October 8 – 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 AI in debt collection, recap Governor Newsom’s signing of SB 690, and review the FDIC’s proposed rule to establish parity between state and national banks in applying host-state laws, along with other noteworthy updates.
- Consumer Finance Monitor Podcast: AI in Debt Collection: Opportunities, Risks, and the Importance of Data Governance
- Third District Court Rejects OLC’s Interpretation of CFPB Funding Statute
- Governor Newsom Signs SB 690, Ending the Private Right of Action Under CIPA’s Pen Register and Trap-and-Trace Provision
- Rohit Chopra’s California Move: What Has He Done So Far – and What Does It Tell Us About His Agenda?
- FDIC Proposes Rule to Establish Parity Between State and National Banks in Applying Host-State Laws
- NLRB Eases Path to Discipline Employees for Offensive Workplace Conduct Tied to Section 7 Activity
- Relief May Soon Be on the Way for Employers Before the NLRB
- LOOKING AHEAD
All content can be found previously published on Ballard Spahr’s Insights page.
Artificial intelligence is rapidly transforming consumer financial services, and consumer debt collection is no exception. AI already is being used in a variety of first-party and third-party consumer debt collection activities, ranging from account scoring and communication strategies to payment-plan optimization and compliance monitoring.
In our recent Consumer Finance Monitor podcast show, our special guest John McNamara, Chief Growth Officer at Avtal (a Fintech and software as a service (SAS) company that provides an AI-powered, white-labeled, digital engagement platform to help third-party consumer debt collection agencies automate communication and process self-service payments) and a former CFPB senior official who played a significant role in developing Regulation F promulgated under the Federal Debt Collection Practices Act explained that the debt collection industry needs to distinguish genuine AI applications from the marketing hype surrounding the technology. He also emphasized that the use of AI must be accompanied by careful attention to data governance, explainability, consumer protection, and human oversight.
Our show is hosted by Alan Kaplinsky, founder and former leader for 25 years and now senior counsel of our Consumer Financial Services Group.
Where AI Is Being Used in Debt Collection
According to McNamara, several AI applications are already in production.
One is account scoring and segmentation. AI can analyze large data sets to help determine how accounts should be segmented and how collection strategies should differ among consumers.
Another is determining when and through which channel to communicate with a consumer. AI can analyze interactions and other available information to help identify the timing and communication channel most likely to result in productive engagement.
AI also is being used for payment-plan, settlement, and other optimization. McNamara views these applications as among the less risky uses of AI because they generally involve analyzing information to determine how best to engage a consumer rather than having AI interact directly with the consumer.
Perhaps the most interesting development, in his view, is the ability to combine pre-charge-off and post-charge-off data to identify patterns that may help a collector determine how to engage a consumer about resolving an outstanding debt.
AI also has potentially important back-office applications. One that McNamara highlighted is compliance monitoring. Historically, collection agencies could monitor only a small percentage of their consumer interactions. AI can potentially analyze virtually all calls, emails, and text interactions, including tone, sentiment, and other characteristics, making it possible to identify problematic practices much earlier.
Consumer-Facing AI Presents Greater Risks
The more AI moves from analyzing information to directly interacting with consumers, the greater the risks become.
Examples include AI chatbots, outbound voice bots, and “agent assist” systems that provide real-time guidance to collectors during conversations with consumers. Skip-tracing applications also can raise concerns if AI is used to exploit information about consumers in ways that may be viewed as unfair or deceptive.
McNamara expressed particular caution about outbound AI voice bots. He noted that the Supreme Court’s decision in Facebook v. Duguid has implications for calls using artificial or prerecorded voice technology, including the continuing risk of litigation under the Telephone Consumer Protection Act.
Generative AI also presents challenges when it is used to communicate directly with consumers. Collection communications must comply with applicable disclosure and substantive requirements, and AI-generated communications can create additional risks if the system does not understand the legal significance of what a consumer says.
For example, an AI system needs to recognize that an unusual or colorful statement by a consumer may nevertheless constitute a refusal to pay. That may be easy for an experienced human collector to understand but considerably more difficult for an automated system.
AI Can Also Improve Consumer Outcomes
The risks should not obscure the potential benefits of AI for consumers.
