October 22 – 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 what the stock market reveals about the value of class action waivers, review the Supreme Court's invitation for the Solicitor General's views on National Bank Act preemption and the Comptroller of the Currency's motion to dismiss the multistate escrow challenge, and recap California's sweeping new regulation of commercial financing, along with other noteworthy updates.
- Consumer Finance Monitor Podcast: What Are Class Action Waivers Worth? A New Study Looks to the Stock Market for Answers
- Consumer Finance Monitor Podcast: Consumer Financial Services Litigation Series – Episode 1: Pro Se Plaintiffs
- Consumer Finance Monitor Podcast: The Supreme Court Opinions in Trump v. Slaughter and Trump v. Cook: What Do They Mean for the Future of the Administrative State?
- Supreme Court Takes Next Step Toward Resolving National Bank Act Preemption Split, Inviting Solicitor General’s Views in Cantero, Conti, and Kivett
- OCC Moves to Dismiss Multistate Challenge to Mortgage Escrow Preemption Actions
- Citing Growth of Impersonation Scams, FTC Considers Updating Rule
- Washington, D.C., Bans Medical Debt From Credit Reports
- California Enacts Sweeping New Regulation of Commercial Financing
- Revised Draft Rules for the Colorado ADMT Act and Conversational AI Act Released
- New York City’s Proposed POWER Act Would Create an Expansive Municipal Private Right of Action for Unfair and Abusive Business Practices, Unfair Methods of Competition, and Unlawful Acts
- LOOKING AHEAD
All content can be found previously published on Ballard Spahr’s Insights page.
For decades, the debate over arbitration agreements and class action waivers in consumer financial services contracts has largely played out in courtrooms, before regulators and Congress, and in academic journals. Advocates and critics have debated issues ranging from consumer access to justice and deterrence to litigation costs and whether the benefits of arbitration are ultimately passed along to consumers.
A new study approaches the issue from a very different perspective: What does the stock market tell us about the economic value of class action waivers to financial services companies?
In a recent episode of the Consumer Finance Monitor podcast, the host of the show, Alan Kaplinsky (founder, former leader for 25 years, and now senior counsel of our Consumer Financial Services Group), spoke with James Fallows Tierney, Associate Dean for Academic Affairs and Associate Professor of Law at Chicago-Kent College of Law, about his working paper, “The Value of Class Action Waivers: Evidence from Invalidation of the CFPB Arbitration Rule.” Professor Tierney’s research focuses on the intersection of law, financial markets, and consumer finance.
His study uses financial-market data to examine how investors reacted to developments affecting the enforceability of consumer arbitration agreements containing class action waivers.
An Eight-Year Project
Professor Tierney explained that the project grew out of the regulatory debate surrounding the CFPB’s 2017 arbitration rule. During that debate, there was considerable disagreement about what happened to the savings generated when class action waivers prevent companies from facing class litigation.
One side argued that competition would force companies to pass those savings along to consumers through lower prices or better terms. Critics questioned that assumption and argued that companies could retain some of the savings.
Professor Tierney saw an opportunity to examine one part of that debate empirically. If investors believed that enforceable class action waivers reduced a company’s future litigation exposure and costs, changes in the likelihood that those waivers would remain enforceable should be reflected in the company’s stock price.
His study therefore asks a relatively narrow question: Do investors view the enforceability of class action waivers as having economic value to affected companies?
Letting the Market ‘Speak’
The working paper uses an “event study,” a technique commonly used in financial economics to measure how a particular event affects stock prices.
Professor Tierney identified 11 significant public events during the CFPB arbitration rulemaking and subsequent Congressional Review Act repeal process. He then compared publicly traded financial companies whose businesses were subject to the CFPB’s rule with comparable financial companies that were not subject to it.
The methodology attempts to isolate the portion of a stock’s movement attributable to the arbitration-related event rather than broader movements in the stock market or financial-services sector.
As Professor Tierney explained during the podcast, this approach does not answer every question surrounding arbitration. It does, however, provide a way of testing whether investors viewed the enforceability of class action waivers as economically significant.
What Did the Study Find?
The headline finding is striking.
According to Professor Tierney, companies exposed to the CFPB’s arbitration rule experienced stock-price movements in the predicted direction of approximately 0.71% per event, relative to comparable companies, and the result was statistically significant. The finding also remained when he changed aspects of the analysis.
The largest reaction occurred after the Senate approved the Congressional Review Act resolution repealing the CFPB’s arbitration rule. The Senate vote occurred after the markets had closed and required Vice President Pence to break a 50-50 tie. The following trading period produced an approximately 2% difference between the affected and comparison companies, the largest reaction among the events examined.
Professor Tierney believes the magnitude of that reaction may have reflected the uncertainty surrounding the repeal. Unlike many of the earlier events in the rulemaking process, the outcome of the Congressional Review Act process was not a foregone conclusion.
The broader finding, in his view, is that investors treated the enforceability of class action waivers as an attribute relevant to firm value rather than simply as contractual boilerplate.
What About Consumers?
Importantly, the study does not establish that arbitration is good or bad for consumers, nor does it attempt to resolve the broader policy debate.
Professor Tierney emphasized that his study measures investor expectations concerning the future economic consequences of arbitration protection. It does not measure actual litigation costs, consumer prices, wages, or the distribution of savings between companies.
The findings are consistent with the proposition that companies retain at least some of the economic benefits associated with reduced exposure to class action litigation. If investors expected all of those savings to be passed through to consumers through competition, changes in the enforceability of class action waivers presumably would have less effect on the value investors assign to affected companies.
But, as Professor Tierney stressed, the study does not tell us precisely who ultimately receives those benefits.
Important Limitations
Professor Tierney was candid about several limitations of the research.
Most significantly, an event study can capture other news occurring at approximately the same time as an arbitration-related event. He has not yet completed a detailed audit of each of the 11 events against a comprehensive news database to determine whether company-specific developments or other information could have affected the results.
The study also measures investor expectations rather than actual litigation costs. A future study could potentially examine whether the adoption or invalidation of arbitration provisions actually affects litigation expenses, the number of lawsuits, consumer prices, or other economic measures.
And, although the study attempts to distinguish arbitration-specific developments from broader financial-sector movements, Professor Tierney acknowledged that further research could examine other CFPB-related events to determine whether investors reacted differently to companies affected by arbitration policy and those that were not.
A Different Way of Looking at an Old Debate
What we found particularly interesting about Professor Tierney’s study is not that it purports to resolve the long-running debate over arbitration. It doesn’t.
Instead, it provides an empirical perspective that has largely been missing from that debate.
The CFPB itself previously studied consumer arbitration and estimated that eliminating class action waivers would result in billions of dollars in additional costs to consumer financial services providers over a five-year period. Professor Tierney’s research approaches the question from the other direction: rather than asking what companies might spend, he examines how investors actually reacted when the legal environment surrounding class action waivers changed.
