need to hear—dynamic pricing, explainability, governance, and the appropriate balance between innovation and consumer protection. Throughout the discussion, Ms. Hand emphasizes that while AI presents enormous opportunities to improve financial services, financial institutions should ensure that AI governance keeps pace with technological innovation by understanding how their AI systems operate, conducting meaningful oversight, and building robust consumer protections before regulators require them.

As Alan notes during the podcast, AI is no longer a futuristic concept. It is already embedded throughout the consumer financial services ecosystem. The challenge for policymakers, regulators, financial institutions, and technology developers is to ensure that these powerful technologies are deployed in ways that promote fairness, transparency, accountability, and consumer trust rather than simply speed, efficiency, and competitive advantage.

This episode will be of particular interest to banks, Fintech companies, financial services providers, compliance professionals, regulators, and attorneys seeking to understand the rapidly evolving legal and policy landscape governing the use of artificial intelligence in consumer finance.

To listen to this episode, click here.

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Consumer Finance Monitor Podcast: CFPB’s Immigration Status Guidance Creates a Compliance Catch-22 for Creditors

CFPB guidance on ability to repay, immigration status, and fair lending creates a difficult compliance dilemma for creditors.

The CFPB’s June 5, 2026, statement on “Ability to Repay and Immigration Status” presents creditors with a difficult, and potentially unprecedented, compliance dilemma. The Bureau says that when creditors are required to assess a consumer’s ability to repay, they may, and in some circumstances may be required to, consider information about the consumer’s immigration status if that information bears on the consumer’s current or reasonably expected future income.

But how can creditors take immigration status into account without violating federal or state fair-lending laws that prohibit discrimination based on national origin?

That was the central question explored in the latest episode of the Consumer Finance Monitor Podcast, released today. Our host, Alan Kaplinsky (founder, leader for 25 years and now Senior Counsel of our Consumer Financial Services Group) was joined by three Ballard Spahr lawyers with complementary expertise: Dustin O’Quinn, a nationally recognized immigration lawyer; Richard Andreano, leader of the firm’s Mortgage Banking Group and a leading authority on mortgage lending regulation; and John Culhane, a longtime member of Ballard Spahr’s Consumer Financial Services Group.

The discussion demonstrates just how difficult the CFPB’s guidance may be for creditors to operationalize.

What Exactly did the CFPB Say?

The CFPB’s guidance focuses principally on the ability-to-repay requirements applicable to credit cards and residential mortgage loans. For credit cards, the requirements arise under Section 150 of the Truth in Lending Act and Regulation Z § 1026.51. Credit card issuers must maintain reasonable policies and procedures to assess an applicant’s or cardholder’s ability to make the required minimum payments.

For residential mortgages, the ability-to-repay requirements were added to the Truth in Lending Act by the Dodd-Frank Act following the 2008 mortgage crisis. The general ability-to-repay rule requires creditors to consider a number of factors, including the consumer’s current or reasonably expected income and assets and the consumer’s debt-to-income ratio. Qualified Mortgage rules provide an alternative compliance framework that is widely used by mortgage lenders.

The CFPB’s concern is relatively straightforward: If a consumer’s immigration status creates a meaningful possibility that the consumer will lose the ability to remain in the United States or to work here, that possibility could affect the consumer’s future income and, consequently, the consumer’s ability to repay a loan.

As Rich Andreano explained during the podcast, this issue is particularly significant for mortgages because they are generally long-term obligations. A lender making a 30-year mortgage may need to consider whether employment and income are reasonably likely to continue over the life of the obligation.

But that seemingly straightforward proposition becomes much more complicated when immigration status enters the underwriting process.

Credit Cards and Mortgages are Different

John Culhane explained that the credit card ability-to-repay requirement is fundamentally a point-in-time assessment. A card issuer must consider the applicant’s independent income or assets and current obligations, but generally does not have to make predictions about whether the consumer’s income will continue.

Mortgage underwriting is different. The mortgage rules expressly require consideration of current or reasonably expected income, and when income from employment is being relied upon, the creditor must consider the employment and the likelihood that it will continue.

That distinction matters enormously in the immigration context.

A credit card issuer generally has not been required to investigate whether an applicant’s employment will continue unless there is some significant red flag. A mortgage lender, by contrast, already has a regulatory obligation to consider the likelihood that income will continue.

Immigration Status Is Anything but Binary

One of the most important points made during the podcast was that creditors cannot sensibly divide applicants into two categories—those who are “legal” and those who are “illegal.”

As Dustin O’Quinn explained, immigration status encompasses a wide range of circumstances. A lawful permanent resident, for example, generally has a very stable immigration status and authorization to live and work in the United States. By contrast, nonimmigrant status encompasses more than 30 different visa categories, with dramatically different levels of stability.

A highly compensated H-1B professional who has worked in the United States for a decade and is pursuing permanent residence presents a very different risk profile from someone whose ability to remain in the country depends on a temporary humanitarian program whose future is uncertain.

There are also distinctions between valid immigration status, a period of authorized stay, and employment authorization. A person may be permitted to remain in the United States while waiting for an immigration application to be adjudicated, for example, and may have work authorization during that period.

As Dustin put it, immigration status is not binary. Nor is the question simply whether someone is authorized to work.

That creates an obvious practical problem for creditors whose underwriting personnel generally are not immigration lawyers.

The ITIN Issue

The CFPB guidance also raises questions about lending to consumers who have an Individual Taxpayer Identification Number (ITIN) rather than a Social Security number.

An ITIN, however, does not necessarily mean that an individual is unlawfully present in the United States. It can simply mean that the individual is not eligible for a Social Security number.

Nevertheless, the guidance identifies the use of an ITIN as a potential red flag requiring additional diligence.

This could have significant consequences for lenders that offer ITIN-based mortgage, auto finance, or unsecured lending programs.

But Rich Andreano emphasized an important point: creditors should not automatically treat every ITIN holder as presenting the same risk. For example, a married couple in which one spouse is a U.S. citizen and the other has an ITIN presents a very different set of facts from many other circumstances.

The Fair-Lending Problem

And this is where the CFPB’s guidance becomes particularly difficult.

During the prior administration, the CFPB and Department of Justice took the position that consideration of immigration status could raise concerns under the Equal Credit Opportunity Act (ECOA) particularly because of the statute’s prohibition against discrimination based on national origin.

The new guidance points creditors in the opposite direction by warning that immigration status may be relevant to ability to repay.

The CFPB, however, does not provide much guidance about how creditors are supposed to balance these competing considerations.

Rich Andreano described the problem succinctly: The guidance raises the risk associated with failing to consider immigration status but does not provide clear guideposts for considering immigration status without running afoul of ECOA and other civil-rights laws.

That leaves creditors attempting to “thread the needle” between two potentially conflicting regulatory expectations.

Simply Lending Only to Citizens and Permanent Residents is Not the Answer

One possible reaction might be for a creditor to adopt a bright-line policy: lend only to U.S. citizens and lawful permanent residents.

We discussed that approach on the podcast, and the conclusion was that it is not a safe solution.

As John Culhane explained, Section 1981 of the Civil Rights Act provides that persons within the jurisdiction of the United States have the same right to make and enforce contracts as citizens of the United States. In addition, several states, including California, New York, and Washington, have laws prohibiting discrimination based on citizenship or immigration status.

Thus, a creditor that responds to the CFPB guidance by categorically refusing to lend to noncitizens or non-permanent residents could simply exchange one regulatory risk for another.

Rich Andreano also raised another important concern: A broad-brush policy can create significant class-action litigation risk. Moreover, ECOA has a five-year statute of limitations. As a result, policies adopted today could potentially be scrutinized under a future administration that takes a very different view of the relationship between immigration status and fair lending.

The Banking Agencies Have Entered the Picture

The CFPB is not acting alone.

The podcast also examined guidance issued by the federal banking agencies addressing lending to individuals who are not legally authorized to work in the United States. The guidance from the Federal Reserve, FDIC, and OCC followed the Trump administration’s May 2026 Executive Order concerning the risks to the financial system associated with providing credit or financial services to individuals who may not be lawfully present in the United States.

That guidance extends beyond credit cards and mortgages. It addresses credit more broadly, including consumer credit and potentially small-business credit where the owner may not be lawfully present.

Among the subjects addressed are credit risk and underwriting, source of repayment, collateral considerations, documentation and verification, portfolio and concentration risk, and consumer compliance.

The result is a potentially much broader compliance issue for banks than the CFPB’s guidance standing alone would suggest.

A Potential Redlining Problem?

The banking-agency guidance raises another interesting fair-lending issue.

John Culhane noted during the podcast that the guidance appears to contemplate consideration of the concentration of immigrants in particular geographic areas or industries as part of assessing portfolio risk.

That could create serious fair-lending questions. Drawing geographic boundaries based on the percentage of immigrants in a neighborhood could look very much like redlining. Similarly, excluding borrowers because they work in particular industries with significant immigrant populations could create disparate-treatment concerns.

This illustrates the fundamental problem with relying on broad demographic assumptions rather than individualized, objective underwriting factors.

What Should Creditors do?

The podcast participants agreed that simply ignoring the CFPB guidance is unlikely to be a satisfactory answer, particularly for banks subject to regular examination.

At the same time, adopting a categorical prohibition on lending to noncitizens or non-permanent residents presents substantial fair-lending and litigation risks.

The better approach is likely to involve a documented, risk-based and individualized assessment.

John Culhane suggested that creditors should carefully review their underwriting policies, particularly for credit cards and mortgages, and consider how to reduce the risks identified by the guidance while remaining mindful that the guidance itself does not have the force of law.

Rich Andreano emphasized the importance of documentation. In his view, creditors should conduct a risk assessment, document that assessment, develop written policies and procedures, monitor compliance, and evaluate the results for both safety-and-soundness and fair-lending concerns. He also suggested that banks may want to understand their examiners’ expectations concerning how the guidance should be addressed.

Dustin O’Quinn added that creditors should consider involving both consumer-finance compliance professionals and immigration counsel in developing or reviewing underwriting policies. With appropriate training and objective criteria, he believes the issue may be manageable without resorting to categorical exclusions.

A Broader Question About the CFPB’s Regulatory Philosophy

The guidance also raises a broader policy question.

The CFPB has stated that it intends to avoid issuing guidance unless necessary and that its guidance should reduce compliance burdens rather than increase them.

Yet this guidance appears to do precisely the opposite. It tells creditors that immigration status may be relevant to their ability-to-repay analysis but provides little practical direction concerning how creditors can make that assessment without creating fair-lending liability.

The podcast also explored what appears to be a tension between this approach and the administration’s broader policy against “debanking.” As John Culhane observed, it is difficult to reconcile a policy that discourages financial institutions from denying financial services for disfavored reasons with a policy that encourages creditors to consider immigration status as a potential credit risk.

Listen to the Podcast

The CFPB’s immigration-status guidance sits at the intersection of ability-to-repay requirements, immigration law, fair lending, safety and soundness, and state law. It is therefore an unusually complicated issue that cannot be analyzed solely from a consumer-finance or immigration-law perspective.

Our latest Consumer Finance Monitor Podcast brings those disciplines together. Dustin O’Quinn, Richard Andreano, and John Culhane provide a detailed discussion of what the guidance means, the practical problems it creates for creditors, and how lenders should begin thinking about their policies and procedures.

To listen to this episode, click here.

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Consumer Finance Monitor Podcast: The ‘Confidence Advantage’: Why Privacy, Cybersecurity, and AI Governance Are Becoming Business Imperatives

In the latest episode of the Consumer Finance Monitor podcast that we are releasing today, we explore a topic that is becoming increasingly important for financial services companies and virtually every other business operating in today’s digital economy: how privacy, cybersecurity, and AI governance can be transformed from compliance obligations into sources of customer confidence, resilience, and competitive advantage.

Alan Kaplinsky (founder, founder lease for 25 years and now senior counsel of our Consumer Financial Services Group) hosts and interviews our guests. Our guests are Amy Reeder Worley, managing director at BRG and author of a new book entitled The Confidence Advantage: Optimizing Privacy, Cybersecurity, and AI Governance for Growth, and Greg Szewczyk, chair of Ballard Spahr’s Privacy and Data Security Group. Amy advises senior executives and boards on cybersecurity, privacy, and AI risk, while Greg regularly counsels clients on privacy, cybersecurity, data governance, incident response, and the rapidly evolving legal issues surrounding AI.

Amy’s book is available on Amazon.

From ‘Trust’ to Evidence-Based Confidence

A central concept in Amy’s book is the distinction between trust and confidence. She describes trust as a feeling, while confidence is an evidence-backed belief. In her view, companies should not simply say that they want their customers to trust them with their data. They should be able to demonstrate why customers should have that confidence through evidence that the organization is doing the things it is supposed to do.

That distinction is particularly significant as companies deploy increasingly sophisticated AI systems. Customers, regulators, business partners, and investors are demanding greater assurance about how organizations collect, protect, use, and govern data—and how AI systems are developed and deployed.

Amy argues that digital trust should be viewed as part of the product or service itself, rather than as a compliance “bolt-on.” In other words, responsible stewardship of data and AI can become part of the value proposition that a company offers its customers.

Breaking Down the Privacy, Cybersecurity, and AI Silos

One of the most interesting themes in this podcast show is the discussion about the need to move away from treating privacy, cybersecurity, and AI governance as separate disciplines operating in organizational silos.

As Amy puts it, “the data doesn’t care what silo it’s in.” Although organizations will continue to need privacy professionals, cybersecurity experts, and AI specialists, she advocates giving them a common vocabulary and shared risk framework focused on the underlying asset: data.

Greg has seen the same development from the legal side. In particular, AI governance is forcing privacy and information-security functions to work more closely together. Amy notes that organizations seeking to move aggressively into AI are also discovering “tech debt” which includes cybersecurity and other infrastructure work that previously had been deferred.

The result may be a fundamental change in how companies think about data governance. Rather than asking which department owns a particular issue, organizations increasingly need to ask how the enterprise as a whole is managing data risk and data opportunity.

‘Confidence by Design’

Amy describes a framework she calls “confidence by design.” Drawing on concepts from the NIST Responsible AI Framework, GDPR principles, and ISO 42001, she has developed 11 principles designed to give organizations a common language for incorporating privacy, cybersecurity, and responsible AI into their operations.

The objective is not to turn every employee into a privacy, cybersecurity, or AI expert. Instead, Amy wants organizations to create “issue spotters”—employees who recognize when something may require additional review or accountability.

That concept has particular resonance for AI governance. Companies increasingly need employees throughout the organization to recognize when an AI system raises questions involving privacy, explainability, accountability, transparency, or other risks.

The Danger of the ‘FOMO’ Approach to AI

We also discuss what Amy describes as the “FOMO” approach to AI: moving as quickly as possible to deploy AI tools and planning to establish governance later.