One potentially significant benefit is the ability to give consumers more control over how and when they interact with collectors. McNamara noted that consumers increasingly may prefer asynchronous communication through email or text rather than intrusive telephone calls.
AI and data analytics can help identify consumer preferences regarding communication channels and timing. Instead of repeatedly calling a consumer in an effort to make contact, a collector potentially can communicate through the channel the consumer is most likely to use.
AI also can help identify patterns suggesting that a particular communication is producing a negative reaction. Collectors can analyze consumer responses, including tone and other characteristics of interactions, and use that information to determine whether subsequent communications are improving or damaging the relationship.
Another potential benefit is giving consumers greater visibility into their options for resolving a debt. Rather than approaching collection as a binary choice—pay the entire amount or do nothing—digital engagement can present available payment plans, settlements, and other options in a manner that allows consumers to consider them at their own pace.
Data Governance May Be the Most Important Issue
McNamara identified data governance as one of the most important considerations for companies deploying AI.
AI systems generally perform better when they have access to more data. But that does not mean a company should provide an AI vendor with every piece of information in its possession.
As McNamara put it, “with more data sharing is more risk.” Companies need to understand what data an AI system is using, where the data came from, why the company is permitted to possess and use it, and whether additional disclosures or other legal requirements may apply.
This issue can be particularly important in debt collection, where agencies may have decades of accumulated consumer information. The fact that information is available does not necessarily mean that it is appropriate or necessary to feed that information into an AI system.
McNamara suggested a straightforward framework: start with the use case, identify the risks associated with it, and then determine what data is actually necessary to accomplish the objective.
In other words, companies should resist the temptation to “dump everything” into an AI system simply because a vendor says that more data will produce a better result. The incremental benefit of additional data should be weighed against the additional legal, compliance, privacy, and reputational risks.
The ‘Black Box’ Problem
Another important issue is explainability.
McNamara drew a parallel to the use of AI and alternative data in lending. A company cannot simply say that an AI system produced a particular result and leave it at that. Companies need to understand enough about how their systems operate to explain and defend important decisions.
The same principle applies in debt collection. Companies should understand what an AI system is doing, what information it is relying upon, and why the system is producing particular recommendations or outputs.
This does not mean that every AI system must be completely transparent in every respect. Rather, companies should understand the boundary between what an AI system can do and what the company can explain and defend. If a particular application requires a degree of explainability that the system cannot provide, the company may need to limit the data or functionality being used.
Hallucinations and the Importance of a Human in the Loop
Generative AI’s potential to produce inaccurate information, often referred to as “hallucinations,” is another obvious concern when AI interacts with consumers.
McNamara’s principal safeguard is simple: keep a human in the loop.
He recommended that companies have experienced personnel review AI-generated outputs, with the frequency of review calibrated to the level of risk. Higher-risk applications warrant more extensive human review; lower-risk applications may permit less frequent review.
This principle is particularly important in debt collection because an apparently minor error in an automated communication could have legal consequences if it results in inaccurate information being provided to a consumer or causes a collector to take an inappropriate action.
Vendor Management Remains Critical
Companies also need to understand how third-party AI vendors operate.
A creditor or collection agency should not assume that a vendor’s AI solution is automatically compliant merely because the vendor describes it as “AI-powered.” The organization deploying the technology remains responsible for understanding the use case, the data being supplied to the system, and the resulting risks.
McNamara cautioned against overly prescriptive requirements imposed by creditors on collection agencies. For example, restrictions on the use of email and text messaging can sometimes have the unintended consequence of forcing collectors to rely more heavily on telephone calls, which may be more intrusive and generate more complaints.
The better approach, in his view, is for creditors and agencies to understand what the technology is intended to accomplish and to establish appropriate principles and guardrails rather than imposing requirements without understanding the operational consequences.
AI May Become Infrastructure Rather Than a Separate Technology
McNamara’s long-term prediction is that AI eventually will become less remarkable precisely because it will become ubiquitous.
He compared AI’s development to earlier technologies such as ATMs and cloud computing. Technologies that once generated considerable concern eventually became ordinary infrastructure.