The debate over arbitration will undoubtedly continue. But Professor Tierney’s work demonstrates that financial-market data can provide another lens through which to examine the real-world economic consequences of legal and regulatory rules.
Listen to the full Consumer Finance Monitor podcast with Professor James Fallows Tierney to hear our discussion of his methodology, the 11 events examined in the study, the stock-market reaction to Congress’s repeal of the CFPB arbitration rule, the study’s limitations, and where this research could go next.
Listen to the episode here.Consumer Financial Services Group
Artificial intelligence is increasingly changing single-plaintiff consumer litigation, particularly by enabling pro se plaintiffs to file longer, more citation-dense complaints more quickly, while simultaneously giving defense counsel tools to assess cases, identify weaknesses, and pursue early resolution or dismissal strategies. In the first episode of this series focusing on consumer financial services litigation, Joseph Schuster and Matthew Morr, partners at Ballard Spahr in our Consumer Financial Services Group, discuss both the tactical opportunities and the professional responsibility/ethics risks created by AI use in litigation.
Key Topics Discussed:
- AI is driving higher volume and “more complete” pro se complaints: Complaints that were once handwritten and sparse are now often lengthy, AI-generated filings that may include irrelevant material but appear more sophisticated
- Defense “jujitsu” strategy: attack AI tell‑tales early: A key defense tactic is verifying whether pro se plaintiffs’ case citations are real and accurately stated; phantom or mischaracterized citations can support motions to strike, motions to dismiss, or requests for sanctions/show cause
- AI enables faster defense-side case assessment: Defense teams use AI for first-pass complaint analysis, chronology building, allegation-by-allegation factual mapping, claim-element matrices, missing record identification, and surfacing potential defenses
- Professional responsibility remains with counsel despite AI assistance: The transcript stresses that lawyers must verify both law and facts produced with AI, with courts criticizing parties who submit (or fail to flag) phantom cases and incorrect standards
- Privilege/work product issues are unsettled and fact-dependent: The speakers describe an emerging debate about whether AI interactions are protected work product, including a Colorado ruling extending Rule 26 work product to AI-assisted work and (in some circumstances) to pro se litigants, while also noting arguments that public generative AI use may waive confidentiality
- Concern about nonlawyers using AI as “agents”: The transcript flags potential unauthorized practice of law where non‑lawyer companies use AI to negotiate or litigate on behalf of individuals, with anticipated defense efforts to investigate and challenge such conduct
Overall, the conversation frames AI as both an equalizer for pro se litigants and a tool for defendants to more efficiently evaluate, rebut, and resolve claims where appropriate, while emphasizing that accuracy, diligence, and evolving privilege/ethics rules remain central litigation risks.
Listen to the podcast here.
Consumer Financial Services Group
The Supreme Court’s June 29, 2026, decisions in Trump v. Slaughter and Trump v. Cook raise fundamental questions about presidential power, the independence of federal agencies, and the constitutional structure of the administrative state. Although both cases involved the President’s authority to remove federal officials, the Court’s decisions appear to point in different directions. In our latest Consumer Finance Monitor podcast, our host, Alan Kaplinsky (founder and former practice group leader for 25 years and now senior counsel of our Consumer Financial Services Group), discusses these decisions and their potentially far-reaching implications with Professor Lev Menand of Columbia Law School, one of the country’s leading scholars on administrative law, constitutional structure, financial regulation, and the Federal Reserve System.
In Trump v. Slaughter, the Court, in a 6–3 decision authored by Chief Justice John Roberts, held that the Federal Trade Commission Act’s restrictions on the President’s ability to remove FTC commissioners violate the separation of powers. The Court concluded that FTC commissioners exercise substantial executive authority and therefore must remain accountable to the President through his removal power. In reaching that conclusion, the Court expressly overruled its 1935 decision in Humphrey’s Executor v. United States, which had upheld restrictions on the President’s removal of FTC commissioners.
The decision represents a major development in the Court’s embrace of the unitary executive theory and could have significant consequences for the structure and independence of federal agencies. Justice Sonia Sotomayor, joined by Justices Elena Kagan and Ketanji Brown Jackson, dissented, arguing that the majority had discarded nearly a century of precedent and fundamentally altered the structure of independent agencies. Justice Neil Gorsuch, while concurring in the judgment, raised an additional constitutional concern: whether Congress has delegated excessive legislative authority to administrative agencies.
In Trump v. Cook, decided the same day, the Court took a different approach to the attempted removal of Federal Reserve Governor Lisa Cook. In a 5–4 decision, the Court left in place an injunction preventing her removal while litigation continues. Although the Court did not resolve the ultimate merits of the dispute, it suggested that the Federal Reserve may occupy a unique constitutional position, drawing on historical references to the First and Second Banks of the United States.
In our discussion, Professor Menand questions the historical analogy between those early banks and the modern Federal Reserve Board, emphasizing the distinction between a bank (which is what the First and Second Banks of the United States were) and a government agency that regulates banks (which is a significant part of what the Federal Reserve Board does). We explore whether Cook establishes a meaningful exception to Slaughter, how far that exception might extend, and whether other financial regulators, including the Federal Deposit Insurance Corporation (FDIC), might be able to invoke similar arguments to preserve their independence.
Our conversation also examines several other important issues:
- The future of independent agencies. Which agencies are most vulnerable to challenges following Slaughter, and what does the decision mean for the National Labor Relations Board, the Merit Systems Protection Board, and other federal regulators?
- The Federal Reserve’s constitutional status. Does Cook actually resolve the question of whether Congress may restrict the President’s authority to remove Federal Reserve governors, or does that issue remain open? We also discuss whether the Court’s reasoning in the two cases is consistent and what it means for the Fed’s regulatory and monetary policy functions.
- Justice Gorsuch’s nondelegation concerns. Could Slaughter be a precursor to a renewed effort to limit Congress’s ability to delegate authority to federal agencies? We discuss the potential implications for the FTC Act’s prohibitions on unfair or deceptive acts or practices and unfair methods of competition, as well as the distinction between the nondelegation doctrine and the major questions doctrine. We previously published on July 6, 2026, a blog about the potential implications of Justice Gorsuch’s nondelegation concerns.
- Potential responses by Congress and the courts. Could Congress restructure independent agencies or otherwise preserve their independence within the constitutional framework established by Slaughter? We also consider whether the Supreme Court itself might eventually narrow the decision, as the Court did with its earlier presidential removal decision in Myers v. United States.
- What lies ahead for financial services regulation. We consider the implications of these decisions for the federal agencies that regulate banks and other providers of consumer financial services, including the possible impact on the FDIC and other independent financial regulators.
Professor Menand views Slaughter as one of the most consequential separation-of-powers decisions in American history and questions whether the Court’s reasoning adequately accounts for the longstanding role of independent agencies in the federal regulatory system. He also cautions that the decisions may have consequences extending well beyond presidential removal authority, potentially affecting the ability of the federal government to establish consistent national regulatory standards.