According to Amy, that approach can produce reversals and rollbacks when consumer-facing AI initiatives encounter problems that appropriate governance might have identified before deployment. A company can suffer not only a regulatory or legal problem but also a significant loss of customer confidence and damage to its brand.

The alternative is not to abandon innovation or move slowly. Amy argues that effective governance can actually allow companies to innovate faster once the appropriate structures are incorporated into the development process.

She advocates building “confidence by design” into the software development and product life cycles. Governance can also be embedded directly into technology through features such as traceability, alerts, and observability.

Where Should Companies Begin?

For organizations that are just beginning to address these issues, Amy’s advice is surprisingly basic: start by determining what data the company has and where it is located.

Companies cannot effectively govern data that they cannot see. Amy describes data mapping and understanding data flows as the starting point for her engagements. AI makes that task even more important because AI systems can discover and infer information that an organization did not previously realize it possessed.

For companies using AI, she also recommends creating an AI inventory—not merely of approved AI tools, but of tools employees may be using without the organization’s knowledge.

Boards Need to Know Who Owns the Risk

Another important message from the discussion is the growing role of boards and senior management.

Amy views privacy, cybersecurity, and AI as board-level risks. Boards should be asking management what risks are currently being tracked, who owns each risk, and how those risks are being managed. As she puts it, an organization isn’t really doing risk management if nobody has been assigned responsibility for a particular risk.

Greg expects board-level involvement in AI governance to become increasingly common as laws and regulations evolve. More sophisticated boards are already becoming involved before they are legally required to do so, and he expects regulation eventually to make board involvement more widespread.

Governance as a Competitive Advantage

Perhaps the most important message from the podcast is that good governance should not necessarily be viewed as a cost center.

Amy cites research indicating that organizations with greater maturity across privacy, cybersecurity, and AI governance were more likely to achieve significant EBIT growth. More fundamentally, she says that having clean, controlled, and mapped data gives companies greater opportunities to use that data to develop innovative products and services.

This is particularly important in financial services, where data is at the center of virtually every aspect of the customer relationship.

A Rapidly Changing Legal Landscape

We also discussed the extraordinary uncertainty surrounding AI regulation. Different jurisdictions are taking very different approaches, and Amy expects businesses to increasingly rely on private standards such as ISO 42001 and the NIST AI Risk Management Framework as organizations seek common, auditable standards even when the applicable law remains unsettled.

Greg highlights the particular challenges facing financial services companies, including the rapidly developing state-law landscape. He notes that additional legislation could materially alter the regulatory environment for financial institutions on relatively short notice.

We also discuss the emerging legal issues surrounding agentic AI. As AI systems become capable of acting with greater autonomy, traditional principles of accountability, contract law, privacy law, and tort law will increasingly be tested against new technologies. Amy notes that courts in several countries have already rejected the notion that an AI system itself can bear legal responsibility, instead placing accountability on the party deploying the system.

The Bottom Line

At the conclusion of the podcast, Alan identified four principal takeaways.

First, privacy, cybersecurity, and AI governance can no longer be viewed as separate compliance functions operating in organizational silos. They are increasingly interconnected and require an integrated governance framework.

Second, governance should not be viewed merely as a regulatory obligation or cost center. Responsible stewardship of data and AI can strengthen customer relationships, reduce risk, enhance reputation, and create competitive advantages.

Third, AI governance needs to be built into systems from the beginning. It cannot simply be bolted on after deployment.

Finally, digital trust—or, as Amy describes it, confidence grounded in evidence, transparency, and accountability—will become increasingly important. Customers, regulators, investors, and business partners will increasingly want assurance that organizations are using data and AI responsibly. We encourage our readers and listeners who are interested in these issues to listen to the full episode and to consider reading Amy’s book, The Confidence Advantage: Optimizing Privacy, Cybersecurity, and AI Governance for Growth. It provides a useful framework for thinking about an issue that is quickly moving from the privacy and technology departments into the boardroom.

To listen to this episode, click here.

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Paoletta Becomes CFPB Acting Director

CFPB Deputy Director Mark Paoletta has become the Bureau’s Acting Director following the expiration of Russell Vought’s service as Acting Director on August 1. Under the Federal Vacancies Reform Act, Vought could serve as Acting Director only for a limited period.

President Trump has nominated Brian Johnson to serve as the CFPB’s next Director, but the Senate Committee on Banking, Housing, and Urban Affairs has not yet voted on his nomination. The Committee held Johnson’s confirmation hearing on July 23 and gave him until the end of July to respond to written questions submitted by Senators. At this time, Johnson’s responses to those questions are not publicly available. Until the Senate confirms Johnson and he is sworn into office, the Bureau will continue to operate under acting leadership.

In the meantime, Vought remains Director of the Office of Management and Budget, a position he has held throughout his tenure as Acting CFPB Director.

The Bureau’s policy direction is not expected to change under Paoletta. As the CFPB’s Chief Legal Officer and Deputy Director, he has been a principal architect of the Bureau’s legal and regulatory initiatives during the second Trump administration and has played a central role in implementing its efforts to reshape the agency’s priorities and operations.

Moreover, according to a report by Eleanor Mueller of Semafor, Vought will remain at the CFPB in a senior adviser role now that his service as Acting Director has ended and he will continue in that capacity until Johnson is confirmed by the Senate and assumes office as Director. If that report proves accurate, Vought is likely to continue exercising significant influence over Bureau policies.

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Reuters Reports on Internal CFPB Warning to Examiners: What Does It Mean for Supervision Under the Current Leadership?

Reuters reported that an internal email sent by a senior Consumer Financial Protection Bureau (CFPB) official warned examination staff to avoid making “inflammatory or newsworthy” comments during examinations and cautioned that doing so could result in “the most unpleasant manner” of repercussions. Although Reuters did not publish the complete email, the excerpts it quoted have already generated considerable attention and raise important questions about the Bureau’s evolving supervisory philosophy.

According to Reuters, the May 13, 2026, email was sent by CFPB Chief Examiner Fatima Batie to supervision staff shortly after the Bureau resumed examination activities following a lengthy pause. Reuters reports that the email reminded staff to exercise caution in light of the CFPB’s “Humility in Supervision Pledge” for 2026 examinations.

Reuters quoted the email as stating:

“Friendly reminder…to be careful.”

It then reportedly warned:

“I promise you if you say something inflammatory or newsworthy it will get back to you in the most unpleasant manner and I’m not referring to my or Calvin’s reaction.”

The reference to “Calvin” appears to be Calvin Hagins, who heads the CFPB’s Office of Supervision Examinations.

Finally, Reuters reports that the email concluded with the instruction:

“Simply accomplish the tasks assigned as efficiently as possible.”

The complete email has not been publicly released, making it difficult to evaluate the context in which these statements were made. Nevertheless, the reported excerpts are noteworthy because they illustrate the Bureau’s efforts to recalibrate its supervisory approach under then Acting Director Russell Vought, an approach expected to continue under Acting Director Mark Paoletta.

The Humility Pledge

As we previously reported, the CFPB recently adopted a “Humility in Supervision Pledge” that directs examiners to approach supervised institutions with professionalism, objectivity, and respect. The pledge represents a significant departure from the supervisory philosophy that many institutions believed prevailed during prior administrations, when examinations were sometimes criticized as being unnecessarily adversarial or outcome-driven.

The pledge emphasizes that examiners should:

  • act with humility;
  • remain objective and impartial;
  • avoid imposing personal policy preferences;
  • follow applicable law rather than pursue novel legal theories; and
  • conduct examinations efficiently while minimizing unnecessary burdens on supervised entities.

Viewed in that context, the May 13 email appears intended, at least in part, to reinforce management’s expectation that examiners adhere to this revised supervisory philosophy.

A Delicate Balance

At the same time, Reuters’ reporting raises legitimate questions about how supervisory management communicates those expectations.

Every regulatory agency has a legitimate interest in ensuring that its personnel conduct themselves professionally and consistently. Agencies also have a strong interest in preventing employees from making statements that unnecessarily escalate examinations or create legal or public-relations issues.

On the other hand, supervisory personnel must also feel free to identify legal concerns, discuss difficult issues candidly within the scope of an examination, and exercise independent professional judgment. Internal communications that are perceived as threatening or intimidating could undermine employee morale or create uncertainty regarding the appropriate scope of supervisory discussions.

Without the complete email, it is impossible to determine whether Reuters’ excerpts fairly capture the overall message or whether the quoted language was intended merely to caution employees against making public comments or engaging in unnecessarily provocative exchanges with supervised institutions.

Another Sign of a Changing CFPB

Regardless of how one interprets the email, it represents another example of the substantial cultural changes that have occurred at the CFPB.

Since the change in Administration, Bureau leadership has:

  • significantly reduced staffing levels;
  • narrowed the Bureau’s enforcement priorities;
  • resumed supervision under a revised framework emphasizing humility and efficiency;
  • sought to eliminate practices viewed as unnecessarily burdensome to regulated entities; and
  • emphasized adherence to statutory authority rather than policy-driven expansion of supervisory expectations.

The impact of these changes remains to be seen. Financial institutions generally have welcomed the Bureau’s stated commitment to more predictable, transparent, and professional examinations. Consumer advocates, by contrast, have expressed concern that the changes could weaken consumer protection and discourage vigorous supervisory oversight. Despite the tone of the May 13 email, a recent CFPB exam request that we reviewed, while focused mainly on a particular credit product, is quite thorough in the information it seeks, suggesting that exams will not be superficial.

Looking Ahead

Because Reuters has not published the complete May 13 email, important questions remain unanswered. The context surrounding the quoted language could materially affect how it should be interpreted. It also remains to be seen whether the email will eventually become public through a Freedom of Information Act request, congressional oversight, or litigation.

We will continue to monitor developments and report on any additional information that becomes available. If the full email is released, it should provide a more complete picture of how CFPB leadership is implementing its new supervisory philosophy and what expectations are being communicated to the Bureau’s examination staff.

Richard J. Andreano, Jr., John L. Culhane, Jr., and Alan S. Kaplinsky

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Court Denies Early Termination of Lakeland Bank Redlining Consent Order

As previously reported, last year the Trump administration filed a motion in the federal district court for the district of New Jersey to terminate the redlining consent order with Lakeland Bank that was entered into in September 2022 and provided for a five-year term. The redlining consent order was part of the Justice Department focus on redlining during the Biden administration. The Trump administration in 2025 sought the early termination of various redlining consent orders, and the unwinding of one redlining consent order, with mixed results. A New Jersey district court recently denied the government’s motion for the early termination of the Lakeland Bank consent order without prejudice.

Initially, the Trump administration was successful in obtaining federal district court approval for the early termination of the redlining consent order against Trustmark Bank, which consent order was entered into at the time the Biden era Justice Department launched its initiative to combat redlining. The Administration then obtained federal district court approvals for the early terminations of the redlining consent orders against Evolve Bank and Trust, Ameris Bank, and Patriot Bank.

However, community groups began to oppose the motions for early termination. A court denied the government’s motion seeking the early termination of the redlining consent order against Essa Bank. That motion was opposed by the National Fair Housing Alliance, the Housing Equality Center of Pennsylvania, and POWER Interfaith.

The Trump administration also filed a motion seeking to unwind the redlining consent order against Townstone Financial. The motion was opposed by fourteen nonprofit organizations focused on fair housing and consumer protection. A federal district court denied the motion.

The government’s motion seeking early termination of the Lakeland Bank consent order was opposed by the National Fair Housing Alliance, the Housing Equality Center of Pennsylvania, and the New Jersey Citizen Action Education Fund. As it did in other motions seeking early termination of redlining consent orders, the government argued that Lakeland Bank had substantially complied with the consent order. In response to that argument, the New Jersey district court stated, “Lakeland’s existing compliance—at least on the current record—does not present a change in condition that can justify termination of the consent order.” Citing the federal district court’s decision denying the early termination of the Essa Bank consent order, the New Jersey district court added that “[a]lthough a party’s substantial performance (i.e., substantial compliance) with a consent order can justify its termination, Lakeland’s ‘partial satisfaction of the [c]onsent [o]rder does not’ mean that the bank has substantially performed its obligations under the order.” The court addressed various obligations of Lakeland Bank under the consent order, which the court believed had not been substantially satisfied. In particular, the court stated that the consent order requires the bank to:

  • Spend $150,000 annually “on advertising, outreach, consumer financial education, and credit counseling in the Newark Lending Area,” and that there is over a year left in the term of the order.
  • Establish a $12 million loan subsidy fund “to increase credit for home mortgage loans, home improvement loans, and home refinance loans for consumers applying for loans in majority-Black and Hispanic census tracts in its Newark Lending Area,” and that approximately 65% of the fund was disbursed.
  • Establish two branches in the Newark area, and that while the bank has established the branches the consent order requires that the bank must maintain them for the term of the consent order.
Richard J. Andreano, Jr. and John L. Culhane, Jr.

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Lawsuit Challenging CFPB’s Revised ECOA Rule Moves Forward Under Lengthy Summary Judgment Schedule

On May 27, 2026, the National Fair Housing Alliance, Rise Economy, BLDS, LLC, and SolasAI filed a lawsuit in the U.S. District Court for the District of Columbia challenging the Consumer Financial Protection Bureau’s amendments to Regulation B, which implements the Equal Credit Opportunity Act (ECOA). We discussed the lawsuit shortly after it was filed in our June 2, 2026, blog post linked above.

The lawsuit challenges the CFPB’s April 22, 2026, final rule that, among other things, eliminates disparate-impact liability under ECOA, narrows the prohibition against discouraging prospective applicants from applying for credit, and modifies the requirements applicable to Special Purpose Credit Programs offered by for-profit entities. The plaintiffs contend that the CFPB exceeded its statutory authority and violated the Administrative Procedure Act (APA) in adopting the amendments.

The case, National Fair Housing Alliance et al. v. Consumer Financial Protection Bureau et al., No. 1:26-cv-01820 (D.D.C.), is assigned to U.S. Senior District Judge Beryl A. Howell.

Since our original blog post, there have been several developments. The most noteworthy are that the plaintiffs did not seek preliminary injunctive relief, the amended Regulation B provisions have now become effective, the parties have agreed to proceed through cross-motions for summary judgment, and Judge Howell has established a lengthy briefing schedule that will extend into January 2027.

No Motion for Preliminary Injunction

That the plaintiffs did not seek a preliminary injunction preventing the implementation of the final rule is noteworthy because the CFPB’s amendments to Regulation B became effective on July 21, 2026. The plaintiffs filed their complaint almost two months before that date and simply sought declaratory and injunctive relief in the complaint.