The same thing may happen with AI in debt collection. Rather than thinking about AI as a separate category of technology, companies may increasingly use AI as an embedded component of ordinary collection operations.
That could produce a significant shift toward a more consumer self-service model of debt collection, in which consumers can interact with collectors digitally, on their own schedules, and with greater visibility into available options.
At the same time, McNamara does not expect humans to disappear from debt collection. He anticipates that human agents will continue to be needed for escalated and complicated situations, even if the industry has less need for large numbers of agents handling routine interactions.
Conclusion
AI presents debt collectors with substantial opportunities to improve both operational efficiency and consumer engagement. But the technology also raises familiar, and some new, legal and compliance questions.
The central lesson from McNamara’s discussion is that responsible deployment should begin with the use case rather than the technology. Companies should ask what they are trying to accomplish, what data is actually necessary, what legal authority they have to use that data, whether the system’s output can be understood and defended, and where human oversight is required.
If those questions are addressed carefully, AI may ultimately help move debt collection away from repeated, intrusive attempts to reach consumers and toward a more personalized, digital, and consumer-directed process.
Listen to the episode here.Consumer Financial Services Group
Third District Court Rejects OLC’s Interpretation of CFPB Funding Statute
Judge Aiken Holds That ‘Combined Earnings’ Means Federal Reserve Revenue, Not Profit
In a September 25, 2026, decision, Judge Ann Aiken of the U.S. District Court for the District of Oregon became the third federal district judge to reject the Office of Legal Counsel (OLC)’s interpretation of the statutory mechanism Congress established to fund the Consumer Financial Protection Bureau (CFPB). In State of New York v. Vought, Judge Aiken held that the “combined earnings” of the Federal Reserve System, from which the CFPB is funded, means the Federal Reserve’s gross revenues before expenses are deducted. She also held that the CFPB Acting Director has a statutory duty to request the funds that he determines are reasonably necessary for the Bureau to carry out its responsibilities.
The CFPB’s funding mechanism is unusual. Rather than relying on the annual congressional appropriations process, Congress directed the Federal Reserve Board to transfer to the CFPB, from the Federal Reserve System’s “combined earnings,” the amount the CFPB Director determines is reasonably necessary to carry out the Bureau’s statutory responsibilities. 12 U.S.C. § 5497(a)(1).
The dispute arose after the Federal Reserve’s interest expenses exceeded its income. The Office of Legal Counsel concluded in November 2025 that “combined earnings” meant the Federal Reserve’s profits after deducting interest expenses. Because the Federal Reserve was operating at a loss under that calculation, OLC concluded that there were no funds available for the CFPB to request from the Federal Reserve. Acting Director Russell Vought adopted that interpretation and declined to request additional Federal Reserve funding.
Judge Aiken rejected that interpretation. She found that the ordinary meaning of “earnings” refers to revenue before expenses are deducted and noted that OLC’s interpretation did not actually deduct all expenses. Instead, it treated only interest expenses as deductions. The court also relied on the structure and purpose of the CFPB’s funding statute, concluding that adopting OLC’s interpretation would make the Bureau’s funding dependent on fluctuations in interest rates and the Federal Reserve’s balance sheet.
Judge Aiken therefore joined two other district courts that had already reached the same conclusion.
Two Earlier District Court Decisions Reached the Same Result
The first was Judge Amy Berman Jackson of the U.S. District Court for the District of Columbia in National Treasury Employees Union v. Vought. In a December 30, 2025, memorandum opinion and order, Judge Jackson held that “combined earnings” means everything the Federal Reserve earns before expenses are deducted. She rejected the OLC interpretation and concluded that the administration could not use that interpretation as a basis for declining to request CFPB funding.
The second was Judge Edward Davila of the U.S. District Court for the Northern District of California in Rise Economy v. Vought. Judge Davila likewise rejected the OLC interpretation, holding that “combined earnings” means Federal Reserve revenue rather than profits after expenses. He also concluded that the CFPB Director has a duty to request the funding necessary to operate the Bureau. Judge Davila’s decision was issued in March 2026.
Thus, Judge Aiken’s decision is the third district court decision rejecting the OLC’s interpretation. Although the earlier decisions are sometimes described as having resolved the issue already, they were issued only months before Judge Aiken’s ruling.