The discussion concludes with Professor Menand’s assessment of where the law may be headed over the next five years and why the long-term consequences of these decisions remain difficult to predict.
Listen to our latest Consumer Finance Monitor podcast for an in-depth discussion of these consequential decisions and their implications for the future of the administrative state and federal financial regulation.
Postscript: President Trump Establishes Committee to Reconsider Lisa Cook’s Removal
Since recording this podcast, President Trump has announced a new effort to remove Federal Reserve Governor Lisa Cook. On October 7, President Trump established a three-member committee of inquiry to investigate allegations that Cook made false statements in connection with mortgage documents and to recommend whether there is “cause” for her removal under the Federal Reserve Act. The committee consists of Kevin Hassett, Director of the National Economic Council; Keith Sonderling, Acting Director of the Office of Government Ethics; and Andrea Lucas, Chair of the Equal Employment Opportunity Commission.
The committee is scheduled to hold a closed, transcribed hearing at the White House on November 5, at which Cook may respond to the allegations and present evidence and arguments through counsel. It must provide written findings and a recommendation to President Trump after receiving any post-hearing submission from Cook, due November 10. The initiative follows the Supreme Court’s June decision leaving in place an injunction against Cook’s removal while litigation proceeds, with the Court emphasizing the need to provide her notice of the allegations and an opportunity to respond. Cook’s attorneys have questioned whether the new process will be impartial, pointing to President Trump’s repeated statements that he has already decided to fire her. The committee’s proceedings could therefore provide an important test of the procedural requirements governing a President’s authority to remove a Federal Reserve governor for cause.
Listen to the podcast here.
Consumer Financial Services Group
The Supreme Court yesterday took an important step toward resolving the growing uncertainty over the scope of National Bank Act preemption. In an order issued October 5, the Court invited the Solicitor General to file briefs expressing the views of the United States in three cases involving state laws requiring national banks to pay interest on mortgage escrow accounts: Cantero v. Bank of America, N.A., No. 25-1313; Citizens Bank, N.A. v. Conti, No. 25-1004; and Flagstar Bank, N.A. v. Kivett, No. 25-1350. The Court’s order does not mean that it has granted certiorari. But asking the Solicitor General for the views of the United States in all three cases is a strong indication that the Court is seriously considering whether to revisit the important preemption issue it addressed just two years ago in Cantero.
The Three Cases
As we discussed in our recent post concerning the Second Circuit’s decision, the Supreme Court’s 2024 Cantero decision rejected the Second Circuit’s categorical approach to National Bank Act preemption and instructed courts to determine whether a state law “prevents or significantly interferes” with the exercise of a national bank’s powers under the framework established in Barnett Bank.
On remand, however, the Second Circuit reached the opposite result from the First Circuit in Conti. The Second Circuit held that New York’s requirement that banks pay 2% interest on mortgage escrow balances is preempted, while the First Circuit held that Rhode Island’s similar requirement is not. The Second Circuit expressly disagreed with the First Circuit’s reasoning.
That has produced a direct circuit conflict over how the Supreme Court opinions in Cantero and Barnett Bank should be applied.
The Ninth Circuit’s Kivett decision presents another variation on the issue. The Ninth Circuit held that California’s escrow-interest law was not preempted, but did so largely because it regarded itself as bound by pre-Cantero circuit precedent. As a result, Kivett presents somewhat different issues from Cantero and Conti and may be a less clean vehicle for resolving the post-Cantero question.
Indeed, the petitioners in both Cantero and Conti have argued that Kivett is not the ideal vehicle for resolving the issue because of the unusual procedural and historical circumstances surrounding that case.
Why the Order Matters
The Court’s invitation to the Solicitor General is important for several reasons.
First, the Court has now asked for the views of the United States in all three cases. That gives the Solicitor General an opportunity to address not merely whether one particular petition should be granted, but how the Court should approach the broader conflict among the circuits and which case, if any, provides the best vehicle for resolving it.
Second, the Solicitor General’s views could be particularly important because the federal government’s position on National Bank Act preemption has itself been evolving. The Office of the Comptroller of the Currency (OCC) has recently taken a strong position in favor of preemption of state interest-on-escrow laws. In May, the OCC finalized rules declaring that federal law preempts a number of state laws restricting national banks’ discretion concerning interest paid on escrow balances. Those rules have themselves been challenged by a coalition of states in a separate lawsuit pending in the U.S. District Court for the District of Oregon. The OCC filed a series of motions in that court: to Change or Transfer Venue, to Dismiss for Failure to State a Claim, to Dismiss for Lack of Jurisdiction, and to Dismiss for Lack of Venue. We will soon be publishing a separate blog about those motions.
The Solicitor General’s forthcoming briefs may therefore provide an important indication of how the Department of Justice views the OCC’s current position in light of the Supreme Court’s decision in Cantero and the requirements of Dodd-Frank. (When Cantero was originally under consideration for review, the Supreme Court asked for the Solicitor General’s views and the Solicitor General argued for a case-by-case approach and a practical assessment of the degree to which state law impedes the exercise of national bank powers. That was a different Solicitor General appointed by President Biden. That happened when there was also a different Comptroller of the Currency, also appointed by President Biden.)
Third, the Court’s action comes after the Second Circuit’s May 5 decision in Cantero created an unmistakable conflict with the First Circuit. The Supreme Court therefore now has before it precisely the sort of disagreement among the lower courts that ordinarily makes an issue particularly suitable for Supreme Court review.
What Happens Next?
The Solicitor General will now prepare briefs addressing the Court’s request. The Court will then consider the government’s views before deciding whether to grant certiorari in one or more of the cases.
The Court’s invitation does not guarantee that certiorari will be granted. Nevertheless, the order materially increases the prospect of Supreme Court review.
That possibility is especially significant because the Court would be reviewing the issue for the second time in a relatively short period. In 2024, the Court rejected the Second Circuit’s categorical approach and required a practical assessment of the “nature and degree” of the interference caused by state law. The Second Circuit’s subsequent decision on remand, together with the First Circuit’s contrary approach in Conti, has now presented the Court with a more fully developed disagreement over how that standard should operate.
Will the Solicitor General Follow the OCC?
The obvious question is what position the Solicitor General will take. Will the government simply endorse the OCC’s position that state interest-on-mortgage-escrow laws are preempted? We would not assume so.
The OCC’s position is certainly significant. When the Second Circuit decided Cantero in May, the OCC’s preemption determination was still only proposed. The majority nevertheless considered the proposed determination persuasive. The situation has changed materially since then. On May 15, the OCC issued a final preemption determination concluding that the National Bank Act preempts New York’s interest-on-escrow law and 13 substantively equivalent state laws. At the same time, the OCC finalized a rule expressly recognizing that the terms and conditions of mortgage escrow accounts, including whether and to what extent a bank pays interest, are matters within a national bank’s business discretion.