A preliminary injunction motion could have asked Judge Howell to preserve the regulatory status quo while the court considered the merits of the plaintiffs’ challenge by preventing the CFPB’s elimination of disparate-impact liability from taking effect pending a decision in the case.

Unless and until the court ultimately sets aside the challenged provisions, creditors are subject to the revised Regulation B.

The absence of a preliminary injunction motion is particularly interesting given the significance of the principal issue in the case. The CFPB’s final rule expressly eliminates the effects test, another term for disparate impact liability, from Regulation B and takes the position that ECOA does not authorize disparate-impact liability. The plaintiffs, by contrast, contend that the CFPB lacks authority to eliminate disparate-impact liability because the statute itself permits such a theory of discrimination.

A Protracted Summary Judgment Schedule Is Ordered by the Court

Under the schedule entered by Judge Howell, the parties will spend several months briefing their respective positions. The deadlines are:

  • September 29, 2026: Plaintiffs’ motion for summary judgment is due.
  • November 10, 2026: Defendants’ opposition to plaintiffs’ motion for summary judgment and cross-motion for summary judgment are due.
  • December 22, 2026: Plaintiffs’ opposition to defendants’ cross-motion for summary judgment and reply in support of plaintiffs’ motion for summary judgment are due.
  • January 12, 2027: Defendants’ reply in support of their cross-motion for summary judgment is due.

Thus, the cross-motions will not be fully briefed until January 12, 2027, nearly six months after the amended Regulation B provisions became effective. Although no hearing has yet been scheduled, it would be unusual for a hearing not to be scheduled at some point after the briefing is concluded.

The case is an APA challenge to a federal rulemaking, so the parties’ summary-judgment motions will be based principally on the administrative record rather than on the type of factual discovery that would ordinarily precede a trial. The CFPB filed the administrative record with the court on July 24, 2026, consisting of a certification and an index of the materials comprising the record for the rulemaking.

What Is at Stake?

The central issue in the lawsuit is whether ECOA permits disparate-impact liability.

For decades, Regulation B has recognized an “effects test” under which a creditor’s practice could potentially violate ECOA even if the creditor did not intend to discriminate, if the practice had a discriminatory effect and could not be justified under applicable standards. The CFPB’s April 2026 amendments eliminate that approach from Regulation B.

The CFPB concluded that ECOA prohibits intentional discrimination but does not authorize disparate-impact liability. The plaintiffs argue that the CFPB’s interpretation is contrary to the statute and that the agency therefore acted unlawfully in eliminating the effects test.

As noted above, the plaintiffs also challenge other portions of the rule, including amendments concerning discouragement of prospective applicants and Special Purpose Credit Programs offered by for-profit entities. Their complaint additionally raises APA challenges to the CFPB’s rulemaking process.

Regardless of how Judge Howell rules on the disparate impact issue, the losing party likely will appeal to the U.S. Court of Appeals for the District of Columbia Circuit. Ultimately, the case will likely reach the Supreme Court, which may be the Trump administration’s goal. ECOA lacks the typical language that supports the theory of disparate impact liability, and the conservative majority in the Supreme Court may well rule that such liability does not exist under ECOA.

For now, however, the practical consequence is clear: the revised Regulation B is in effect, and the parties are on a lengthy path toward a judicial determination of whether the CFPB lawfully eliminated the disparate-impact theory from ECOA enforcement.

The next major event will be the plaintiffs’ September 29, 2026, deadline for filing their motion for summary judgment.

Alan S. Kaplinsky, Richard J. Andreano, Jr., and John L. Culhane, Jr.

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NFHA Amends Challenge to CFPB’s Regulation B Rule, Adding New Attack on Agency’s Rulemaking Process

The National Fair Housing Alliance (NFHA) and three other plaintiffs have amended their lawsuit challenging the CFPB’s recently issued amendments to Regulation B under the Equal Credit Opportunity Act (ECOA). The amended complaint, filed August 11, makes several important changes to the complaint originally filed on May 27.

The amendments do not fundamentally alter the plaintiffs’ challenge to the Regulation B rule. The plaintiffs continue to contend that the CFPB acted unlawfully in eliminating disparate-impact liability under ECOA, narrowing the regulation’s prohibition against discouragement, and effectively eliminating important uses of special purpose credit programs (SPCPs).

But the amended complaint adds a potentially significant new procedural challenge: the plaintiffs now allege, based on the administrative record produced by the CFPB, that the Bureau failed to comply with Dodd-Frank’s requirement that it consult with appropriate prudential regulators and other specified federal agencies before proposing the rule.

The amended complaint also updates the challenge to the authority of former Acting CFPB Director Russell Vought following his replacement by Mark Paoletta.

The Regulation B litigation

As discussed in our earlier coverage, the CFPB’s final Regulation B rule makes sweeping changes to the regulation implementing ECOA. Among other things, the rule eliminates disparate-impact liability, narrows the circumstances in which conduct can constitute unlawful discouragement, and restricts the availability of certain SPCPs offered by for-profit entities.

The original complaint alleged that the rule is arbitrary and capricious, contrary to ECOA, in excess of the CFPB’s statutory authority, and the product of defective rulemaking procedures. It also challenged the authority of then Acting Director Russell Vought to direct the CFPB when the rule was promulgated as he had not been confirmed by the U.S. Senate as the CFPB Director.

The amended complaint preserves those claims.

Indeed, much of the amended complaint is substantively identical to the original complaint. The plaintiffs continue to maintain that the CFPB failed adequately to analyze the costs and benefits of the rule, failed to comply with the Regulatory Flexibility Act and the Small Business Regulatory Enforcement Act (SBREFA) provided an inadequate period for public comment, and failed to respond adequately to significant comments. The allegations concerning the substantive changes to disparate impact, discouragement, and SPCPs likewise remain.

The important changes are elsewhere.

Mark Paoletta Replaces Russell Vought

The first change is straightforward but necessary.

As he was the Acting CFPB Director at the time, Russell Vought was the named individual defendant in the original complaint. The amended complaint substitutes Mark Paoletta, who became Acting CFPB Director on August 1.

The amended complaint notes in a footnote that Paoletta is automatically substituted for Vought under Federal Rule of Civil Procedure 25(d).

The amended complaint also adds an allegation that Paoletta, like Vought, has not been confirmed by the Senate and lacks lawful authority to direct the CFPB.

The plaintiffs, however, do not suggest that Paoletta participated in issuing the Regulation B rule. The amended complaint continues to focus on Vought as the person who purportedly exercised authority over the CFPB when the NPRM and Final Rule were issued.

That distinction is important. The substitution of Paoletta does not change the plaintiffs’ fundamental contention that Vought lacked authority when the challenged rule was promulgated. The allegation is questionable, as it suggests that the actions by any acting head of a federal agency would not be lawful.

The Most Important New Allegation: the CFPB Allegedly Failed to Consult Other Federal Agencies

The most significant substantive amendment is the addition of a new subsection entitled:

“The CFPB Failed to Consult with the Appropriate Agencies Prior to Proposing the Rule.”

The amended complaint adds four paragraphs—160 through 163—devoted to this issue.

The plaintiffs rely on 12 U.S.C. § 5512(b)(2)(B), which requires the CFPB, before proposing a rule and during the comment period, to consult with appropriate prudential regulators and other specified federal agencies concerning consistency with the prudential, market, or systemic objectives administered by those agencies.

The plaintiffs contend that the CFPB did not satisfy that requirement.

The amended complaint focuses on an apparent discrepancy between the NPRM and the statutory requirement.

According to the complaint, the NPRM did not state that the CFPB actually consulted with the relevant agencies. Instead, it stated that the CFPB had “offered to consult” with them.

NFHA allegedly called attention to that distinction in its comment letter.

The Final Rule subsequently stated that the Bureau had “consulted or offered to consult” with other agencies and had considered the feedback provided. But, according to the amended complaint, the Final Rule did not describe the consultations or identify evidence demonstrating that consultations actually occurred.

That distinction is now central to the plaintiffs’ procedural challenge.

The Administrative Record Becomes Particularly Important

The most interesting aspect of the new allegations is that they are based not simply on what the plaintiffs believe the CFPB did, but on their review of the administrative record produced by the CFPB on July 24.

The amended complaint alleges that the administrative record does not show that the Bureau undertook the required consultation before issuing the NPRM.

Instead, according to the complaint, the record contains an email from an OMB employee to a CFPB employee that lists email addresses associated with several federal agencies and states:

“Interagency circulation for CFPB NPRM Regulation B.”

The plaintiffs allege that neither this email nor anything else in the administrative record demonstrates that the identified agencies actually were consulted concerning the NPRM.

That is a potentially important development.

The plaintiffs are effectively telling the court: the CFPB itself has produced the administrative record, and that record does not contain evidence that the Bureau did what Congress expressly required it to do.

Whether the record ultimately establishes that consultation occurred is, of course, a matter for the litigation. But the amended complaint gives the plaintiffs a substantially more concrete basis for pursuing the allegation than the original complaint did.

Richard J. Andreano, Jr., John L. Culhane, Jr., and Alan S. Kaplinsky

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Interagency Special Purpose Credit Program Statement Rescinded

As previously reported, in February 2022, eight federal agencies issued an Interagency Statement encouraging the offering of special purpose credit programs (SPCPs) under the Equal Credit Opportunity Act (ECOA). The agencies were the CFPB, FDIC, OCC, Fed, NCUA, HUD, DOJ, and FHFA. Seven of the agencies have now rescinded the Interagency Statement. The Fed did not participate in the joint rescission but separately withdrew the guidance.

The rescission is in part based on the April 2026 amendments to Regulation B adopted by the CFPB that restrict the ability of for-profit entities to offer SPCPs, and make other changes. Specifically, the revisions prohibit for-profits entities from offering SPCPs that use the applicant’s race, color, national origin, sex, or any combination thereof, as a factor regarding eligibility for an SPCP. While for-profit entities may continue to offer SPCPs that use an applicant’s religion, marital status, age, income derived from a public assistance program, or any combination thereof, as an eligibility factor, the revisions imposed significant restrictions on the ability of a for-profit entity to offer such SPCPs. The revisions became effective July 21, 2026, and are being challenged in court. The law regarding SPCPs offered by governmental or nonprofit entities remains unchanged.

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

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FTC Abandons Disparate Impact and ‘Unfair Discrimination’ Theories: A Major Shift in Federal Consumer-Protection Law

The Federal Trade Commission (FTC) has taken a major step toward dismantling two theories of discrimination.

In a new Policy Statement Regarding Disparate-Impact Claims and “Unfair Discrimination” Claims, the FTC announces that it will no longer pursue disparate-impact claims under the FTC Act or the Equal Credit Opportunity Act (ECOA). Just as significantly, although less prominently emphasized in the Policy Statement, the FTC has now repudiated its position that the “unfairness” prong of Section 5 of the FTC Act independently authorizes the Commission to pursue discrimination claims.

The second development is particularly noteworthy because it represents a reversal of a position the FTC itself adopted during the prior administration. In cases such as Passport Automotive Group and Coulter Motor Company, the Commission asserted that discriminatory conduct could constitute an “unfair” practice under Section 5 even apart from a violation of a specific federal antidiscrimination statute.

The FTC’s new position also has an important connection to the Consumer Financial Protection Bureau. In 2022, the CFPB adopted a remarkably similar theory, asserting that discrimination could constitute an “unfair” practice under the Consumer Financial Protection Act’s prohibition against unfair, deceptive, or abusive acts or practices (UDAAP), even where ECOA or another federal fair-lending statute did not apply. A federal district court rejected that theory in 2023. The CFPB appealed, but after the change in administration and leadership at the Bureau, the CFPB joined with the plaintiffs in stipulating to dismissal of its appeal in April 2025, leaving the district court’s judgment vacating the CFPB’s action in place. We have addressed these developments in the past, including here, here, here, and here.

The result is a significant retrenchment in federal agency authority to use general “unfairness” provisions as a substitute for specifically enacted federal antidiscrimination statutes.

The FTC’s Disparate Impact Position

As noted above, the FTC’s new Policy Statement is principally directed at disparate-impact liability.

The Commission states that it “will no longer pursue disparate-impact claims in any context.” It concludes that Section 5 of the FTC Act does not authorize disparate-impact claims and that ECOA likewise does not authorize disparate-impact liability.

The FTC points to the Supreme Court’s decision in Texas Department of Housing & Community Affairs v. Inclusive Communities Project, Inc., 576 U.S. 519 (2015), which held that disparate-impact liability is available under the Fair Housing Act. The Supreme Court reasoned that the FHA contains results-oriented language that reaches practices that “otherwise make unavailable” housing because of a protected characteristic.

The FTC contrasts that language with ECOA, which makes it unlawful for a creditor to “discriminate against” an applicant on specified prohibited bases. In the FTC’s view, that language does not establish disparate-impact liability.

The Policy Statement also relies upon the Supreme Court’s rejection of Chevron deference in Loper Bright Enterprises v. Raimondo, 603 U.S. 369 (2024), emphasizing that agencies do not receive deference in interpreting statutes merely because Congress has delegated regulatory authority to them.

The FTC therefore concludes that ECOA does not authorize an effects-based theory of discrimination.

The Commission’s ECOA analysis tracks closely the reasoning of subsequently adopted by the CFPB in its April 2026 amendments to Regulation B. The CFPB removed the “effects test” from Regulation B and affirmatively stated that ECOA does not recognize disparate-impact liability. The rule became effective July 21, 2026. The CFPB’s final rule is currently being challenged in federal court, making the ultimate legal status of the ECOA disparate-impact issue uncertain.

Impact of the FTC’s Abandoning Its ‘Unfair Discrimination’ Theory Under Section 5

The FTC’s repudiation of its “unfair discrimination” theory under Section 5 may ultimately prove to be just as important as its position on disparate impact.

Section 5 of the FTC Act declares unlawful “unfair or deceptive acts or practices in or affecting commerce.” During the prior administration, the FTC began interpreting that provision to encompass discrimination as an independently actionable form of unfairness.

The Commission’s theory was potentially broad. It was not limited to discrimination covered by ECOA or another federal civil-rights statute. Instead, the FTC asserted that discriminatory conduct could itself be “unfair” under Section 5.

The Fair Housing Act Remains a Major Exception

The federal retreat from disparate impact does not mean that disparate-impact liability has disappeared from federal law.

The most important exception is the Fair Housing Act.

In Texas Department of Housing & Community Affairs v. Inclusive Communities Project, Inc., 576 U.S. 519 (2015), the Supreme Court held that disparate-impact claims are cognizable under the FHA.

The Court emphasized that the FHA contains results-oriented language and concluded that Congress intended the statute to reach certain discriminatory effects even in the absence of discriminatory intent.