The Acting Director Must Request Funding
Judge Aiken separately addressed whether the CFPB Acting Director has an affirmative obligation to request funding from the Federal Reserve.
The court answered yes. Section 5497(a)(1) provides that the Federal Reserve Board “shall transfer” to the CFPB the amount “determined by the Director to be reasonably necessary” to carry out the Bureau’s authorities. Judge Aiken concluded that this statutory structure necessarily includes a duty on the part of the Director to make the funding request.
The court also noted that, as recently as November 2025, Vought himself had described his statutory obligation as requiring him to request funding, but concluded that the amount legally available for him to request was zero based on the OLC opinion. Judge Aiken found that position inconsistent with the statute.
Why Was the Oregon Case Not Moot?
One potentially important question was why the Oregon case remained justiciable when the Federal Reserve had returned to a financial position in which funding could again be transferred to the CFPB and Vought had, pursuant to court orders, made a funding request.
Judge Aiken rejected the mootness argument because those developments did not resolve the underlying dispute. The plaintiffs were challenging Vought’s adoption of the OLC interpretation and his determination that he was not required to request Federal Reserve funding whenever the Federal Reserve was not profitable under that interpretation.
The court reasoned that the dispute could recur if the Federal Reserve again incurred expenses exceeding its income. A determination that the case was moot based on the Federal Reserve’s current financial condition would therefore leave the plaintiffs exposed to the same controversy if the Federal Reserve again recorded losses. Vought’s subsequent request for funds, made pursuant to court orders and under protest, likewise did not eliminate the controversy over the legality of his interpretation.
Judge Aiken also declined to apply the Ninth Circuit’s prudential-mootness doctrine, noting that the Ninth Circuit has not generally adopted that doctrine outside a narrow bankruptcy context.
The CFPB has not appealed and is unlikely to appeal any of these three decisions. Once Judge Jackson (who is still handling the lawsuit challenging Vought’s reduction-in-force order and other actions taken by the Vought to minimize the CFPB), these other lawsuits became superfluous and, using football vernacular, consisted of “piling on.” Russell Vought is no longer Acting Director, Mark Paoletta is in a caretaker role pending the Senate’s confirmation of Bruce Johnson’s nomination by President Trump. Judge Jackson’s opinion alone would prevent any Director (Acting or otherwise) from relying on the OLC opinion as a basis to cease requesting funding from the CFPB.
Separation of Powers
Judge Aiken went beyond statutory interpretation and held that Vought’s refusal to request Federal Reserve funding also violated the separation of powers provision in the U.S. Constitution.
The court reasoned that Congress had established a funding mechanism designed to provide the CFPB with a source of funding outside the ordinary appropriations process. By refusing to use that mechanism based on an erroneous interpretation of the statute, Vought had effectively prevented the CFPB from obtaining funds that Congress had authorized.
Judge Aiken concluded that this amounted to an attempt by the Executive Branch to exercise Congress’s constitutional “power of the purse.” The court therefore held that the challenged decisions violated the separation of powers in addition to violating the Administrative Procedure Act.
The Court’s Remedy
Judge Aiken vacated Vought’s challenged decisions and declared that they were contrary to law, constituted unlawfully withheld agency action, and violated the constitutional separation of powers.
The court also expressly declared that “combined earnings” under Section 5497(a)(1) means the Federal Reserve’s gross revenues without deduction for expenses and that the Federal Reserve is required to transfer to the CFPB the amount the Director determines is reasonably necessary to carry out the Bureau’s operations.
The court declined, however, to issue an injunction concerning CFPB funding for fiscal year 2026 because the fiscal year was nearing its end. Indeed, she only vacated Vought’s decision not to seek any funding and declared that his decision was a violation of the APA and the Constitution separation of powers requirement.
Judge Aiken’s decision therefore leaves little doubt about the district court consensus: the statutory term “combined earnings” does not mean Federal Reserve profits after expenses, and the CFPB Director cannot simply decline to request funding because the Federal Reserve is operating at a loss.