Indeed, the OCC expressly commended the Second Circuit’s Cantero decision and noted that the Second Circuit had relied upon the proposed version of the rules that the OCC subsequently finalized.
That does not mean, however, that the Solicitor General necessarily will adopt the OCC’s position wholesale. The Supreme Court has asked for the views of the United States, not merely the views of the OCC. The Solicitor General will presumably consider the OCC’s final determination, but it also will have to address the Supreme Court’s own analysis in Cantero, Barnett Bank, and the other preemption decisions cited by the parties, as well as the conflicting approaches taken by the Second and First Circuits.
There is another reason not to assume that the government’s brief will simply track the OCC. The Court’s 2024 Cantero decision emphasized that preemption depends upon the “nature and degree” of the state law’s interference with the national bank’s exercise of its federally granted powers. The Solicitor General therefore may conclude that the OCC’s final determination is entitled to substantial consideration but does not itself resolve the judicial question presented by the certiorari petitions. (As a technical matter, the Solicitor General will be looking to Section 1044(b)(5) of Dodd-Frank, which prescribes how courts should review OCC preemption determinations, rather than to the similar approach adopted by Loper Bright.)
Our expectation, however, is that the Solicitor General will give the OCC’s final determination considerable weight. The government now has the benefit of an OCC determination that was finalized after notice and comment and that specifically addresses the very state law at issue in Cantero. Moreover, the OCC’s determination is consistent with the Second Circuit’s ultimate conclusion that New York’s law is preempted.
Will the Solicitor General Endorse Cert?
The more difficult question is whether the Solicitor General will recommend that the Supreme Court grant certiorari.
We would expect the government to recognize that the Second Circuit and First Circuit have adopted materially different approaches to the Supreme Court’s Cantero framework and to endorse a grant of certiorari in one or both cases. It seems less likely that the government will support a grant of certiorari in Kivett, since the Ninth Circuit reached a non-preemption result without undertaking the same comparative analysis that the Second and First Circuits undertook.
In our view, the most interesting possibility is that the Solicitor General could recommend review while also urging the Court to provide additional guidance concerning the proper application of Barnett Bank and Cantero. If that occurs, the government’s brief could be almost as important as the Court’s eventual decision to grant or deny certiorari.
One thing is clear: the OCC’s final preemption determination substantially changes the landscape from the one that existed when the Supreme Court decided Cantero in 2024. Whether that development makes another Supreme Court decision unnecessary, or instead makes Supreme Court review more important, is likely to be one of the central questions addressed by the Solicitor General.
Why This Matters Beyond Escrow Interest
The ultimate significance of these cases extends well beyond mortgage escrow accounts.
Before and after the Supreme Court’s 2024 decision in Cantero, we counseled numerous national banks concerning the difficult question of which state laws apply to their activities. The challenge has been that Cantero rejected both an overly broad categorical approach to preemption and an approach that would effectively permit every generally applicable state law to regulate national banks without regard to the federal powers Congress has granted them.
Until the Supreme Court provides additional guidance, national banks must navigate that uncertainty on a state-by-state and law-by-law basis. Yesterday’s Supreme Court order makes clear that the Court recognizes the need to address the uncertainty created by the post-Cantero decisions. Whether the Court ultimately grants review, and, if so, which case becomes the vehicle, will be an important development not only for mortgage lenders, but for the broader relationship between national banks and state consumer financial laws.
The Supreme Court’s Order Will Significantly Extend the Timeline
There is an important procedural consequence to the Supreme Court’s October 5 order that should not be overlooked. The Court has not established a deadline for the Solicitor General to file its briefs in Cantero, Conti, and Kivett. That is typical when the Court asks the Solicitor General for the views of the United States. The Court’s guidance expressly states that there ordinarily is no formal due date for a brief responding to a call for the views of the Solicitor General (CVSG).
There is therefore no reason to expect the Solicitor General’s briefs immediately. Based on the timing of recent CVSG matters, it could take several months before the government files its briefs. And the clock does not stop there.
Once the Solicitor General files its brief, the Supreme Court’s Clerk’s Office will place the case on the next appropriate conference list that is at least 14 days after the filing of the government’s briefs. That 14-day period is designed to give the parties an opportunity to file supplemental briefs responding to the Solicitor General’s views.
The cases will then go to a Justices’ conference at which the Court will decide whether to grant certiorari. If the Court grants review, the Court will subsequently establish a merits briefing schedule, followed by oral argument and, ultimately, a decision. If the Court takes more than one of these cases, it could consolidate them for briefing and argument or otherwise coordinate their consideration.
This procedure has an important practical consequence. Although the Supreme Court’s invitation to the Solicitor General substantially increases the prospect that the Court will address the post-Cantero preemption controversy, it also significantly prolongs the timeline for obtaining a definitive answer.
The petitions were already fully briefed and had been distributed for the Court’s September 28 conference. Indeed, the Cantero docket shows that the parties had completed the petition-stage briefing, including the petitioners’ reply, before the Court issued its October 5 CVSG order. The Court therefore could have acted on the petitions at that stage and invited the Solicitor General to file a brief on the merits and even participate in the oral argument. Instead, it has inserted another layer of briefing and consideration before deciding whether to grant certiorari.
If the Solicitor General takes several months to file its briefs, followed by the required period for supplemental briefing and a subsequent conference, the Court may not decide whether to grant certiorari until well into the 2026–27 term. If certiorari is then granted, merits briefing and oral argument would follow, making it quite possible that the ultimate Supreme Court decision would not come until the end of the Supreme Court’s term in late June or early July or thereafter.
Thus, while yesterday’s order is an important indication that the Supreme Court is seriously considering these cases, it also means that national banks, state regulators, courts, and other interested parties will likely have to live with the current uncertainty over the scope of National Bank Act preemption for considerably longer.
John L. Culhane, Jr. and Alan S. KaplinskyOCC Moves to Dismiss Multistate Challenge to Mortgage Escrow Preemption Actions
The Office of the Comptroller of the Currency (OCC) has responded to the multistate lawsuit challenging its recent actions concerning mortgage escrow accounts with a motion that presents a merits argument as well as three distinct procedural paths: dismissal, transfer, or, potentially, a pause while the Supreme Court considers related preemption issues.
First, the OCC asks the U.S. District Court for the District of Oregon to dismiss the case. It argues that the 10 plaintiff states lack standing, that their claims are not ripe, and that, if the case proceeds, the states have failed to state a viable Administrative Procedure Act (APA) claim concerning the OCC’s escrow powers rule. A dismissal on those grounds would end the litigation in the district court without a ruling requiring the OCC to defend its actions on the merits.