The Court nevertheless imposed significant limitations on such claims, emphasizing the need to avoid second-guessing legitimate business decisions and recognizing safeguards designed to prevent disparate-impact liability from becoming a mechanism for simply forcing housing providers to adopt racial quotas or otherwise abandon legitimate policies.

But the central holding remains: disparate-impact claims are available under the FHA.

Neither the FTC’s Policy Statement nor the CFPB’s Regulation B rule changes that.

HUD Is Also Reconsidering Its FHA Disparate-Impact Regulations

There is another important federal development involving the FHA.

HUD has proposed rescinding its regulations implementing the FHA disparate-impact standard.

HUD’s proposal reflects the administration’s broader effort to reconsider the use of disparate-impact theories across federal civil-rights law. HUD has argued that its detailed regulatory framework is unnecessary and that courts should determine the scope of FHA disparate-impact liability.

But rescinding the regulation would not necessarily eliminate FHA disparate-impact liability.

The Supreme Court—not HUD—recognized disparate-impact liability under the FHA in Inclusive Communities.

Consequently, even if HUD ultimately rescinds its regulation, the Supreme Court’s holding remains binding unless Congress changes the statute or the Supreme Court itself revisits the issue.

This distinction is particularly important for mortgage lenders.

A mortgage lender may be outside the scope of ECOA disparate-impact liability under the CFPB’s new Regulation B rule, but the same conduct may remain subject to disparate-impact challenges under the FHA.

The States May Move in the Opposite Direction

The federal retreat also does not preempt state law.

The FTC’s Policy Statement expressly recognizes that it does not preempt state or local law. Similarly, the CFPB’s Regulation B rule does not prevent states from enforcing their own antidiscrimination laws.

That is likely to become increasingly important.

New York, for example, has made clear that the federal elimination of the ECOA effects test does not eliminate the possibility of disparate-impact liability under New York law. The New York Department of Financial Services has advised regulated entities that discriminatory effects can continue to present risks under state law.

New Jersey has likewise adopted regulations under the New Jersey Law Against Discrimination addressing disparate-impact discrimination, including in housing and financial lending.

California, Illinois, Massachusetts and other states also have civil-rights and fair-lending statutes that may provide independent grounds for challenging discriminatory practices.

The result is that a financial institution may be able to conclude that a practice does not violate ECOA under the federal effects test while still facing substantial exposure under state law.

Richard J. Andreano, Jr., John L. Culhane, Jr., Alan S. Kaplinsky, and Ronald K. Vaske

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CFPB Ends Publication of Consumer Complaint Narratives and Data Visualizations

The Consumer Financial Protection Bureau announced on August 14, 2026, that it will cease its discretionary publication of consumer complaint narratives and associated data visualizations in the Consumer Complaint Database which it is statutorily required to maintain under the Dodd-Frank Act. The CFPB’s announcement represents a significant change in the way the Bureau makes consumer complaint information available to the public.

The Bureau says its decision is based on years of experience demonstrating that the public utility of publishing complaint narratives is minimal, while the practice can create confusion, provide misleading information, and unnecessarily harm companies’ reputations.

The decision is particularly noteworthy because the CFPB’s Consumer Complaint Database has long been one of the Bureau’s most visible sources of publicly available information. The database has been used by consumers, journalists, researchers, consumer advocates, regulators, and financial institutions to identify and analyze complaints involving financial products and services.

The CFPB is now concluding that the benefits of publishing individual narratives do not outweigh the problems inherent in making unverified, one-sided allegations publicly available.

The CFPB’s Rationale

The Bureau’s principal concern is that complaint narratives are, by their nature, unverified allegations.

A consumer complaint reflects the consumer’s experience and perspective. The CFPB acknowledges that the complaint process does not verify the allegations contained in each narrative and, as a practical matter, cannot do so. Moreover, the Bureau points out that an allegation in a complaint does not necessarily describe a violation of law.

The CFPB therefore believes that publishing these narratives creates a significant risk that consumers will draw conclusions about a company’s conduct that are not supported by the underlying information.

The Bureau makes another important point: complaint narratives represent a “less-than-representative sample” of consumer experiences. Consumers who file complaints are, by definition, reporting negative experiences. Consequently, the database does not provide a balanced picture of a company’s overall compliance record or the experiences of all of its customers.

The CFPB says that continuing to publish such information could therefore mislead consumers who reasonably expect information published by the Bureau to be authoritative and reliable.

The Bureau also expressly cites the potential reputational harm to companies, something that has long troubled industry members. While the CFPB never verified the assertions in complaints, the industry has long felt that at least some consumers believe that any complaint posted by a government agency must be valid. Moreover, certain consumer organizations and even some politicians routinely treated complaints as if they had been vetted for accuracy. That could and did cause significant reputational harm, particularly when complaints were filed against the wrong company, which was not an isolated occurrence. In short, many industry members believed the posting of unverified complaints was simply an attempt by the CFPB to name and shame.

Richard J. Andreano, Jr., John L. Culhane, Jr., and Alan S. Kaplinsky

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OCC and FDIC Propose Targeted Amendments to Community Reinvestment Act Regulations: What Banks Need to Know

On July 31, 2026, the Office of the Comptroller of the Currency (OCC) and the Federal Deposit Insurance Corporation (FDIC) published a joint Notice of Proposed Rulemaking (NPRM) proposing targeted amendments to their Community Reinvestment Act (CRA) regulations. The proposal, issued under Docket ID OCC-2026-0694, RIN 1557-AF57 (OCC) and RIN 3064-AG31 (FDIC), represents a significant pivot in the agencies’ approach to CRA modernization following years of litigation and regulatory uncertainty.

This blog post analyzes the NPRM’s key provisions, identifies which changes appear to favor the banking industry, discusses the notable absence of the Federal Reserve Board from this rulemaking, examines the proposal’s impact on community banks (particularly in the context of rural and smaller institutions), and offers key takeaways for banking clients. All analysis is grounded exclusively in the text of the uploaded NPRM document.

1. Overview of the NPRM

Background and Regulatory History

The Community Reinvestment Act was enacted in 1977 to encourage depository institutions to meet the credit needs of their local communities, including low- and moderate-income neighborhoods. The OCC and FDIC have administered CRA regulations since 1995 under a framework that also involved the Federal Reserve Board and the former Office of Thrift Supervision.

In 2022, the OCC, FDIC, and the Board of Governors of the Federal Reserve System (the three “Federal banking agencies”) jointly proposed to modernize the CRA rules. That proposal was finalized on October 24, 2023, as the “2023 CRA rules.” However, trade associations challenged the 2023 rules in February 2024 (Texas Bankers Association v. OCC), and the U.S. District Court for the Northern District of Texas issued a preliminary injunction on March 29, 2024, finding the agencies likely exceeded their statutory authority—particularly regarding the “entire community” standard and extraterritorial credit needs assessments—and raising concerns under the Major Questions Doctrine.

The agencies appealed to the Fifth Circuit but subsequently moved to stay the appeal pending a new rulemaking. On July 16, 2025, they published a proposal to rescind the 2023 rules and reinstate the 1995-based framework (the rescission proposal). After receiving approximately 47 comments, the OCC and FDIC elected not to finalize the rescission proposal and instead issued this new NPRM with substantive amendments. On July 1, 2026, the OCC and FDIC filed an unopposed motion to dismiss their appeal; the Fifth Circuit dismissed the appeal on July 9, 2026. The agencies are now moving the district court for entry of final judgment against them.

Key Objectives and Framing

The agencies frame this proposal as an effort to:

  • Refocus CRA supervision on the statutory mandate to meet credit needs of local communities;
  • Increase the focus on lending activities;
  • Ensure community development (CD) grants reach intended communities;
  • Reduce regulatory burden, “particularly for community banks”; and
  • Increase clarity and certainty in CRA compliance.

The Office of Management and Budget’s Office of Information and Regulatory Affairs (OIRA) determined this is an “economically significant regulatory action” under Executive Order 12866, and the agencies expect the rule to be a deregulatory action under Executive Order 14192, with total costs expected to be less than zero.

The comment period runs 60 days after Federal Register publication.

Major Substantive Changes

Asset-Size Threshold Increases. The NPRM proposes to dramatically raise the asset thresholds that determine which CRA performance test framework applies to a bank:

  • Small bank threshold: raised from under $412 million to under $1 billion in assets.
  • Intermediate bank threshold (replacing “intermediate small bank”): raised from $412 million–$1.649 billion to $1 billion–$10 billion.
  • Large bank threshold: raised from over $1.649 billion to over $10 billion.

The agencies are also seeking comment on an alternative approach using SBA-aligned thresholds of $850 million (small bank cap) and $3.252 billion (intermediate bank cap), and separately ask whether the intermediate bank threshold should align with the $30 billion figure some agencies use to define “community banks.”

Lending Test: Major Product Line Approach. Banks would be evaluated only on “major” retail lending product lines (home mortgage, small business, small farm, and consumer lending), reducing the burden of monitoring non-major product lines.

Community Development (CD) Activity Reforms. The NPRM revises the CD definition, adds a “community development grant” definition, codifies a publicly available illustrative list of qualifying CD activities, establishes a formal CD activity confirmation process (banks can request agency confirmation that a particular activity qualifies), and imposes a 15% cap on indirect administrative costs for CD grant recipients at large banks to ensure grants directly benefit communities. Prior-period CD loans held on balance sheet and binding commitments to lend or invest would also count.

Intermediate Bank Ratings Change. The proposal removes the current limitation requiring a “satisfactory” CD test rating for an overall “satisfactory” rating at intermediate banks. Under the proposal, strong lending test performance could offset a weaker CD test rating.

Strategic Plan Reforms. The NPRM clarifies the strategic plan submission, amendment, and implementation process; adds a prefiling consultation process where agencies can provide feedback on draft plans; requires posting of plans on agency websites; simplifies measurable-goals provisions; changes the submission timing from “three months” to “90 calendar days”; adds a technically-complete notice process; and extends plan denial and resubmission procedures.

Reduced Public File and Public Notice Burdens. Banks would no longer need to maintain a physical paper public file and could instead post files online. Public notices in bank lobbies would simply direct customers to the bank’s website rather than displaying the full CRA notice.

Data Collection Relief. Banks below $1 billion in assets (newly defined small banks) would no longer be subject to CD test data reporting. The proposal also introduces new data-waiver authority allowing agencies to exempt banks from specific data collection and reporting requirements when not necessary for CRA assessment.

Expanded Discriminatory/Illegal Credit Practices Provision. The NPRM explicitly adds UDAAP violations (Dodd-Frank Section 1031), Military Lending Act, and Servicemembers Civil Relief Act violations to the list of practices that may affect CRA ratings.

Provisions Favoring the Banking Industry

Although framed as burden reduction and clarification, several provisions clearly benefit banks:

  • Higher asset thresholds move hundreds of banks into less-burdensome CRA testing categories, with fewer data collection and reporting obligations.
  • Removal of the intermediate bank “satisfactory” rating linkage to the CD test allows banks to receive a satisfactory overall rating even with weaker community development performance, so long as lending is strong.
  • Reduced data reporting obligations for reclassified banks decrease compliance costs.
  • Softened strategic plan requirements and the addition of prefiling consultations lower the barriers to using strategic plans.
  • Relaxed public notice and public file requirements reduce administrative burden.
  • The major product line approach narrows the scope of lending evaluation.

The FDIC estimates an aggregate annual Paperwork Reduction Act burden decrease of 114,775 hours (an 86% reduction) for banks reclassified from large to intermediate, valued at approximately $10.8 million per year.

2. Agencies Involved — Notable Absence of the Federal Reserve Board

This NPRM is issued jointly and exclusively by the OCC and the FDIC. The Federal Reserve Board (the Board) is notably absent from this rulemaking, despite the fact that the Board was one of the three Federal banking agencies that jointly issued the 2022 proposal, jointly finalized the 2023 CRA rules, and jointly published the 2025 rescission proposal.

The NPRM provides only one textual explanation for the Board’s absence, contained in footnote 31:

“This notice of proposed rulemaking is being issued jointly by the agencies [OCC and FDIC]. Any decisions about the Board’s next steps with respect to the rescission proposal rest exclusively with its Governors.”

The document does not otherwise explain why the Board chose not to join this NPRM. No further reason is discernible from the text of the proposal, and readers should not speculate beyond what this footnote provides.

What is clear from the document is that the OCC and FDIC appear fully aligned in their approach. The two agencies jointly authored the proposal, are making near-identical parallel amendments to their respective regulations (12 CFR part 25 for the OCC and 12 CFR part 345 for the FDIC), share the same policy rationale sections, and each conducted separate but consistent regulatory impact and Regulatory Flexibility Act analyses reaching similar conclusions. This reflects close coordination between the two agencies.

This is not merely a drafting curiosity—it is flagged as a live possibility in the agencies’ own supporting materials. The FDIC’s internal memorandum recommending this proposal notes plainly that “[t]he Board of Governors of the Federal Reserve System may ultimately take an alternative course of action [t]hat decision is at the discretion of the governors.” Because the Board was a full co-author of the 2022 proposal, the 2023 CRA rules, and the 2025 rescission proposal, its decision not to join this NPRM leaves open the possibility that the Board could take a different path entirely for the state member banks it supervises—including declining to adopt these amendments, finalizing its own version, or revisiting the enjoined 2023 CRA rules on a separate track. If that happens, the CRA compliance framework again runs the risk of being split along supervisory lines (as was the case when the OCC, acting alone, issued its June 5, 2020, CRA rule before subsequently rescinding the rule on December 14, 2021), with a bank’s primary federal regulator, not its size, business model, or community, determining which set of CRA rules applies. That is a real structural risk for the Board to manage, not a hypothetical one, and it is worth watching closely regardless of how a given institution is supervised.

3. Impact on Community Banks

Where Community Banks Stand to Gain

The most significant impact on community banks comes from the proposed increase in asset-size thresholds. Using 2024–2025 Call Report data, the agencies project the following reclassifications:

  • FDIC-supervised banks: Approximately 604 banks would be reclassified from intermediate-small to small bank status, meaning they would no longer be subject to the community development test. Small banks would increase by 604 to a total of 2,173, while intermediate banks would decrease by 354 to 425, and large banks would decrease by 250 to just 31.
  • OCC-supervised institutions: Reclassification could reduce data reporting burdens for up to 126 OCC banks and reduce CD-activity compliance burdens for up to 194 OCC banks. The OCC supervises approximately 990 institutions, of which roughly 602 are “small entities” under the Regulatory Flexibility Act.

Under the proposal, approximately 79.8% of all banks would qualify as small banks (up from the current percentage), holding only about 4.9% of industry assets. Large banks would constitute just 2.4% of banks (86 institutions) but hold 85.4% of industry assets.