Alan S. Kaplinsky
On September 30, 2026, Governor Gavin Newsom signed Senate Bill 690, the product of a multi-year push to curb abusive litigation under the California Invasion of Privacy Act (CIPA). As previously reported, SB 690 cleared the Senate and Assembly on August 28. The law eliminates the private right of action for alleged violations of Cal. Penal Code § 638.51, CIPA’s pen register and trap-and-trace provision. It takes effect January 1, 2027, and applies retroactively for two years.
The enactment has drawn plenty of enthusiasm, but the final law is far narrower than the original bill and is not expected to meaningfully reduce abusive CIPA litigation. Governor Newsom acknowledged as much in his signing message: “[A]dditional work in this area is needed, as CIPA contains other decades-old statutes that are also susceptible to abuse by overly aggressive litigants. I urge the Legislature to take this on next year to ensure a fair balance between protecting private information and preventing rapacious litigation.” The question now is whether the Legislature will answer that call in 2027.
Elizabeth A. James and J. Matt Thornton
Rohit Chopra’s California Move: What Has He Done So Far – and What Does It Tell Us About His Agenda?
When Rohit Chopra left the Consumer Financial Protection Bureau earlier this year, there was considerable speculation about what he would do next. In May, Governor Gavin Newsom provided the answer: Chopra would become the inaugural Secretary of California’s newly created Business and Consumer Services Agency (BCSA).
Chopra was sworn in on July 1. Because the agency itself is new and Chopra has been on the job for only about three months, it would be premature to evaluate his California tenure by looking for a lengthy record of enforcement actions or regulations. The more revealing question at this early stage is what Chopra has done to establish the new agency and, perhaps more importantly, what he has said about where he intends to take it.
The answer should be of considerable interest to the consumer financial services industry.
Much of the information in this blog is taken from the new website of BCSA.
Building a New Regulatory Umbrella
BCSA is substantially broader than the CFPB. The new agency brings together dozens of boards, departments, and bureaus responsible for areas ranging from financial services and consumer affairs to real estate, cannabis, alcohol, health care, retail, and other sectors. Among the entities under the new agency is California’s Department of Financial Protection and Innovation (DFPI).
According to California, the purpose of the reorganization is to improve coordination and enforcement across these different agencies. Chopra therefore is not simply taking over an existing consumer financial regulator. He is helping to build an organizational structure that gives California a more centralized platform for pursuing consumer-protection and competition issues across multiple industries.
At the CFPB, Chopra had authority over a relatively focused federal agency. In California, he has a much broader portfolio but must work through agencies with different statutory authorities, regulatory responsibilities, and constituencies. How effectively he can coordinate those agencies will be an important measure of his success.
Chopra Has Quickly Identified His Priorities
Although his California enforcement and regulatory record is still developing, Chopra has been quite clear about the issues he intends to emphasize.
In July, he wrote that a key priority for BCSA would be addressing practices that increase costs for consumers and honest businesses. He specifically cited undisclosed fees and charges, manipulative practices, kickbacks, and other conduct that he characterized as harmful, anticompetitive, or corrupt. He also said the agency would seek to focus its audit and inspection resources on entities presenting the greatest risks rather than smaller firms presenting little risk to consumers.
The themes will sound familiar to anyone who followed Chopra’s CFPB tenure.
But there is an important difference. Chopra’s California mandate expressly extends beyond consumers. One of his early statements emphasized that BCSA will focus on helping small and independent businesses and entrepreneurs compete and grow, including by protecting them from unnecessary fees, onerous terms, and predatory practices.
That could become an interesting feature of his California tenure. At the CFPB, Chopra was principally identified with consumer protection. In California, his portfolio requires him to balance consumer protection with the state’s stated objective of fostering a competitive environment in which businesses, particularly small businesses, can operate.
California Is Also Positioning Itself as a Backstop to Federal Regulation
The timing of Chopra’s appointment is important.
California created BCSA as the federal government has taken a substantially different approach to consumer protection and financial regulation. Governor Newsom has explicitly described California as a backstop to what he regards as weakened federal enforcement. The governor’s announcement of Chopra’s appointment emphasized California’s efforts concerning junk fees, privacy, scams, corporate transparency, and other consumer-protection issues.