Second, the OCC asks, in the alternative, for transfer to the U.S. District Court for the District of Columbia. Transfer would not resolve the states’ challenge. It would move the case to the forum where the OCC is headquartered, where the challenged decisions were made, and where the administrative record was generated. The states’ claims would remain pending, but before a different court.
Third, although the OCC’s motion does not itself seek a stay, the Supreme Court’s pending consideration of related interest-on-escrow preemption cases creates a possible third procedural development: the district court could pause the litigation while the Supreme Court decides whether to grant review or issues guidance affecting the governing legal standard. A stay would preserve the case rather than dismissing or transferring it but would delay consideration of the states’ claims.
The OCC filed its motion to dismiss or, alternatively, to transfer on October 5 in the U.S. District Court for the District of Oregon. The case is particularly significant because it challenges two related actions the OCC took in May: a rule codifying the authority of national banks to establish and maintain real estate escrow accounts and to determine the terms and conditions of those accounts, including whether and to what extent to pay interest; and a separate preemption determination concluding that specified state interest-on-escrow laws are preempted by federal law.
The 10 plaintiff states—Oregon, New York, California, Connecticut, Maine, Maryland, Massachusetts, Minnesota, Rhode Island, and Vermont—filed suit in August seeking to invalidate both actions. The states contend, among other things, that the OCC exceeded its statutory authority and improperly applied the National Bank Act’s preemption standard after the Supreme Court’s 2024 decision in Cantero v. Bank of America, N.A.
The OCC’s Standing and Ripeness Argument
The OCC’s first argument may be the most consequential procedurally. It contends that the states have not alleged an actual or imminent injury sufficient to establish Article III standing.
According to the OCC, the states have not alleged that a single national bank has actually stopped paying interest required by one of the states’ laws as a result of either OCC action. Nor, the OCC says, have they alleged that any national bank intends imminently to do so.
The OCC’s escrow powers rule does not require a national bank to stop paying interest on escrow balances. Instead, it recognizes the bank’s federal authority to make business judgments concerning the terms and conditions of escrow accounts, including whether and to what extent interest or other compensation will be paid.
Similarly, the OCC’s preemption determination establishes that specified state laws are preempted, but does not itself require any particular national bank to change the terms of an existing escrow program.
The OCC therefore characterizes the states’ alleged injury as speculative. The states, in the OCC’s view, are effectively asking the court to intervene now because a national bank might someday exercise the discretion recognized by the OCC in a manner inconsistent with a state’s interest-on-escrow law.
The motion invokes the Supreme Court’s recent standing and ripeness decisions, including its August 2026 decision in Trump v. California, for the proposition that federal courts should not adjudicate disputes dependent on a chain of contingent future events.
The OCC argues that precisely such a chain exists here: a national bank would first have to decide to exercise its federally recognized discretion; the bank would then have to decide not to pay interest required by state law; and the resulting dispute would have to be attributable to the OCC’s actions rather than to the preexisting federal statutory framework.
The OCC says that is not enough to establish an injury-in-fact.
If the court accepts this argument, the result would be dismissal, not transfer. The court would conclude that the states have not presented a justiciable controversy, and the case would end without a merits ruling on the OCC’s escrow powers rule or preemption determination.
The States Cannot Rely on Harm to Their Residents, OCC Says
The motion also attacks what appears to be an alternative theory of injury: that state interest-on-escrow laws benefit residents by requiring mortgage lenders to pay interest on escrow balances.
The OCC argues that this amounts to an impermissible attempt by the states to assert parens patriae standing against the federal government.
That argument could prove important beyond this particular case. If accepted, it would make it substantially more difficult for states to challenge federal financial-services regulations merely by alleging that those regulations could cause economic harm to residents of the state.
The OCC points to Ninth Circuit precedent holding that states generally cannot sue the federal government as parens patriae on behalf of their citizens.
The Cantero II Problem for New York, Connecticut, and Vermont
The motion reserves a particularly sharp attack for three of the plaintiff states: New York, Connecticut, and Vermont.
Those states are located in the Second Circuit, which in May 2026 decided Cantero v. Bank of America, N.A. for a second time following the Supreme Court’s 2024 remand. The Second Circuit again concluded that the National Bank Act preempts New York’s interest-on-escrow law.
The OCC argues that Cantero II creates an independent problem of both traceability and redressability.
The Second Circuit decided Cantero II on May 5—before the OCC issued its final escrow powers rule and preemption determination. Thus, according to the OCC, the New York interest-on-escrow law was already preempted in the Second Circuit before the challenged OCC actions took effect.
Consequently, if a New York national bank declines to pay interest required by New York law, the resulting legal position cannot fairly be attributed to the OCC’s actions. The bank would be operating under binding Second Circuit precedent that independently holds the state law preempted.
The same problem, the OCC argues, defeats redressability. Even if the Oregon district court were to invalidate the OCC’s rule and preemption determination, New York, Connecticut, and Vermont would still be bound by Second Circuit precedent.
In other words, the Oregon district court could not give those states what they really want unless Cantero II itself ceased to be binding law—and a district court in Oregon plainly has no power to accomplish that.
The OCC consequently accuses the Second Circuit states of engaging in “blatant forum shopping.” That accusation is likely to be one of the more contentious aspects of the litigation.
If the court agrees that the states lack traceability or redressability, the consequence again would be dismissal. Transfer would become relevant only if the court finds that the case is properly justiciable but should be litigated elsewhere.
The OCC’s Venue Argument: Why Oregon?
The OCC’s second major argument is that Oregon is the wrong place to litigate the case.
The agency argues that, at a minimum, venue is questionable for nine of the 10 states. Oregon is the only plaintiff that resides in the District of Oregon. The OCC and Comptroller Jonathan Gould are headquartered in Washington, D.C., and all of the challenged decision-making occurred there.
The OCC relies heavily on the text of 28 U.S.C. § 1391 and argues that the other plaintiff states cannot simply piggyback on Oregon’s presence in the case.
The motion recognizes that there is Ninth Circuit authority, including a 1991 decision citing Third Circuit precedent, that has permitted venue in cases involving multiple plaintiffs where one plaintiff independently establishes venue. But the OCC argues that this line of authority is based on an outdated policy approach and cannot survive modern Supreme Court textualism.
That argument is ambitious. It asks the district court not simply to apply existing Ninth Circuit precedent, but to conclude that the statutory text has displaced or undermined the reasoning underlying that precedent.
Even if the court rejects that argument, however, the OCC has a fallback position that is likely to receive serious consideration: transfer to the District of Columbia under 28 U.S.C. § 1404(a).
Why the OCC Wants the Case in Washington
The transfer argument is straightforward. The OCC is headquartered in Washington, D.C. The challenged decisions were made there. The administrative record was generated there. The federal officials responsible for the decisions are located there. And the case principally concerns federal law and federal agency decision-making rather than uniquely Oregon law. The OCC therefore argues that the District of Columbia is the natural forum.