Under the alternative SBA-aligned thresholds ($850 million/$3.252 billion), FDIC small banks would increase by 518 to 2,087; intermediate banks would decrease by 374 to 405; and large banks would decrease by 144 to 137.

For community banks reclassified from intermediate to small status, the practical benefits are substantial:

  • Elimination of the community development test obligation, meaning these banks would be evaluated solely on their lending performance.
  • Elimination of associated data collection and reporting requirements for CD activities.
  • The “major product line” approach further reduces the scope of lending evaluation, relieving smaller banks from monitoring and documenting lending in non-major product categories.
  • The new data-waiver authority provides an additional mechanism for agencies to exempt banks from specific data requirements when not necessary for CRA assessment.

Strategic Plan Reforms: A Narrow Fit, Not a Recommended Default

The NPRM acknowledges that banks found the strategic plan process burdensome, “particularly for community banks,” and proposes reforms intended to make the option more viable, including a prefiling consultation process, clearer measurable-goals provisions, and modernized public engagement requirements. That said, strategic plans remain a niche election: only 14 OCC-supervised institutions and 45 FDIC-supervised institutions currently use one. Even under the proposal, a bank electing a strategic plan must still informally solicit public feedback, formally publish its draft plan for at least a 30-day comment period, submit the plan roughly 90 calendar days before its intended effective date, and risk denial and resubmission if the agency finds the plan’s goals inadequate. For a small or intermediate community bank that can already pass the standard lending and community development tests, this remains a meaningfully heavier administrative lift than simply being evaluated under those standard tests.

The prefiling consultation process is a genuine improvement—it allows banks to seek agency feedback on draft plans before formal submission, reducing the risk of a plan being rejected after the public comment process has already run. But it addresses the quality of the strategic plan process, not its underlying cost. We would not recommend a strategic plan election to a small or intermediate community bank that can otherwise satisfy the standard lending and, where applicable, community development tests. The option is best suited to banks with non-traditional business models or product mixes that the standard tests do not fit well, not as a general-purpose alternative for banks that can pass the default tests without difficulty.

The codification of a CD activity confirmation process—where banks can request agency confirmation that a specific activity qualifies as community development—is explicitly framed as valuable to smaller institutions with limited resources. Community banks that lack large compliance departments can obtain advance certainty about whether their CD activities will receive CRA credit, reducing the risk of investing time and money in activities that might not count.

The publicly available illustrative list of qualifying CD activities similarly reduces uncertainty and provides a practical reference for institutions without dedicated CRA research teams.

The elimination of the physical/paper public file requirement and the simplification of lobby notices to a website redirect reduce administrative costs that, while modest in absolute terms, can be proportionally significant for smaller community banks with limited back-office resources.

Where the Proposal Falls Short

The NPRM itself identifies a tension inherent in the burden-reduction approach. Reduced standardized CRA data availability for banks reclassified out of large-bank reporting could reduce transparency for community organizations, researchers, and other stakeholders who rely on CRA data to evaluate bank performance in local communities.

Additionally, the document acknowledges that reduced CRA incentives for non-major product lines could affect lending diversity, and that the 15% indirect-cost cap on CD grants, along with the direct-use requirement, could reduce support for some nonprofit and intermediary grant activities. These trade-offs are expressly recognized in the agencies’ cost-benefit analysis and represent a balancing of compliance burden reduction against information availability and community benefit.

Assessment Areas Are Still Tied to Branches, Not to Where Community Banks Actually Do Business

The NPRM leaves one of the current framework’s most consequential structural problems untouched: how a bank’s assessment area—the geography in which its CRA performance is actually evaluated—gets drawn in the first place. The agencies acknowledge the tension directly. Even though “banks’ customer bases are increasingly geographically dispersed,” the CRA statute “focuses on the geographic area(s) surrounding a bank’s physical facilities,” and for that reason “the agencies are not proposing significant changes to the current assessment area framework, which is largely tied to a bank’s physical location(s).” The FDIC’s own memorandum recommending this proposal makes the identical point.

For community banks, this matters more than it might for a large regional or national bank. Many community banks have expanded their lending and deposit-gathering well beyond their branch and ATM footprint through online and mobile channels, yet their CRA credit will continue to be measured against assessment areas anchored to physical office locations rather than their actual, technology-enabled market area. The NPRM does solicit comment on two narrower, related questions—whether large banks should be required to delineate whole counties as their smallest assessment-area unit, and whether the “substantial portion of its loans” standard for defining assessment area boundaries should be replaced with a distance-based radius concept—but both start from the same branch-centric premise, and neither is an adopted change. Community banks that have grown primarily through digital channels should not expect this rulemaking to change how, or where, that growth is credited under the CRA.

The continued focus on where a bank maintains its physical locations under the proposed rule also means that large banks can source deposits from locations where they might not maintain locations and will not be evaluated on their lending within those areas.

Rural and Nonmetropolitan Provisions

The NPRM contains the following provisions relevant to rural and nonmetropolitan areas:

  • Distressed or underserved nonmetropolitan middle-income census tracts: The proposal codifies criteria for identifying these areas (unemployment at least 1.5 times the national average, poverty rate of 20% or more, or population loss of 10% or more/net migration loss of 5% or more).
  • Indian country and Tribal/native lands: The NPRM adds a new targeted geographic category using Census Bureau definitions, State Designated Tribal Statistical Areas, and Hawaiian Home Lands for community development revitalization and stabilization provisions.

These provisions are particularly relevant for community banks operating in rural areas across the heartland where census tracts may meet distressed or underserved criteria.

4. Key Takeaways for Clients

For banking and financial services clients, particularly community bank clients, the following takeaways emerge from this NPRM:

  • Net compliance-cost reduction is likely for smaller institutions. The combination of higher asset thresholds, elimination of CD testing for newly small banks, reduced data reporting, and simplified public file requirements should meaningfully reduce compliance costs for the hundreds of banks that would be reclassified. The FDIC estimates an 86% reduction in PRA burden hours for banks moving from large to intermediate status alone.
  • Evaluate your institution’s reclassification status. Banks currently classified as intermediate-small or large should immediately assess whether the proposed thresholds (or the alternative SBA-aligned thresholds) would reclassify them, and what changes to CRA testing, data collection, and reporting obligations would follow.
  • The 60-day comment period is critical. The agencies are actively soliciting input on several open questions, including the appropriate level for asset-size thresholds (the $1 billion/$10 billion proposal versus the $850 million/$3.252 billion alternative versus a $30 billion intermediate cap). Banks with strong views on where these lines should be drawn should engage in the comment process.
  • Take advantage of the new CD activity confirmation process. Once finalized, the ability to obtain advance agency confirmation that specific activities qualify as community development represents a practical tool for reducing CRA compliance risk—particularly for community banks that invest significant resources in individual CD activities relative to their overall balance sheets.
  • Approach the strategic plan option selectively. The prefiling consultation process and clearer measurable-goals provisions make strategic plans somewhat easier to use, but the underlying public-comment and agency-approval process remains substantial. We would not recommend a strategic plan election to a small or intermediate community bank that can otherwise pass the standard lending and community development tests; the option is better suited to banks whose business model or product mix does not fit well within those standard tests.
  • Monitor the Federal Reserve’s posture. Only two of the three historical CRA agencies are proposing these changes. The Federal Reserve Board’s next steps “rest exclusively with its Governors,” per the NPRM. Banks supervised by the Federal Reserve should monitor whether the Board takes parallel action, issues its own distinct proposal, or finalizes the earlier rescission proposal. This regulatory divergence could create a bifurcated CRA framework depending on a bank’s primary federal supervisor.
  • Assess the intermediate bank ratings change. The removal of the requirement that intermediate banks receive a “satisfactory” CD test rating to achieve an overall “satisfactory” rating is a meaningful shift. Banks in this category may be able to achieve satisfactory overall ratings through strong lending performance alone, reducing the pressure to maintain robust CD programs.

Conclusion

This NPRM represents a significant deregulatory shift in CRA policy, clearly aligned with Executive Order 14192’s mandate to reduce regulatory costs. The proposed asset-threshold increases alone would reclassify hundreds of banks into less-burdensome testing categories, delivering substantial compliance cost savings to community banking institutions across the country. At the same time, the agencies acknowledge the trade-offs: less data, less transparency, and potentially less incentive for certain community-oriented activities.

For community banks, the proposal offers real relief on testing scope, data reporting, and public file administration—but it leaves two structural issues unresolved. First, assessment areas remain tied to branch and ATM locations even as the agencies acknowledge that customer bases are increasingly dispersed, meaning banks that have grown through digital channels will not see that growth reflected in how their CRA performance is measured. Second, the Federal Reserve’s absence from this rulemaking is not just a procedural footnote—the agencies’ own supporting materials acknowledge the Board may chart its own course, raising a real risk of a divided CRA framework along supervisory lines.

We encourage clients to review the proposal carefully, evaluate their institution’s position relative to the proposed thresholds, and consider engaging in the comment process to shape the final rule.

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

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President Trump Renews Effort to Oust Cook From Federal Reserve Board

President Trump is renewing his effort to oust Lisa D. Cook from the Federal Reserve Board.

In a letter to Cook, a Biden administration nominee, Daniel Scavino, Assistant to the President and Deputy Chief of Staff and Director of the Office of Presidential Personnel, repeated allegations that Cook may have made false statements on one or more mortgage applications and stated that the President is considering removing her from her position as a result.

He wrote that William J. Pulte, FHFA Director, submitted a criminal referral to the Justice Department.

Cook’s attorney, Abbe Lowell, has called the allegations baseless. Cook has referred to the allegations as clerical errors.

This is President Trump’s second effort to oust Cook. The Supreme Court blocked President Trump’s first effort, saying she had not been given the formal right to respond to the allegations against her. However, the Court did not provide details about how President Trump could oust her. The Federal Reserve Act states that a President can only remove a Fed member “for cause.” The court did not discuss the specific allegations against Cook.

The significance of President Trump’s renewed effort, however, extends well beyond the question of whether providing Cook with this notice and an opportunity to respond satisfies the due process requirements identified by the Supreme Court and, ultimately, whether President Trump can lawfully remove her. The episode can also be viewed as a continuing threat to the independence of the Fed.

Congress deliberately gave Fed governors long, staggered terms and provided that they may be removed by the President only “for cause,” in part to insulate monetary policy decisions from short-term political pressures. If a President can remove a Fed governor based on allegations that the governor committed misconduct, particularly when the allegations concern conduct unrelated to the governor’s performance of official duties, the scope of the “for cause” protection—and the degree to which the Fed remains institutionally independent from the President—could become a matter of significant constitutional and practical importance.

The concern is heightened because, as we note below, the President has already successfully If Trump ultimately satisfies the procedural requirements for removing Cook, a successful removal could establish a precedent that makes it easier for future Presidents to exert greater control over the composition of the Fed and, potentially, over monetary policy itself.

In his letter to Cook, Scavino said there is “sufficient reason to believe that you made false statements on one or more mortgage agreements.” He said that Cook signed a document stating that she intended to use a Michigan property as her principal residence. Two weeks later, she purchased a condominium in Atlanta in which she also stated that the property would be her principal residence. She later listed that property for rent but never disclosed any rental income in her financial disclosures, according to the letter.

“The President believes it is inconceivable that you were not aware of your first commitment when making the second and impossible that you intended to honor both,” Scavino wrote.

He wrote that taken together, “these acts may be sufficient to demonstrate that you committed a crime, as you appear to have acquired mortgages that do not meet certain lending requirements and could have received favorable loan terms under fraudulent circumstances.”

He said that the interest rates on secondary mortgage loans are 0.25-0.50% higher than the rates on loans secured by primary residences.

“Based on these facts, a jury could find that you intended to defraud these institutions for your own benefit, but at a minimum, this conduct was grossly negligent and demonstrates that you are unfit for the office in which you serve as a controlling member of the Federal Reserve,” Scavino wrote.

Cook has known about the allegations since August 25, 2025, but she has never “provided an explanation for this serious misconduct, despite having ample opportunity to do so,” according to Scavino.

He added that the letter is providing that opportunity, giving her 21 days to respond, resulting in a deadline of August 26.

Trump has succeeded in ousting other members of boards and commissions. Democrat Gwynne Wilcox was removed from the NLRB, where she had been Board Chair. Democrats Rebecca Slaughter and Alvara Bedoya were removed from the FTC, although Bedoya later resigned. Democrats Tanya Otsuka and Todd Harper were removed from the NCUA board. However, the law governing the NCUA does not have a provision stating that members may only be removed for cause.

Alan S. Kaplinsky, Richard J. Andreano, Jr., and John L. Culhane, Jr.

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Crews Confirmed as Member of NCUA Board

The Senate has confirmed John Crews to serve on the NCUA board. Crews will replace Kyle Hauptman as the sole board member of the agency and is expected to become chairman.

Hauptman’s term expired in August 2025, but he 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.

America’s Credit Unions President/CEO Scott Simpson applauded the confirmation.

“An effective credit union regulator must be properly equipped to oversee the industry while providing credit unions access to the tools to take on today’s modern financial landscape,” Simpson said. “Throughout his career, Crews has shown a measured and thoughtful approach to innovation, stability and expanding access to affordable financial services. His experience will be an asset to the agency.”

Simpson urged President Trump to nominate two additional members to fill the three-person NCUA board.

Consumer Financial Services Group

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Illinois Enacts Disparate Impact Standard for Credit Decisions: What Lenders Need to Know

Introduction

Illinois has joined a growing number of states that are expanding fair lending obligations at the state level even as the federal government moves in the opposite direction. On July 31, 2026, SB 3777 became Public Act 104-0744, amending the Illinois Human Rights Act (Act) to prohibit not only intentional discrimination in lending and credit card issuance, but also the use of facially neutral underwriting criteria or methodologies that produce discriminatory effects. The Act applies to financial institutions, credit card issuers, employers and providers of public accommodations. The amendments to the Act will become effective on January 1, 2027.

Notably, the Illinois Human Rights Act does not define the term “financial institution.” As a result, questions may arise regarding the statute’s application to nonbank lenders, Fintech companies, marketplace lenders, and other entities that extend consumer credit but are not traditional depository institutions. By contrast, the Act separately applies to any “person who offers credit cards to the public,” suggesting that the General Assembly intended the credit card provisions to have broad applicability.

For creditors operating in Illinois, this legislation marks a meaningful shift on the state level. It codifies a disparate impact framework for credit decisions—one that imposes a demanding burden on lenders to justify their practices and demonstrate the absence of less discriminatory alternatives.

What the Law Provides

The New ‘Criteria or Methods’ Prohibition

Prior Illinois law already prohibited intentional discrimination in lending and credit card issuance on protected-class grounds. Public Act 104-0744 goes considerably further by adding new provisions making it a civil rights violation for financial institutions making loans, persons offering credit cards to the public, employers and certain public accommodations to use “criteria or methods” that have the effect of subjecting individuals to unlawful discrimination.