Chopra’s own statements have reinforced that theme. In July, he said California’s various departments would work with other states to increase scrutiny of potentially unlawful practices. He also emphasized that some California agencies have authority in appropriate circumstances to enforce federal as well as state law.
For companies operating nationally, that raises an obvious question: Will California increasingly become the venue in which regulatory theories that are no longer being pursued aggressively at the federal level are tested?
It is too early to know the answer. But Chopra’s statements suggest that California intends to play that role more aggressively.
Technology Is Another Emerging Priority
Chopra has also identified technology as a major concern.
In an August 31 article, he wrote that a top priority of BCSA will be ensuring that new technologies benefit Californians rather than undermine their health and safety. He emphasized that BCSA’s responsibilities span areas such as health care, housing, automobiles, and financial services, giving the agency exposure to the effects of technological change across a wide range of industries.
This could become particularly significant for financial services.
Artificial intelligence, algorithmic decision-making, data use, personalized pricing, Fintech, and other emerging technologies are already generating difficult questions for financial-services companies and regulators. Chopra’s background at the CFPB and FTC makes it reasonable to expect that he will pay close attention to these developments.
Again, however, there is an important distinction between an announced priority and an accomplished regulatory initiative. So far, Chopra has articulated the concern; it remains to be seen what specific California regulatory or enforcement initiatives will follow.
Chopra Has Already Shown a Willingness to Engage on Federal Matters
Chopra also wasted little time demonstrating that his new position does not prevent him from participating in national consumer-protection debates.
On July 6, BCSA filed a submission with the Federal Trade Commission (FTC) urging it to reject X Corporation’s request to terminate an existing FTC law-enforcement order concerning privacy and data-security practices. The California filing argued that terminating the order would undermine protections for users and could expose them to additional privacy and security risks.
Whatever one’s view of the merits of that particular dispute, the episode illustrates something important about Chopra’s approach: he appears prepared to use his California position to engage with federal regulators when he believes California’s interests are implicated.
The Bigger Question for Consumer Financial Services
The most interesting question may be whether Chopra can turn BCSA into something more than an administrative umbrella.
California already has powerful individual regulators, including DFPI. What is new is the attempt to bring numerous consumer-facing agencies together and improve coordination among them.
If Chopra succeeds, California could become an increasingly important source of coordinated regulatory and enforcement initiatives affecting companies that operate nationally.
That possibility deserves particular attention from consumer financial services companies.
The CFPB under Chopra was a powerful federal regulator with a broad consumer-finance mandate. BCSA is something different: a much broader state agency with the potential to connect financial-services regulation with competition, privacy, technology, licensing, real estate, health care, and other areas of state regulation.
For now, the record is still being written. But Chopra’s first three months provide a reasonably clear indication that he intends to use his new position to make California a more coordinated and assertive consumer-protection jurisdiction.
The more consequential question is what that will mean once the new agency moves from announcing priorities to exercising its enforcement and regulatory authorities.
Alan S. KaplinskyFDIC Proposes Rule to Establish Parity Between State and National Banks in Applying Host-State Laws
The FDIC has proposed a rule interpreting Section 24(j) of the Federal Deposit Insurance Act, enacted as part of The Riegle-Neal Interstate Branching and Banking Efficiency Act of 1994, to provide parity between out-of-State state and national banks insofar as preempting host state laws even when the out-of-state, state bank provides services in a host State without maintaining a physical branch. The FDIC Board approved the proposal on September 17, and it was published in the Federal Register on September 22. Comments are due no later than November 23, 2026.
The proposal is significant in light of litigation over the legality of the Illinois Interchange Fee Prohibition Act (IFPA). The IFPA makes it unlawful to charge an interchange fee on taxes and gratuities charged in connection with a payments card purchase of goods or services and restricts the collection and use of data related to such transactions. On June 1, 2026, the Federal District Court for the Northern District of Illinois, upon remand from the Seventh Circuit Court of Appeals, held that federal law preempts the IFPA as applied to national banks, federal savings associations, payment card networks, and out-of-State state banks covered by Section 24(j). The case is now back in the Seventh Circuit. A threshold issue is whether Section 24(j) applies to all host state laws or just host state laws that pertain to community reinvestment, consumer protection, fair lending and the establishment of intrastate branches. Since the IFPA would likely be considered a consumer protection statute, it seems unnecessary to determine whether Section 24(j) was only intended to provide parity with national banks for host state laws that are in one of the four categories of host state laws cited above.