The motion also contends that the states’ choice of Oregon deserves little deference because the operative facts did not occur there and because the Second Circuit states appear to have selected Oregon precisely because they face unfavorable precedent at home.
The OCC’s characterization is blunt: allowing New York, Connecticut, and Vermont to litigate in Oregon would permit them to circumvent binding Second Circuit precedent. That argument may have particular resonance because the Ninth Circuit itself has cautioned against forum shopping. The OCC cites cases in which courts have reduced or eliminated the normal deference given to a plaintiff’s choice of forum where the choice appears motivated by an effort to avoid unfavorable law.
The OCC also points to docket statistics showing that, during the 12-month period ending June 30, 2026, the median time from filing to disposition of a civil case was 7.1 months in the District of Columbia compared with 9.4 months in the District of Oregon.
Thus, the OCC says, virtually every relevant factor favors Washington, D.C., as the appropriate venue.
A transfer would have a materially different effect from dismissal. The states’ claims would not disappear, and the OCC’s rules would not be upheld or invalidated merely because the case moved. Instead, the District of Columbia court would take over the litigation and decide the pending motions or otherwise manage the case. The transfer could, however, affect the litigation’s pace, the court’s approach to the administrative record, and the practical significance of the states’ forum-selection strategy.
And Then There Is a Merits Argument
The OCC’s final argument addresses Count One of the states’ complaint, which challenges the escrow powers rule itself.
The states contend that the OCC created a new national-bank power for the purpose of preempting state law and that the agency improperly relied on the Barnett Bank standard as incorporated into Dodd-Frank.
The OCC responds that this misunderstands what it did. According to the agency, the two May actions were based on different statutory authorities and served different purposes.
The preemption determination was issued under the OCC’s authority to determine whether state consumer financial laws are preempted under 12 U.S.C. § 25b. The escrow powers rule, by contrast, was issued under the National Bank Act provisions authorizing national banks to exercise specified banking powers and the OCC to issue regulations concerning those powers.
The OCC emphasizes that the powers rule did not itself conduct a preemption analysis. Rather, it codified what the agency characterizes as longstanding national-bank authority to establish and maintain escrow accounts and to determine their terms and conditions.
The OCC argues that the states are improperly attempting to import the requirements governing a formal § 25b preemption determination into a regulation defining the scope of a national bank’s federally authorized powers.
The agency also makes an intriguing alternative argument: even if preemption was one of the motivations for adopting the powers rule, that would not mean the OCC lacked statutory authority to issue it. In other words, the OCC says there is nothing inherently unlawful about an agency exercising an otherwise valid rulemaking authority in a manner that has preemptive consequences.
The Larger Preemption Battle
The Oregon litigation is occurring against an unusually important backdrop.
The Supreme Court’s 2024 decision in Cantero rejected the Second Circuit’s categorical approach to National Bank Act preemption and instructed courts to undertake a practical assessment of the nature and degree of a state law’s interference with national-bank powers.
Since then, the circuits have divided again. The Second Circuit held in Cantero II that New York’s interest-on-escrow requirement is preempted, while the First Circuit reached the opposite conclusion with respect to Rhode Island’s law in Conti. The Ninth Circuit, meanwhile, has continued to adhere to its pre-Cantero precedent concerning California’s law in Kivett.
The Supreme Court now has petitions arising from those cases before it. That makes the timing of the Oregon case particularly interesting. The plaintiff states are challenging the OCC’s rules precisely as the Supreme Court is considering whether to revisit the underlying interest-on-escrow preemption issue.
Indeed, the Court took the unusual procedural step on October 5 of requesting the views of the Solicitor General on the pending certiorari petitions. The OCC’s motion expressly calls attention to that development.
This creates the possibility that the Oregon litigation could be overtaken, or at least substantially affected, by Supreme Court action before the district court reaches the merits.
If the Court grants review in one or more of the pending cases, the central question presented by the Oregon litigation could be clarified by the Supreme Court before the Oregon district court has to decide whether the OCC correctly applied federal preemption principles.
That possibility makes the OCC’s procedural arguments particularly significant.
What Happens Next?
The immediate question is how Judge Michael Simon will sequence the alternatives presented by the OCC’s motion.
The first possibility is dismissal. If the court concludes that the states lack standing, that their claims are unripe, or that particular states cannot establish traceability or redressability, the case could end without any ruling on the validity of the OCC’s actions. Dismissal would be the most complete victory for the OCC in this proceeding, although the states could seek to amend their complaint or appeal, depending on the basis for the ruling.
The second possibility is transfer. If the court finds that the states have presented a justiciable controversy but agrees that Oregon is an improper or inconvenient forum, it could transfer the case to the District of Columbia. Transfer would preserve the challenge and shift responsibility for resolving it to another district court; it would not itself decide whether the OCC acted lawfully.
The third possibility is that the case remains in Oregon and proceeds toward a merits ruling. The court eventually would have to confront whether the OCC had authority to codify national-bank escrow powers in the manner it did, whether the agency properly exercised its authority under Dodd-Frank to determine that state interest-on-escrow laws are preempted, and whether the OCC’s analysis is consistent with the Supreme Court’s instructions in Cantero.
There is also a fourth procedural possibility: a stay. The district court, or one of the parties, could ask the court to pause the litigation while the Supreme Court considers the pending interest-on-escrow cases. A stay would neither dismiss the states’ claims nor transfer them to another court. Instead, it would preserve the case in its current forum while postponing further proceedings until the Supreme Court’s actions clarify the governing law or otherwise affect the need for district-court review.
A stay may ultimately be the most sensible course. The Supreme Court’s treatment of Cantero, Conti, and Kivett could materially alter the legal landscape before the Oregon court has to decide the merits of the OCC’s actions. The OCC’s motion does not itself seek a stay, but the Supreme Court’s October 5 request for the Solicitor General’s views makes the timing of the Oregon litigation considerably more complicated.
Bottom Line
The OCC’s filing should be understood as a motion with distinct alternatives, not as a single request for a merits ruling.
The primary request is dismissal. If granted, the case would end in the district court without a decision on whether the OCC’s escrow powers rule or preemption determination is lawful. The OCC’s alternative request is transfer to the District of Columbia. If granted, the states’ challenge would continue, but in the forum where the OCC made the challenged decisions and maintains its headquarters. A stay is not expressly requested in the motion, but it remains a possible case-management response if the district court concludes that Supreme Court action could materially affect the dispute.
Those outcomes would carry different consequences. Dismissal would terminate the present case, subject to any amendment or appeal. Transfer would relocate the litigation without resolving the merits. A stay would preserve the litigation while delaying it. Only if the court denies dismissal and transfer, and does not stay the case, would the Oregon court proceed directly toward deciding whether the OCC exceeded its statutory authority or improperly applied federal preemption principles.