The statute broadly defines “criteria or methods” to include “practices, policies, and groups of practices or policies” that may have the effect of subjecting individuals to prohibited discrimination. This definition is significant. It means that plaintiffs and regulators may challenge not merely isolated underwriting decisions, but entire credit programs, pricing methodologies, automated underwriting systems, credit scoring models, fraud prevention tools, or other institutional policies that allegedly produce disparate outcomes.

The Disparate Impact Framework

The legislation’s most consequential feature is its adoption of a statutory disparate impact standard. Under the new law, lending criteria or methods are unlawful if (1) they are not necessary to achieve a substantial, legitimate, nondiscriminatory interest, or (2) even if such an interest exists, that interest could be served by another practice having a less discriminatory effect.

In practical terms, a creditor challenged under this statute must demonstrate both that the practice at issue serves a substantial, legitimate, nondiscriminatory objective and that no less discriminatory alternative would adequately serve that objective. This two-part framework tracks disparate impact standards in other civil rights contexts and effectively incorporates an “alternative practice” analysis into Illinois credit discrimination law. However, in the credit context the amendments place the burden on the financial institution or credit card issuer to demonstrate that there is no less discriminatory alternative to a challenged practice. In contrast, in the employment context the amendments require that the complainant demonstrate that the business necessity cited by an employer could be achieved through a practice that has a less discriminatory practice. Similarly, under the U.S. Department of Housing and Urban Development (HUD) disparate impact rule under the Fair Housing Act, if a party defending a challenged practice demonstrates that it has substantial, legitimate, nondiscriminatory interests supporting the practice, the party challenging the practice is required to demonstrate that such interests could be served by another practice that has a less discriminatory effect. HUD has proposed to rescind the rule.

Thei structure applicable in the credit context will almost certainly invite disputes over statistical analyses, model validation, and whether plaintiffs can identify feasible alternative underwriting methodologies that would reduce discriminatory effects while still achieving legitimate business purposes.

Implications for AI and Automated Underwriting

Although the legislation does not mention artificial intelligence, its timing is notable. Financial institutions increasingly rely on machine learning models, alternative data, fraud detection algorithms, and automated underwriting systems. In the past, those systems have been routinely evaluated for disparate impact under federal fair lending guidance, and Illinois has now created an explicit state statutory vehicle for challenging them.

Creditors using sophisticated underwriting models should anticipate increased scrutiny of: automated underwriting systems; credit scoring models; pricing algorithms; fraud detection models; alternative data sources; and model governance and validation processes.

Institutions will need to demonstrate not only that these systems improve risk prediction, but also that they are necessary to achieve legitimate business objectives and that no alternative would produce materially less discriminatory effects. There is no express requirement that the alternative be reasonable or cost effective. For lenders that rely heavily on algorithmic decision-making, this provision creates a distinct litigation risk under state law even where federal regulators may not be actively pursuing similar theories.

Enforcement and Regulatory Coordination

The legislation addresses regulatory coordination in two respects. First, it provides that the Illinois Department of Human Rights may consult with the Illinois Department of Financial and Professional Regulation or a financial institution’s primary prudential regulator when investigating complaints. Second, it expressly preserves the Department of Human Rights’ independent authority to investigate discrimination complaints involving financial institutions and clarifies that nothing in the Act limits the examination authority of the Office of the Comptroller of the Currency, the National Credit Union Administration, or the Illinois Department of Financial and Professional Regulation.

The practical effect is that state human rights investigations may proceed alongside, rather than in lieu of, examinations conducted by traditional financial regulators.

Relationship to Federal Fair Lending Law

The Act, as amended, sets forth fair lending requirements that are in addition to the federal fair lending requirements under the Equal Credit Opportunity Act (ECOA), the Fair Housing Act (FHA), and other federal laws. It creates an additional state-law cause of action with an expressly stated disparate impact framework.

The Equal Credit Opportunity Act and Regulation B

On April 22, 2026, the Consumer Financial Protection Bureau (CFPB), under then Acting Director Russell Vought, issued a significant final rule reshaping the agency’s approach to fair lending enforcement under ECOA and Regulation B. In particular, the amendments remove the effects-test language from Regulation B and provide that ECOA does not support effects test liability. Effect tests language is another reference to disparate impact liability.

Important Limitation: No Change to the Fair Housing Act (FHA)

While as noted above, HUD has proposed to rescind its disparate impact rule under the FHA, the Supreme Court’s decision in Texas Department of Housing and Community Affairs v. Inclusive Communities Project, Inc., 576 U.S. 519 (2015), that disparate impact claims may be brought under the FHA remains the law of the land.

State Developments: A Growing Trend

Illinois is not acting in isolation. Several other states have moved to embrace disparate impact theories in consumer credit, even as the federal government retreats from that framework.

California has long maintained one of the most robust state fair lending regimes in the country. The California Fair Employment and Housing Act and the Unruh Civil Rights Act provide broad anti-discrimination protections that California courts and regulators have applied to lending practices producing discriminatory effects, supplementing federal fair lending requirements with state-level enforcement.

New York has similarly taken an expansive approach. Through a combination of statutory authority, regulatory guidance, and enforcement actions by the New York Department of Financial Services, the state has signaled that facially neutral lending practices producing disparate outcomes may violate state anti-discrimination law. New York regulators have been particularly active in scrutinizing algorithmic underwriting and fair lending compliance among Fintech lenders.

New Jersey has also adopted measures reinforcing disparate impact liability in the lending context. The New Jersey Law Against Discrimination (and its regulations promulgated thereunder) is one of the broadest state civil rights statutes in the nation, and New Jersey courts have recognized disparate impact claims in connection with credit and financial services.

The broader pattern is clear: a growing number of states are affirmatively embracing disparate impact theories for consumer credit at the very moment the federal government is pulling back. This divergence creates an increasingly complex compliance environment for lenders operating across state lines, as institutions may face materially different legal standards depending on the jurisdiction.

Alan S. Kaplinsky, Richard J. Andreano, Jr., and John L. Culhane, Jr.

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Senate Judiciary Hearing Reveals Bipartisan Support for Federal Action on AI-Driven ‘Surveillance Pricing’

The Senate Judiciary Committee’s Subcommittee on Crime and Counterterrorism held an unusually consequential hearing on August 4 entitled “Your Data, Their Profit: The Consumer Cost of AI Surveillance Pricing.”

The hearing produced something that has become increasingly rare in Washington: substantial bipartisan agreement that Congress should do something about the use of consumers’ personal data to set individualized prices.

The hearing was chaired by Senator Josh Hawley (R-MO), with Senator Richard Durbin (D-IL) serving as ranking member. The five witnesses were Lindsay Owens, President and CEO of Groundwork Collaborative; Robert Hedges, Digital Fellow at MIT and former Chief Data Officer of Visa; Lee Hepner, Senior Legal Counsel at the American Economic Liberties Project; Hillary Caron, Policy Counsel at the United Food and Commercial Workers International Union; and Z. John Zhang, Professor of Marketing at the University of Pennsylvania’s Wharton School. (The written testimony of each witness is linked to each of his or her name above.)

Four of the five witnesses were highly critical of surveillance pricing and advocated new legal restrictions. Zhang was the important outlier, cautioning that personalized pricing can sometimes benefit consumers, particularly price-sensitive consumers, and that Congress should not outlaw legitimate dynamic pricing.

But the most significant development may have occurred on the dais rather than at the witness table.

Senators from both parties expressed serious concern about surveillance pricing. Most strikingly, Democratic Senator Richard Blumenthal said that he and Republican Senator Josh Hawley already have “a framework for legislation” and declared: “We need a law. We need a federal law. We need federal standards. We need national safeguards.”

Hawley subsequently said that the Federal Trade Commission should use its existing authority to address surveillance pricing and that consumers need legal rights against the practice. (Although criticized by then Commissioner and now FTC Chair Andrew Ferguson, in January of 2025 the FTC published staff research summaries from a surveillance pricing study that was then underway.)

Hawley also indicated after the hearing that he expects to introduce his own legislation.

That suggests that federal legislation may have a considerably better chance of becoming bipartisan than the current legislative record would otherwise indicate.

John L. Culhane, Jr. and Alan S. Kaplinsky

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Ten States Take on the OCC Over National Bank Preemption of State Escrow-Interest Laws

The battle over the scope of the Office of the Comptroller of the Currency’s authority to preempt state consumer financial laws has entered a new phase. On August 11, 2026, Oregon and nine other states with “blue” attorneys general filed a lawsuit challenging two rules adopted by the OCC that purport to preempt state laws requiring mortgage lenders to pay interest on funds held in escrow accounts.

The lawsuit, filed in the U.S. District Court for the District of Oregon, is State of Oregon et al. v. Office of the Comptroller of the Currency et al., No. 3:26-cv-01672-SI. The plaintiffs are Oregon, New York, California, Connecticut, Maine, Maryland, Massachusetts, Minnesota, Rhode Island, and Vermont.

The case presents a significant test of the limits Congress imposed on OCC preemption authority in the Dodd-Frank Act—and, in particular, whether the OCC has attempted to accomplish indirectly what Dodd-Frank prevents it from doing directly.

The Two OCC Rules at Issue

The OCC adopted two related final rules on May 15, 2026. Both became effective June 18.

The first, the “Escrow Powers Rule,” purports to codify the authority of national banks to establish and maintain escrow accounts and to determine the terms and conditions of those accounts. Most significantly, the rule provides that national banks may decide “whether and to what extent” interest or other compensation will be paid to customers whose money is held in escrow.

The second, the “Preemption Rule,” expressly determines that 14 state interest-on-escrow laws are preempted.

The states contend that the two rules must be viewed together. In their view, the OCC first created a federal rule declaring that national banks have unfettered discretion over escrow accounts and then used that newly created federal “power” as the basis for concluding that state laws regulating interest on escrow accounts conflict with federal law.

The complaint describes this as a “twin-regulation approach” designed to manufacture a conflict that did not previously exist.

That allegation goes to the heart of the lawsuit.

Why Escrow Interest Matters

Mortgage escrow accounts are commonplace. Borrowers generally make monthly payments into escrow accounts to cover property taxes and homeowners insurance, while those obligations are paid only periodically.

The states point out that this arrangement can result in substantial balances being held in escrow for extended periods. Those balances historically generated no interest for borrowers, effectively providing lenders with interest-free funds.

Congress addressed some aspects of escrow practices through the Real Estate Settlement Procedures Act, or RESPA. Among other things, RESPA limits the amount that lenders can require borrowers to maintain in escrow and imposes disclosure and accounting requirements.

But RESPA does not generally require lenders to pay interest on escrow balances.

Importantly, however, the states emphasize that RESPA expressly preserves state settlement-practice laws unless they are inconsistent with federal law. It also provides that state laws giving consumers greater protection are not considered inconsistent with RESPA.

Beginning in the 1970s, a number of states adopted statutes requiring lenders to pay interest on escrow balances.

The laws differ substantially.

California, for example, requires at least 2% interest. New York likewise generally requires 2% or a higher rate established by the state’s superintendent of financial services. Oregon ties its rate to the discount rate. Connecticut and Rhode Island use rates associated with savings deposits, while Maryland and Maine use formulas based on Treasury rates. Massachusetts permits the lender to determine the rate.

Some states also prohibit lenders from imposing fees that effectively reduce the required interest payment.

The states therefore argue that the OCC’s conclusion that these laws are “substantively equivalent” is difficult to reconcile with the actual differences among the statutes.

Congress Had Already Addressed the Issue in Dodd-Frank

The complaint places particular emphasis on the history of OCC preemption.

The OCC has long taken an expansive view of its authority to preempt state laws affecting national banks. The states point to the OCC’s 2004 preemption rule, which attempted to broadly preempt numerous categories of state banking laws.

The financial crisis changed the political and statutory landscape.

In Dodd-Frank, Congress expressly rejected field preemption in this area, providing that federal banking law “does not occupy the field” of state law. 12 U.S.C. § 25b(b)(4).

Congress also codified the Supreme Court’s decision in Barnett Bank of Marion County, N.A. v. Nelson, 517 U.S. 25 (1996). Under Dodd-Frank, a state consumer financial law is preempted only if it discriminates against national banks, “prevents or significantly interferes” with the exercise of national bank powers under the Barnett Bank standard, or is preempted by another federal statute.

That “significant interference” requirement is central to the new lawsuit.

The states contend that the OCC has substituted a substantially different test: whether a state law interferes with a national bank’s “flexibility” or “business judgment.”

That distinction could prove critical.

The Cantero Decision Makes the OCC’s Approach Particularly Vulnerable

The complaint relies heavily on the Supreme Court’s 2024 decision in Cantero v. Bank of America, N.A., 602 U.S. 205 (2024).

Cantero itself involved New York’s interest-on-escrow statute, the very statute that the OCC now has declared preempted.

The Supreme Court rejected the Second Circuit’s approach, which had effectively treated state regulation of national banks as preempted whenever the state law interfered with a federally authorized banking power.

The Supreme Court instead instructed courts to undertake a “practical assessment of the nature and degree of the interference” caused by the state law.

The Court specifically rejected a “categorical test” that would “preempt virtually all state laws that regulate national banks.”

The states argue that the OCC has now adopted precisely the type of categorical approach that Cantero rejected.

According to the complaint, under the OCC’s reasoning, any state law requiring a national bank to pay interest on escrow balances necessarily interferes with the bank’s federal “flexibility” to decide whether to pay interest. If any interference is enough, rather than significant interference, virtually every state regulation affecting escrow accounts becomes preempted.

That, the states contend, is Cantero’s categorical test in different clothing.

The Ninth Circuit Has Already Ruled on California’s Law

The lawsuit also presents a particularly important issue for the OCC in the District of Oregon: controlling Ninth Circuit precedent.

In Lusnak v. Bank of America, N.A., 883 F.3d 1185 (9th Cir. 2018), the Ninth Circuit rejected a National Bank Act preemption challenge to California’s interest-on-escrow statute.

The Ninth Circuit concluded that there was no legal authority establishing that state escrow-interest laws prevent or significantly interfere with national bank powers. The court also relied on Congress’s treatment of state escrow-interest laws in Dodd-Frank.

After the Supreme Court decided Cantero, the Ninth Circuit revisited the issue in Kivett v. Flagstar Bank, FSB, 154 F.4th 640 (9th Cir. 2025).

The Ninth Circuit concluded that Lusnak remained good law and that its reasoning was not inconsistent with Cantero.

That creates an obvious issue for the OCC in defending a rule that declares California’s law, and similar laws, preempted.