The most important issue is whether Section 24(j)’s reference to a “branch in the host State” limits national bank parity immunity from the application of host state laws to state banks with physical branches in the host state.
The FDIC proposes that it does not. If a host-State law does not apply to an out-of-State national bank, the same law generally would not apply to an out-of-State state bank providing the same services, even without a physical branch. The bank’s home-State law would apply instead. The FDIC reasons that this approach preserves the state-national bank parity Congress intended as banking increasingly moves online and through other non-branch channels.
The proposal would not itself determine whether the IFPA or any other particular host state law is preempted. It would establish only the parity rule; whether a law is preempted as to the national bank remains a separate question. That inquiry is especially important after the Supreme Court opinion in Cantero v. Bank of America, which requires a fact-specific determination of whether a state law prevents or significantly interferes with national-bank powers. In the aftermath of such opinion, the First, Second, and Ninth Circuit Courts of Appeal have reached conflicting decisions on whether the National Bank Act preempts state laws requiring mortgage lenders to pay a prescribed rate of interest on mortgage escrow accounts held by such lenders to pay real estate taxes and insurance remitted by borrowers to lenders. It seems likely that the Supreme Court will grant review once again in the Cantero case in order to resolve the Circuit conflict.
The OCC has issued two interim final rules stating, in so many words, that the National Bank Act preempts the IFPA even though it is the payment networks, not the bank issuer of payment cards, to which the IFPA directly applies.
Under Loper-Bright Enterprises v. Raimondo, courts must independently interpret the relevant federal statutes rather than defer to the FDIC or the OCC. The agency’s reasoning may receive persuasive weight under Skidmore, but not binding deference.
It should be noted that the proposal leaves Section 27 of the Federal Deposit Insurance Act (enacted as Section 521 of the Depository Institutions Deregulation and Monetary Control Act of 1980 (DIDMCA)) unchanged and therefore would not affect the separate Colorado and Oregon litigation concerning interest rate opt-out laws enacted by such states pursuant to Section 525 of DIDMCA and whether they result in Colorado’s and Oregon’s usury laws applying to state banks located outside those states lending money to residents of those states.
If finalized and upheld, the FDIC proposal could reduce disparities between national and state-chartered banks engaged in interstate banking. Its effect will depend on the scope of Section 24(j), the development of National Bank Act preemption law after Cantero, and whether courts accept the FDIC’s interpretation of “branch.”
Alan S. Kaplinsky and Burt M. RublinNLRB Eases Path to Discipline Employees for Offensive Workplace Conduct Tied to Section 7 Activity
The National Labor Relations Board (NLRB or Board) this week confirmed that the Wright Line standard remains binding precedent for employers navigating discipline of employees for offensive conduct during otherwise protected Section 7 activity. This case brings to a close—at least for now—a years-long tug-of-war between the Board and the U.S. Court of Appeals for the Fifth Circuit over what legal standard governs.
The Lion Elastomers III decision is welcomed by employers who have struggled to reconcile the Board’s high tolerance for offensive employee outbursts in the workplace with federal anti-discrimination laws.
Procedural History
Lion Elastomers I
The case traces back to Lion Elastomers I, 369 NLRB No. 88 (2020), where the key legal question was whether the employee had lost the Act’s protection through his conduct at a safety meeting. There, the Board applied the longstanding Atlantic Steel framework, which considers four setting-specific factors: (1) the place of the discussion; (2) the subject matter; (3) the nature of the employee’s outburst; and (4) whether the outburst was provoked by an employer’s unfair labor practice. Atlantic Steel, 245 NLRB 814 (1979). Applying those factors, the Board concluded that the employee did not lose the Act’s protections and that the respondent violated the Act by disciplining him.