The most interesting argument may be the one directed at New York, Connecticut, and Vermont. The OCC contends that these states are attempting to use an Oregon lawsuit to obtain relief that would effectively circumvent binding Second Circuit precedent holding that New York’s interest-on-escrow law is preempted. If that argument succeeds, it could provide an important judicial check on the growing practice of multistate challenges to federal financial-services regulations in jurisdictions perceived to be more favorable to the states.
More broadly, however, the ultimate significance of this litigation may depend less on Judge Simon’s immediate procedural ruling than on what the Supreme Court does with the pending interest-on-escrow cases. The Court’s next move could determine whether the OCC’s new rules become the subject of a direct APA merits ruling in Oregon, are litigated in Washington, or remain temporarily unresolved while the Supreme Court addresses the broader National Bank Act preemption dispute.
Several of these questions might be answered and the due dates of further briefs may be set at a court status and scheduling conference to be held on October 14 at 9 a.m. PT.
John L. Culhane, Jr. and Alan S. KaplinskyCiting Growth of Impersonation Scams, FTC Considers Updating Rule
Noting that impersonation scams have topped the list of consumer fraud complaints reported to the FTC in recent years, the commission is considering whether to update its Rule on Impersonation of Government and Businesses or take other action to prevent ad-optimization practices by online platforms that may be furthering impersonation scams.
In an Advance Notice of Proposed Rulemaking (ANPRM), the FTC is soliciting comment on the extent to which ad-optimization services offered by digital marketplace platforms assist efforts by scammers using online ads to impersonate legitimate businesses and government agencies.
Comments are due on or before November 30.
In the preamble to the ANPRM, the FTC summarizes the issue as follows:
“As with other ads, Platforms can generate revenue from scam ads in multiple ways, including when Platform services are used to develop the ads, when the ads are posted on the Platform, or when consumers engage with the ads. However, Platforms do not bear meaningful responsibility for the enormous social cost that results when consumers are victimized by scam ads that Platforms display and optimize. These costs may represent negative externalities—costs that are not borne by the parties best positioned to reduce them—in this case, the Platforms. The result is Platforms seeking to maximize their ad-related revenues with insufficient financial disincentive to avoid generating those revenues from scam ads. In other words, Platforms internalize the revenue but externalize the risk.” (Footnotes omitted.)
The FTC also states that it adopted the existing Rule to address the prevalence of impersonation scams across the economy, but the Rule does not expressly address Platform conduct that furthers impersonation scams. The FTC addresses the protections provided to digital platforms under section 230 of the Communications Decency Act regarding third-party content, and concludes that the section does not preclude the FTC from engaging in the rulemaking.
Addressing the goals of the rulemaking, the FTC states:
“By defining, with specificity, the Platform conduct that is unfair or deceptive, the rule would give Platforms the guidance they need to refrain from problematic practices that further impersonation scams, while also allowing the Commission to pursue enforcement actions against Platforms based on the defined conduct itself, without the need to demonstrate that the defined conduct is unfair or deceptive. The result is a framework that both prevents and mitigates a universe of impersonation scams by addressing the underlying Platform practices that drive them.”
The ANPRM “asks whether the Commission should require platforms to take concrete steps to prevent impersonation ads from ever reaching consumers. By exploring potential new obligations platforms would have to follow, the rulemaking aims to ensure that Americans participate in an online economy where truthful information guides consumer choice,” Christopher Mufarrige, Director of the FTC’s Bureau of Consumer Protection, said.
Mufarrige continued, “[F]ree markets depend on trust, transparency and consumers’ ability to make informed choices. Impersonation scams—especially when amplified by digital platforms that profit from them—do more than rob Americans of their hard-earned money. They erode the very foundation that allows competitive markets to function. Today’s impersonation scams are no longer the work of isolated con artists; they are sophisticated, highly engineered operations powered by the same advertising and targeting tools that platforms sell to legitimate businesses.”
The FTC advised that in 2025, it received more than 1 million reports about imposter scams from consumers who reported losing almost $3.5 billion to those scams. The FTC also advised that in 2025, nearly 30% of the consumers who said they lost money to scammers said they were first contacted on social media platforms and those consumers reported losing $2.1 billion.
The ANPRM seeks comments on a wide range of topics related to the use of ad-optimization tools and services and the proliferation of ads that impersonate businesses and government agencies, including the following:
- Financial incentives being used by platforms to offer ad-optimization tools and services, and details on how the tools optimize the content and delivery of an ad.
- Steps platforms take to prevent use of such tools and services for deceptive advertising.
- Extent to which these tools and services constitute unfair or deceptive acts or practices.
- Prevalence of these acts or practices in the marketplace.
The FTC also is seeking comments on whether it should amend the existing impersonation rule, propose a new rule, or use nonregulatory measures. The ANPRM also asks what measures the commission could consider in crafting new regulations, including removing confirmed impersonation scam ads and pursuing disciplinary action against the offending advertisers.
The FTC presents numerous questions to obtain information from the public, including the following questions regarding the role of digital platforms in advertising optimization:
What measures does each Platform identified in response to a prior question employ to prevent the use of their advertising-optimization tools/services for deceptive advertising involving government or business impersonation (‘Impersonation Ads’)?
- Does the Platform verify the advertiser’s identity prior to providing access to its tools/services? If so, how? What criteria, factors, and/or metrics does the Platform use to perform the verification?
- Does the Platform perform any steps other than verifying the advertiser’s identity to determine whether to provide access to its tools/services? If so, what and how? For instance, does the Platform evaluate the advertiser’s website for signs that the advertiser is engaged in Impersonation Ads? What criteria, factors, and/or metrics does the Platform use to determine whether to provide access to its tools/services?
- Does the Platform restrict the use of trademarks, tradenames, or other names or symbols identifying government or business entities unaffiliated with the advertiser, when optimizing the content or delivery of advertisements? If so, how? What criteria, factors, and/or metrics does the Platform use to determine whether to restrict the use of particular trademarks, tradenames, or other identifying names or symbols?
- Does the Platform screen or monitor advertisements to determine whether they are Impersonation Ads? If so, how? What criteria, factors, and/or metrics does the Platform use to determine whether an advertisement is an Impersonation Ad?
- Does the Platform take any steps to remediate Impersonation Ads that have already been posted and/or optimized? If so, what steps? What criteria, factors, and/or metrics does the Platform use to determine which steps to take to remediate the posted and/or optimized Impersonation Ad?
- Does the Platform take any steps to discipline advertisers who have engaged in Impersonation Ads? If so, what steps? What criteria, factors, and/or metrics does the Platform use to determine whether to discipline the advertiser and which disciplinary steps to take?
- Does revenue or any other benefit that the Platform derives from posting, or from providing tools/services for optimizing, Impersonation Ads play a role in the Platform’s setting or use of the criteria, factors, and/or metrics referenced in response to Questions a through f above? If so, how?