The complaint also points to the First Circuit’s decision in Conti v. Citizens Bank, N.A., 157 F.4th 10 (1st Cir. 2025), which likewise concluded that the National Bank Act does not preempt Rhode Island’s interest-on-escrow law.

The Second Circuit, by contrast, has continued to find New York’s law preempted following the Supreme Court’s remand in Cantero. Thus, the issue remains the subject of an important circuit split.

The OCC’s ‘Substantive Equivalence’ Theory Is Another Major Target

Dodd-Frank imposes procedural requirements on the OCC when it makes preemption determinations.

Among other things, the OCC generally must make its determination on a case-by-case basis and evaluate the impact of the particular state law on national banks. Dodd-Frank also permits the OCC to treat other state laws as preempted when they have “substantively equivalent terms” to a law that has been analyzed.

The OCC analyzed New York’s law and then concluded that 13 other state laws were substantively equivalent.

The states argue that the OCC did not actually conduct the analysis required by Dodd-Frank.

That argument appears significant because the laws are not identical.

As the complaint points out, some states impose fixed interest rates, some use variable formulas, some tie interest to savings-account rates, and some allow banks to determine the rate. The statutes also apply to different categories of mortgage loans and differ concerning service and maintenance fees.

The states therefore contend that the OCC’s conclusion that all 14 statutes are substantively equivalent is not supported by the record.

The complaint is particularly critical of the OCC’s failure to explain what standard it used to determine “substantive equivalence.”

Where Was the ‘Substantial Evidence’?

Perhaps the most interesting statutory argument concerns Dodd-Frank’s evidentiary requirement.

Section 25b(c) provides that the OCC may not determine that a state consumer financial law is preempted unless “substantial evidence, made on the record of the proceeding,” supports the specific finding of preemption.

The states contend that the OCC simply did not develop such evidence.

Indeed, they quote the OCC’s own rulemaking record as stating that the agency did not rely upon technical studies or data because it viewed preemption as fundamentally a question of law.

The states respond that Dodd-Frank specifically requires more.

Their argument is straightforward: If Congress required “substantial evidence” to support a preemption determination, the OCC cannot satisfy that requirement by deciding that no evidence is necessary.

The complaint also argues that the OCC produced no evidence demonstrating that state interest-on-escrow laws have caused national banks to suffer losses, reduced mortgage lending, or otherwise significantly interfered with their ability to operate escrow accounts.

Instead, the OCC allegedly relied on speculation that requiring banks to pay interest on mortgage escrow accounts could cause them to increase origination fees or reduce mortgage lending.

The states contend that speculation about what might happen is not substantial evidence demonstrating that state law actually prevents or significantly interferes with national bank powers.

The ‘Pretext’ Argument

The most consequential allegation in the complaint may be the states’ assertion that the Escrow Powers Rule itself is a pretext.

The OCC characterized the rule as an effort to provide clarity concerning national banks’ authority to establish and administer escrow accounts.

But the states point to language in the OCC’s own rulemaking indicating that the purpose of codifying the federal power was to make clear that state interest-on-escrow laws “directly conflict” with federal law.

That creates an interesting administrative-law question.

An agency unquestionably may issue regulations implementing authority delegated to it by Congress. But, as the Supreme Court held in Louisiana Public Service Commission v. FCC, 476 U.S. 355 (1986), an agency may preempt state law only when it is acting within the scope of its congressionally delegated authority.

The states argue that Congress did not give the OCC a free-standing power to create federal banking regulations for the purpose of manufacturing conflicts with state consumer-protection laws.

If the court accepts that characterization, the Escrow Powers Rule could fall independently of the Preemption Rule.

The States Also Invoke the Major Changes Dodd-Frank Made to OCC Preemption

The complaint’s broader theme is that the OCC is attempting to recreate the expansive preemption regime that Congress rejected in Dodd-Frank.

The states emphasize that Congress deliberately limited OCC preemption authority after the financial crisis.

Dodd-Frank rejected field preemption, codified the Barnett Bank standard, required case-by-case determinations, imposed a substantial-evidence requirement, required consultation with the CFPB concerning substantive equivalence, and limited the degree of deference owed to OCC preemption determinations.

The states contend that the OCC’s new rules effectively circumvent each of these limitations.

That makes this case about considerably more than escrow interest.

If the OCC prevails, its approach could provide a roadmap for preempting other state consumer financial laws. The agency could identify a broad federal banking power, define that power to include discretion over matters regulated by the states, and then characterize the state regulation as an impermissible interference with that federal power.

The states argue that such an approach would allow the OCC to accomplish indirectly what Dodd-Frank expressly prohibits it from doing directly.

The CFPB Also Has a Role in the Case

There is an additional wrinkle.

Dodd-Frank requires the OCC to consult with the CFPB and take the Bureau’s views into account when determining whether state laws have substantively equivalent terms.

The OCC stated that it consulted with the CFPB and that the CFPB concurred with its conclusion.

But the states say the administrative record does not explain the nature or extent of that consultation or what standard the CFPB applied.

That issue could become important as the litigation develops, particularly because the CFPB’s participation in the process is expressly contemplated by the statute.

What Is at Stake for Mortgage Lenders and Consumers?

At the immediate level, the case concerns whether national banks must comply with state laws requiring interest payments on mortgage escrow balances.

For consumers in the affected states, the practical consequence could be substantial. If the OCC’s rules remain in effect, national banks would not have to comply with the states’ interest-on-escrow requirements, even though state-chartered banks could remain subject to those requirements.

That raises an important dual-banking-system issue.

The states argue that national banks have historically been subject to many state banking and consumer-protection laws notwithstanding their federal charters. In their view, national bank preemption is an exception to that general rule, not a principle of blanket federal immunity.

The OCC’s position, by contrast, reflects a broader conception of the federal powers associated with national bank mortgage lending.

The case therefore presents a fundamental question about how much regulatory authority remains with the states when Congress has authorized national banks to engage in a particular activity.

The Supreme Court May Soon Decide Whether to Revisit Cantero

The timing of the Oregon lawsuit is particularly significant because the Supreme Court is now considering three cases involving the same fundamental question: whether the National Bank Act preempts state laws requiring national banks to pay interest on mortgage escrow accounts. The status of those cases has changed since our May 27, 2026, discussion of the subject.

Cantero: Certiorari Petition Is Fully Briefed

The most important of the three cases is, once again, Cantero v. Bank of America, N.A., No. 25-1313.

After the Second Circuit issued its May 5, 2026, decision on remand from the Supreme Court, again holding that New York’s interest-on-escrow law is preempted as applied to national banks, the Cantero petitioners filed a new petition for certiorari on May 22. The Supreme Court docketed the petition on May 27.

The petition asks the Court to decide:

“Does the National Bank Act preempt the application of state interest-on-escrow laws to national banks?”

The briefing is now complete. Bank of America sought and received extensions of time to respond, and its opposition was filed on August 10, 2026. Thus, as of August 12, the petition is pending before the Supreme Court and is ready for the Court’s consideration at conference.

This is potentially the most consequential of the three cases because it returns to the Supreme Court the very issue the Court addressed in 2024. The Court previously rejected the Second Circuit’s categorical approach and instructed courts to conduct a “practical assessment of the nature and degree of the interference” caused by state law. The Second Circuit’s May 2026 decision nevertheless concluded that New York’s law is preempted.

The new petition therefore gives the Supreme Court an opportunity to determine whether the Second Circuit actually followed the Court’s 2024 instructions or merely repackaged the same broad preemption theory in different terms.

Conti: Certiorari Was Denied, but the Rehearing Petition Remains Pending

The procedural history of Conti v. Citizens Bank, N.A., No. 25-1004, is more unusual.

Citizens Bank petitioned for certiorari from the First Circuit’s decision holding that Rhode Island’s interest-on-escrow law is not preempted. The Supreme Court denied the petition on April 20, 2026.

But that was not the end of the matter.

Following the Second Circuit’s May 5 decision in Cantero, Citizens Bank filed a petition for rehearing on May 11, arguing that the newly reinforced circuit conflict warranted reconsideration of the Court’s earlier denial of certiorari. The Supreme Court requested a response from John Conti, which was filed on July 8. The petition was distributed for consideration and then rescheduled on July 28.

Consequently, Conti is still pending before the Supreme Court—not on the original certiorari petition, which was denied, but on Citizens Bank’s petition for rehearing.

That distinction is important. A petition for rehearing is rarely granted. Nevertheless, the circumstances here are unusual because the petition for rehearing points to a development that occurred after the original certiorari denial: the Second Circuit’s May 5, 2026, decision expressly disagreed with the First Circuit and created an acknowledged circuit conflict over the meaning of the Supreme Court’s own 2024 Cantero decision.

Kivett: Ninth Circuit Case Is Also Pending on Certiorari

The third case is Kivett v. Flagstar Bank, N.A., No. 25-1350.

In October 2025, the Ninth Circuit held that its earlier decision in Lusnak remained good law after Cantero and that California’s interest-on-escrow law was not preempted. The Ninth Circuit denied rehearing on March 26, 2026. Flagstar then filed a petition for certiorari on June 1, 2026.

The Supreme Court initially scheduled the petition for its June 25 conference. The Court subsequently requested a response, and the respondents sought and received an extension. Their opposition to certiorari was filed on July 30.

Kivett therefore also remains pending before the Supreme Court.

The three cases now present the Court with three different procedural vehicles for addressing essentially the same national-bank-preemption question: Cantero comes from the Second Circuit and involves New York’s law; Conti comes from the First Circuit and involves Rhode Island’s law; and Kivett comes from the Ninth Circuit and involves California’s law.

The Three Cases Make the Oregon Litigation Particularly Interesting

The Supreme Court’s consideration of these three cases could have an immediate procedural consequence for the new Oregon litigation.

The Oregon complaint challenges the OCC’s Escrow Powers Rule and Preemption Rule largely on the ground that they are inconsistent with the Supreme Court’s decision in Cantero, as well as the First and Ninth Circuit decisions in Conti and Kivett. Indeed, the complaint expressly relies on the continuing circuit conflict and argues that the OCC’s categorical preemption approach is precisely the approach that Cantero rejected.

The OCC therefore has a strong argument for asking the Oregon district court to stay the litigation while the Supreme Court determines whether to grant review in one or more of these cases.

A stay would make practical sense. If the Supreme Court grants review in Cantero, Conti, or Kivett, its eventual decision could directly affect the central legal issue presented by Oregon’s complaint. The Supreme Court’s decision could establish the governing standard for determining whether state interest-on-escrow laws are preempted and could either validate or undermine the OCC’s principal rationale for its Preemption Rule.

There is an additional reason a stay could be attractive to the district court. The Oregon case is in the Ninth Circuit, and Kivett is itself a Ninth Circuit decision concerning California’s substantially similar interest-on-escrow law. Although Kivett does not bind the district court with respect to the validity of the OCC’s new rules in every respect, the Supreme Court’s treatment of Kivett could directly affect the preemption issue at the heart of the Oregon case.

It is therefore quite possible that the OCC’s first significant procedural move in Oregon will be a motion to stay pending the Supreme Court’s disposition of the pending escrow-interest cases.

Whether the district court would grant such a motion is a separate question. The Oregon plaintiffs could argue that their challenge is not merely a private preemption dispute between a borrower and a national bank. They are challenging the OCC’s administrative action under the APA and contend that the OCC exceeded the statutory authority Congress gave it, failed to comply with Dodd-Frank’s procedural requirements, and acted arbitrarily and capriciously. Those issues are not necessarily resolved by a Supreme Court decision addressing direct preemption of a particular state escrow-interest statute.

Nevertheless, the overlap is substantial. A Supreme Court decision holding that state interest-on-escrow laws are not preempted would seriously undermine the OCC’s Preemption Rule. Conversely, a decision upholding the Second Circuit’s approach could substantially strengthen the OCC’s defense.

For that reason, the Supreme Court’s next steps in Cantero, Conti, and Kivett may be almost as important to the Oregon litigation as the merits of the OCC’s new rules themselves.

A Potentially Important Convergence

The timing is striking. The OCC issued its two rules on May 15. The Second Circuit issued its new Cantero decision on May 5. The Cantero petition was filed May 22. The Kivett petition followed on June 1. The briefing in Cantero was completed on August 10, and the briefing in Kivett was completed on July 30. Meanwhile, the Conti rehearing petition remains pending.

Thus, when the Oregon lawsuit was filed on August 11, the Supreme Court already had before it three proceedings capable of determining the legal landscape in which the OCC’s rules must operate.

That convergence could make the new Oregon case an important fourth front in what has become a nationwide dispute over the scope of national-bank preemption.

The next few months may determine whether the Supreme Court takes up one of the existing cases or whether the Oregon litigation becomes the vehicle through which the OCC’s new preemption strategy is tested.

The Bigger Issue: Who Decides the Scope of National Bank Preemption?

This lawsuit comes at an especially important time in the continuing evolution of national bank preemption law.

For decades, the OCC advocated a broad conception of preemption. Congress responded in Dodd-Frank by establishing specific substantive and procedural limits. The Supreme Court subsequently reinforced those limits in Cantero by rejecting categorical preemption and requiring courts to examine the actual nature and degree of interference caused by state law.

The OCC’s new rules test how far those limitations extend.

The states’ central argument is that the OCC cannot transform “flexibility” into an independent federal banking power and then use that newly defined power to eliminate state regulation. If accepted, that theory would allow the OCC to make virtually any state consumer-protection requirement look like an interference with national bank discretion.

The states are asking the district court to declare both rules unlawful and vacate them under the Administrative Procedure Act.

The case will therefore be closely watched not only by mortgage lenders and borrowers, but by banks, Fintech companies, state financial regulators, consumer advocates, and anyone concerned about the continuing struggle between federal banking preemption and state consumer financial protection.

At bottom, the lawsuit asks a question that has been at the center of federal banking law for decades: When Congress gives a national bank a federal power, how much room remains for the states to regulate the manner in which that power is exercised? The Supreme Court’s answer in Cantero was that the answer cannot be determined categorically. It requires a practical assessment of the nature and degree of the state’s interference. The states now contend that the OCC has attempted to evade that command by creating a federal rule that makes the conflict categorical from the outset.

That makes this new lawsuit about much more than interest on mortgage escrow accounts. It could become another major chapter in the continuing battle over the proper limits of OCC preemption authority.

Alan S. Kaplinsky

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DIDMCA’s Section 525 Opt-Out: Congress Allowed States to Reimpose Usury Limits on Their Own Banks, Not on Out-of-State Lenders

The purpose of this blog is to respond to questions we have received as to why a state like Colorado would ever use Section 525 of DIDMCA to opt out of Section 521 of DIDMCA if it would not preclude rate exportation by out-of-state, state-chartered banks. The question suggests that Congress would not have enacted Section 525 for any purpose other than to prevent rate exportation. (This blog will not focus on the plain meaning of Section 525 since these arguments have been made in numerous briefs and previous blog posts.)