The respondent requested review of the Board’s decision to the Court of Appeals for the Fifth Circuit. While the case was pending review, the Board issued its decision in General Motors, which scrapped Atlantic Steel and similar setting-specific standards (e.g., the standards articulated in Pier Sixty, 362 NLRB 505 (2015) and Clear Pine Mouldings, 268 NLRB 1044 (1984)) and replaced them with the unified Wright Line burden-shifting framework. In light of this precedent change, the Board sought and obtained a remand from the Fifth Circuit to consider how General Motors affected the case.
Lion Elastomers II
On remand, in Lion Elastomers II, 372 NLRB No. 83 (2023), rather than apply General Motors, the Board used the case as a vehicle to overrule it entirely, returning to the traditional setting-specific standards.
The respondent again petitioned for review to the Court of Appeals for the Fifth Circuit, and the court vacated Lion Elastomers II, on two independent grounds: (1) the Board exceeded the scope of its remand by overruling General Motors rather than applying it; and (2) the Board violated the respondent’s due process rights by denying the respondent’s earlier motion to file a reply to the General Counsel’s argument that General Motors should be overruled. See Lion Elastomers, LLC v. NLRB, 108 F.4th 252 (5th Cir. 2024).
Lion Elastomers III
On September 23, 2026, the Board, now with a three-member Republican majority, reiterated that General Motors is the law of the land. The majority was careful to say it was not overruling Lion Elastomers II or reaching the merits of which standard is preferable, but was just giving effect to the Fifth Circuit’s decision that the Board could not overrule General Motors as it did.
The Board remanded the case to the administrative law judge to apply the General Motors/Wright Line framework, under which the General Counsel must show: (1) the employee engaged in protected activity, (2) the employer knew about it, and (3) the employer bore animus against it. The burden then shifts to the employer to prove it would have taken the same action regardless of the employee’s union or protected activity. If the employer meets that threshold, then the burden shifts back to the General Counsel to show that the employer’s justification is pretextual. Employers generally favor the Wright Line approach over application of the setting-specific standards when analyzing employee discipline for disruptive or offensive conduct.
The dissent sharply criticized the majority’s decision, claiming that the holding “swallows whole” the Board’s policy of nonacquiescence—the principle that because the NLRB operates nationwide, it adheres to its own decisions and interpretations of the Act even where a federal court of appeals has rejected that interpretation, unless and until the Supreme Court rules on the issue. The majority disagreed, saying its decision is distinguishable from cases where a court vacates a Board decision based on the court’s interpretation of the Act. Because the Fifth Circuit’s decision was based on the scope of its own remand rather than a disagreement with the Board’s policy choice, the majority argued that no circuit split could arise and nonacquiescence concerns are not implicated.
Employer Takeaways
When evaluating whether to take disciplinary action against an employee for abusive or offensive conduct during the course of otherwise protected activity, employers should apply the Wright Line burden-shifting framework. Employers should continue to carefully document discipline and to apply principles of fairness and consistency in all disciplinary decisions.
Lion Elastomers III arrives amid a broader shift at the Board. With a 3-1 Republican majority, the Board now has the votes to revisit Biden-era precedent across a range of issues. We will continue to monitor these decisions and keep employers apprised of changes to Board precedent.
Ballard Spahr’s Labor and Employment Group regularly advises employers on navigating NLRB proceedings assessing risk, responding to charges, and navigating changes in agency enforcement practices.
Rebecca A. Leaf and Nasir S. Ahmed
Relief May Soon Be on the Way for Employers Before the NLRB
On August 26 the General Counsel of the National Labor Relations Board (NLRB), Crystal S. Carey, issued a memorandum in which she identified a number of past decisions issued by the President Biden-era NLRB for which she intends to seek reversal before the newly reconstituted Board.
Until recent appointments approved by the Senate, the Board had been in a state of “suspended animation” for nearly a year because it lacked a quorum. Because the Board now has a majority of members who are Republicans, it is reasonable to expect that the General Counsel will succeed in obtaining a reversal of all, or nearly all, of these President Biden-era decisions, all of which were detrimental to the interests of employers.
These decisions affect employers in both the unionized and non-unionized sectors and are discussed in detail in the link below.
Click Here to Read More on the Decisions
Paul M. Ostroff
California’s MBA – 2026 Legal Issues and Regulatory Compliance Conference
December 7 – 8, 2026 | Hyatt Regency Huntington Beach, California
More details to follow soon
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