The simple answer is grounded in Congress’ purpose for enacting DIDMCA Sections 521 and 525 in March of 1980. That purpose had nothing to do with rate exportation—contrary to what the Colorado legislature apparently believed.

Congress’ purpose for enacting DIDMCA Sections 521 and 525 is best understood in historical context, supported by legislative history. In the period leading up to DIDMCA’s enactment, the prime rate of interest that banks charged to their most creditworthy customers was 19.5%. More importantly, the Federal Reserve Discount Rate was 13% (with a 3% emergency surcharge raising it to 16% for large frequent borrowers). In states with restrictive usury laws, banks’ cost of funds often exceeded the rates state banks could lawfully charge on loans. National banks were less impacted, however, because under Section 85 of the National Bank Act, they could charge up to 1% in excess of the prevailing Federal Reserve Discount rate (often referred to as the Alternative Rate), or the highest rate allowed by the state where they were located.

Now, let’s consider the legislative history of Sections 521 and 525. The major proponents of Section 521 were Senators Bumpers and Pryor of Arkansas. Why is that? It’s because Arkansas then had a 10% constitutional usury ceiling. Therefore, in Arkansas, national banks could use their Alternative Rate authority to profitably make loans at 14-17%, but their state bank counterparts would lose money on nearly every loan they booked. Credit availability dried up in Arkansas, particularly in rural areas, since national banks were mostly located in larger cities. Moreover, state banks could not retain deposits because their national bank counterparts could afford to pay more since they could lend out money at the Alternative Rate. Unlike other states with restrictive usury laws, Arkansas could not amend its constitution quickly enough to save their state banks from failure—assuming such an amendment could even pass a popular vote.

Arkansas officials asked Congress to help, which it did through the enactment of 521 which also permitted state banks to charge 1% over the Federal Reserve Discount Rate.

In order to appease lawmakers who philosophically didn’t like the idea of the Federal Government overriding state usury laws, Section 525 was enacted to allow states to opt-out of Section 521. As you can see, however, Congress’ focus was exclusively on intrastate lending. There was nary a mention of interstate lending or the 1978 Supreme Court Marquette case which authorized national banks to export the interest rate permitted by their home states to borrowers residing elsewhere. That is not at all surprising since there was very little interstate lending by state banks before DIDMCA because they did not acquire federal exportation powers until DIDMCA was enacted. Interstate lending by state banks was simply not the issue which Congress was seeking to solve through the enactment of Section 521.

It is true that the Alternative Rate under Section 85 of the National Bank Act and Section 521 of DIDMCA has not been used in recent times as usury authority by any banks making loans because the Federal Reserve Discount Rate is currently only 3.75% to 4.25%. Instead, national banks and state banks use the main usury authority in Section 85 and Section 521—the right to charge the interest rate allowed to state banks or any other lenders located in the same state. This is referred to as the “most favored lender doctrine.” For example, if consumer finance companies in a particular state are allowed to charge interest at 36% per annum for certain loans, national and state banks in that same state can also charge 36% per annum for the same kinds of loans.

While the “most favored lender” authority may not be meaningful in certain states, like Colorado, which as a matter of state law permit all lenders to charge the same interest rates, this doctrine was available to be used at the time DIDMCA was enacted. Thus, if a state opts out of Section 521, it is disabling its own state banks from using the most favored lender doctrine and the Alternative Rate.

The reason so many states that originally opted out ended up opting back in and so few states are now opted out (Iowa, Puerto Rico, Colorado, and Oregon) is that it has long been commonly understood that (a) an opt out does not empower the opt out state to regulate the interest rates charged by out of state banks; and (b) an opt-out harms the state banks in the opt out state with respect to their intrastate loans to their residents and/or interstate loans to residents of other states. The states that initially opted out but later repealed their opt out statutes often did that when they recognized that they were putting their state banks at a major competitive disadvantage with banks located in states like Delaware and South Dakota which had not opted out of DIDMCA because of their desire to become a hub for interstate lending

Alan S. Kaplinsky and Ronald K. Vaske

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AI in Workforce Decisions: Privilege Strategies and Policy Guardrails Every Employer Needs

A recent lawsuit filed in the Northern District of California alleges that AI-based tools used to score, rank, and select employees for a reduction in force discriminated against workers on protected leave and those with disabilities. The lawsuit alleges this occurred, in part, because the AI-system’s inputs, such as productivity metrics and “AI-native” ratings, could not be accumulated by employees who were absent or working under various accommodations. The complaint further asserts that, based on information and belief, the employer did not neutralize those inputs for protected leave; did not exclude protected-leave-takers or accommodation-seekers from the selection cohort; and did not pause the system for the individualized, leave- and accommodation-neutral review that the law requires.

This lawsuit serves as a timely reminder for employers considering, or already deploying, AI tools in layoffs, performance management, or other high-stakes employment decisions—specifically, underscoring the inherent legal risks of developing technology. As we have explored in our prior publications addressing AI, privilege, confidentiality, and the issues every business must address in its first AI policy, two specific areas demand immediate attention: (1) how companies structure AI-related reviews to protect privilege and confidentiality, and (2) what internal governance frameworks are in place before an employee hits “enter” on the AI platform.

Structure AI Assessments to Maximize Privilege

One of the most significant and frequently overlooked risks of using AI in employment decisions is the discoverability of the analysis behind those decisions. Employers routinely conduct bias audits, adverse impact analyses, and vendor assessments of AI tools, but if those analyses are not structured properly, they can become plaintiff’s “Exhibit A.” (For a deeper treatment of the privilege landscape as it applies to AI, see our recent article on AI, Privilege, and the Future of Confidentiality in the Workplace and Beyond.)

Here is how to get it right:

  • Engage outside counsel from the start. The most effective step an employer can take is to ensure that any review of an AI tool’s design, inputs, or outputs is initiated by or conducted at the direction of legal counsel. An audit commissioned by HR or a business unit, without counsel’s involvement, is far more likely to be deemed a routine business record than a privileged communication.
  • Define the purpose in writing. When retaining outside consultants, data scientists, or vendors to evaluate an AI tool, the engagement letter should make clear that the work is being performed to assist counsel in providing legal advice. Avoid framing the engagement as a general “best practices” review or a compliance check as those characterizations can undermine privilege claims.
  • Separate privileged and non-privileged workstreams. Not every document generated in connection with an AI assessment needs to be privileged, and attempting to paint everything as such can backfire. The better approach is to maintain a clear distinction between (1) the factual, operational work of deploying and monitoring the tool and (2) the legal analysis of whether the tool’s design or outputs create litigation risk. Keep legal memoranda, risk assessments, and counsel’s recommendations in a separate, clearly marked channel. This is particularly important because, as AI tools increasingly handle sensitive data, the line between operational use and legal risk analysis can blur quickly.
  • Control distribution. Privilege is waived by disclosure, so limit the circulation of privileged assessments to those with a “need to know,” and label documents appropriately. Sharing a privileged bias audit with the full C-suite (or with an outside AI vendor) can destroy the protection entirely.
  • Be mindful of state-law wrinkles. Several jurisdictions with AI-governance statutes impose affirmative obligations to conduct impact assessments that may need to be disclosed to regulators or affected individuals. Counsel should evaluate whether mandatory disclosures can be structured in a way that preserves privilege over the underlying legal analysis, even where the summary results must be shared.

Build Internal Policy Guardrails Before You Deploy

Privilege protects the analysis, but it is not a compliance strategy. Employers need substantive governance frameworks in place before any AI tool touches an employment decision. (For organizations building these frameworks from the ground up, our article on Your First AI Policy: Six Burning Issues for Every Growing Business to Consider offers a practical starting point.)

  • Adopt an AI-in-employment policy. At a minimum, the policy should define which employment decisions may use AI tools, require pre-deployment legal review, establish approval workflows, and assign accountability for ongoing monitoring. A policy that sits in a drawer is no policy at all, so make sure it is operationalized and that managers understand it.
  • Vet your inputs. Recent lawsuits illustrate the risk of feeding facially neutral data into an AI system without asking whether that data can be generated equally by all employees. Before deploying any AI-assisted selection tool, map every input variable and assess whether it could serve as a proxy for a legally protected characteristic.
  • Require human oversight. Automated scoring should inform, not replace, human judgment. Build a mandatory review layer into any AI-assisted adverse action that requires a trained decision-maker to evaluate the AI’s output in light of the employee’s individualized factors, such as leave history, accommodation status, among others.
  • Establish exclusion and adjustment protocols. Determine in advance how the organization will handle employees on protected leave, those with open accommodation requests, and others whose data may suggest a legally protected characteristic. Options include excluding those employees from the AI-scored cohort, normalizing their metrics, or routing them to a separate, manual review track.
  • Conduct pre-deployment adverse impact testing. Run the AI tool’s outputs against your workforce demographics before any decisions are made. If the results show a statistically significant disparate impact on a protected group, pause and evaluate with counsel whether the tool can be recalibrated or whether an alternative selection method is warranted.
  • Train your people. Policies are only as good as the managers who implement them. Ensure that HR professionals, business leaders, and anyone involved in AI-assisted decision-making understands the legal framework, the organization’s policies, and when to escalate.

The Bottom Line

AI-assisted employment decisions are here to stay, and so is the litigation and regulatory scrutiny that follows them. Employers who invest now in privilege-protected assessments and robust internal governance will be far better positioned to defend their decisions if challenged. Those who do not may find themselves learning the hard way that speed and efficiency are no substitute for legal compliance.

Employers with questions about structuring AI reviews, building governance frameworks, or responding to AI-related litigation should consider attending Ballard Spahr’s Labor and Employment Seminar. The seminar will be held in Portland, Oregon on September 23, 2026, and in Seattle, Washington on October 6, 2026. For more information, visit the firm’s AI-initiative page: https://www.ballardspahr.com/services/initiatives/artificial-intelligence.

Nasir S. Ahmed and Shirley S. Lou-Magnuson

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HR Legal Summit: Breakout Sessions Spotlight

Our breakout sessions are designed to help you dive deeper into timely, real-world HR and employment law challenges. You’ll be able to choose two sessions, and topics include workplace accommodations, HR legal fundamentals, DEI-related legal risks and enforcement trends, and updates on ERISA and benefit plan litigation.

Steering Through Uncharted Waters: Advanced Strategies for Workplace Accommodation Compliance

Speakers

Priya Vivian (Ballard Spahr)

Robyn Ruderman (Starbucks)

This advanced session is designed for experienced practitioners who already possess a foundational understanding of workplace accommodation law and are looking to deepen their expertise in handling complex disability, religious, and pregnancy-related accommodation requests under federal and state laws. Moving beyond the basics, attendees will examine multi-factor scenarios and novel requests, while exploring the evolving legal standards following recent court cases and trends. Through complex case studies and advanced hypotheticals, the session will address the intersection of accommodation obligations with other workplace laws — equipping seasoned session participants with sophisticated strategies for navigating the interactive process, avoiding high-risk pitfalls, and anticipating emerging areas of litigation exposure.

On Course with HR Law: Foundational Knowledge for Emerging HR Professionals

Speakers

Lou Chodoff (Ballard Spahr)

This introductory session will provide HR professionals and small HR teams with a practical overview of the core legal issues that arise throughout the employee life cycle. Participants will learn how to recognize common compliance risks in hiring, wage and hour practices, leave and accommodations, performance management, investigations, discipline, and terminations. The session will focus on real world issue spotting, documentation, and knowing when to escalate matters to legal counsel or senior leadership, with particular attention to the challenges faced by HR professionals who are building systems, policies, and credibility in lean or stand-alone HR functions.

DEI in the Cross Hairs – From Title VII to False Claims Act Liability

Speakers

Dee Spagnuolo (Ballard Spahr)

Virginia Essandoh (TD Bank)

As employers continue to reassess diversity, equity, and inclusion initiatives amid intensifying political, regulatory, and litigation scrutiny, human resources professionals and counsel face a challenging and increasingly sophisticated landscape. This session examines the growing legal challenges to DEI programs through the lens of federal anti-discrimination law, government enforcement trends, and emerging whistleblower theories. Drawing on recent litigation, agency guidance, and practical experience, we will explore how traditional civil rights principles are being applied to workplace policies, hiring and promotion practices, affinity programs, trainings, and compensation initiatives, while also addressing the expanding use of the False Claims Act and other enforcement mechanisms to challenge DEI-related representations and practices by government contractors, educational institutions, healthcare entities, and other federally funded organizations. We will discuss how organizations can evaluate and structure initiatives to advance institutional goals while minimizing legal and reputational risk.

Seeing Around Corners: Preparing for the Next Wave of Benefit Plan Litigation

Speakers

Brian Pinheiro (Ballard Spahr)

Finn Pressly (Ballard Spahr)

With ERISA fiduciary litigation on the rise, employers must understand the fiduciary obligations associated with their benefit plan administration. After an update on the current state of the law, the presenters will review the new trends in benefit plan litigation and equip attendees with best practices for protecting themselves from class action complaints.

Thursday, September 17, 2026

8:00 AM – 4:30 PM ET

Presidential Caterers

2910 Dekalb Pike

East Norriton, Pennsylvania 19401

REGISTER HERE

AGENDA

CLE Credits: This program is approved for 4.5 (incl. 1.0 PA Ethics; and 1.0 CA and NY Elimination of Bias) CLE credits in CA, NY, and PA; and 5.7 (incl. 1.2 Ethics) NJ. Uniform Certificates of Attendance will also be provided for the purpose of seeking credit in other jurisdictions.

HRCI Credits: 6.00 (Approved)

SHRM Credits: 6.00 PDCs (Approved)

Brian D. Pedrow

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LOOKING AHEAD

RESPRO 2026 Fall Seminar

September 16 – 17, 2026 | Mayer Brown's Washington, D.C. offices

Washington Update: What to Expect for Midterm Elections and Update on Housing Policy
September 16, 2026 – 4:30 PM ET
Speaker: Maria Tripplaar

CFPB Update
September 17, 2026 – 1:00 PM ET
Speaker: Richard J. Andreano, Jr.

MBA Compliance and Risk Management Conference

September 27 – 29, 2026 | Grand Hyatt, Washington, D.C.

COMPLIANCE CONVERSATIONS TRACK: RESPA Section 8
September 27, 2026 – 1:00 PM ET
Speaker: Richard J. Andreano, Jr.

TRENDING COMPLIANCE ISSUES TRACK: Innovation in Mortgage Lending – Balancing Affordability, Compliance, and Risk
September 27, 2026 – 2:15 PM ET
Speaker: John D. Socknat

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