Richard J. Andreano, Jr., John L. Culhane, Jr., and Joseph J. Schuster
Washington, D.C., Bans Medical Debt From Credit Reports
Legislation that prohibits a health care provider or debt collector from reporting medical debt to credit reporting agencies has become law in Washington, D.C.
The legislation became law without the signature of Mayor Muriel Bowser, who said she supported the medical debt provisions, but opposed some unrelated provisions.
Among other things, the law:
- Prohibits a health care provider or debt collector collecting on a medical debt from:
- Garnishing the wages of patients with a household income below 500% of the federal poverty level.
- Filing a property lien against a patient’s primary residence.
- Engaging in medical debt collection until 180 days after the consumer receives the first posted medical bill. There must be at least 90 days’ notice before collection begins.
- Places an interest rate cap at 3% annually.
- Requires that any medical debt sold to a collection company retain the patient’s payment plan arrangements.
- Requires that health facilities develop financial assistance policies and screen patients for eligibility.
In a letter to D.C. Council Chairman Phil Mendelson, Bowser wrote that requirements that health care facilities provide unlimited free medically necessary care for patients up to 200% of the federal poverty level and reduced-cost care up to 500% of the federal poverty level “creates substantial concerns for the District’s health care system and overall access to care.”
She wrote that the legislation’s requirements exceed those in neighboring states, which impose narrower obligations on health care facilities.
During the Biden administration, the CFPB supported banning medical debt from credit reports. The CFPB adopted a rule to impose such a ban, but the rule was vacated by a federal district court.
Reportedly, at least 17 other states have banned medical debt from appearing on credit reports. Those states are: California, Colorado, Connecticut, Delaware, Illinois, Maine, Maryland, Minnesota, New Jersey, New York, North Carolina, Ohio, Oregon, Rhode Island, Vermont, Virginia, and Washington. (See our blog about the bans on medical debt reporting in Colorado and New York here.)
At least some of the state laws, such as the Colorado law, are being challenged in court. Those challenges have been bolstered by a CFPB interpretive rule advising that such laws are preempted by the Fair Credit Reporting Act (FCRA).
Consumer Financial Services GroupCalifornia Enacts Sweeping New Regulation of Commercial Financing
California has once again expanded its regulation of financial services. On September 30, 2026, Governor Gavin Newsom signed Assembly Bill 2116, which will subject a broad range of commercial financing providers and brokers to licensing, substantive conduct requirements, and regulatory oversight by the California Department of Financial Protection and Innovation (DFPI). A legislative analysis of the Bill appears here.
AB 2116 represents a significant expansion of California’s existing regulatory framework for commercial financing. Although the law does not become operative until January 1, 2028, commercial finance companies, merchant cash advance providers, factors, equipment finance companies, and brokers potentially within its scope will need to begin assessing the law well before then.
What Does AB 2116 Cover?
The new law generally applies to “commercial financing” transactions of $500,000 or less involving qualifying small businesses.
The legislation defines a covered “commercial financing” transaction broadly to include commercial loans, accounts-receivable purchase transactions, including factoring, asset-based lending, commercial open-end credit plans, and lease financing. The definition therefore reaches companies providing products that historically have not been treated as conventional loans and that have operated with considerably less regulatory oversight than traditional commercial lenders.
The law generally targets transactions involving a for-profit small business with annual gross receipts of no more than $16 million, subject to statutory adjustments.
There are also specific exclusions. For example, the law excludes certain transactions involving automobile dealers, vehicle rental companies, and their affiliates under specified circumstances. Companies will therefore need to examine not only the type and amount of financing they provide but also the identity and characteristics of the recipient.
Licensing Will Be the Most Significant Change
Perhaps the most important feature of AB 2116 is that it brings covered “commercial financing” providers and brokers into the California Financing Law’s licensing regime.
Beginning January 1, 2028, a person generally may not engage in the business of a “commercial financing provider” or “commercial financing broker” without obtaining a license from the DFPI. A person that submits a complete license application by January 1, 2028, may continue operating while the application is pending.
The broker licensing requirement is not limited to brokers arranging the alternative financing transactions that AB 2116 brings into the licensing regime for the first time. It also applies to companies acting as brokers for lending businesses that were already required to be licensed under the California Financing Law. Under current law, an entity brokering a conventional commercial loan is required to hold a license under the California Financing Law only where the lender is licensed under the California Financing Law. AB 2116 would appear to be expanding the license requirement to cover brokering conventional commercial loans (as well as other commercial financing transactions) of $500,000 or less made by any commercial financing provider, which includes depository institutions, and not only lenders licensed under the California Financing Law. This is one of several issues that warrants monitoring.
This is an important change because California already regulates commercial loans under the California Financing Law, but many alternative commercial financing products have not been subject to the same licensing requirements.
AB 2116 is designed, among other things, to close that regulatory gap. The Legislature’s analysis specifically identified merchant cash advances, accounts-receivable financing, invoice factoring, and revenue-based financing as examples of products that historically could fall outside the DFPI’s principal licensing authority.
The statute is not limited to companies with offices or other physical facilities in California. Its licensing requirements generally apply based on the covered activity and the location of the recipient, so an out-of-state lender or broker that extends covered financing from outside California to a business physically located in California should assume that the law may apply. The statute does not appear to create a general physical-presence exception. Companies operating from outside California will need to evaluate the statutory definitions, any applicable exemptions, and the DFPI’s implementing regulations.
Brokers Are Specifically Targeted
AB 2116 does not regulate only companies that actually provide financing. It also creates a detailed definition of “commercial financing brokerage services.”
Among the activities potentially constituting brokerage services are transmitting sensitive information about a prospective recipient to a financing provider for compensation, making certain referrals, participating in financing negotiations, advising or making recommendations based on specified sensitive data, participating in the preparation of financing documents, communicating financing approval decisions, and charging a prospective recipient a fee relating to its financing application.
The statute defines “sensitive data” to include items such as bank account numbers, bank statements, credit or debit card account numbers, and credit scores. Certain administrative and support activities are excluded from the definition.
This means that companies that regard themselves as marketing organizations, lead generators, or consultants rather than “brokers” will need to carefully examine their actual activities and compensation arrangements to determine whether they are subject to licensure.
New Substantive Restrictions
AB 2116 also establishes a number of substantive requirements applicable to covered commercial financing providers and brokers.
Among other things, the law prohibits a provider or broker from taking a confession of judgment or power of attorney before a recipient defaults under a commercial financing agreement.
In addition, an agreement found to be unconscionable under California Civil Code section 1670.5 will constitute a violation subject to the remedies available under the new law.
The statute also prohibits contractual provisions restricting a recipient from disclosing information it obtains through its business relationship with the registrant, including terms and conditions of the provider’s products or services.
New Disclosure Requirements for Brokers
AB 2116 imposes an additional requirement specifically on commercial financing brokers.
A broker will be required to clearly and conspicuously display on its website the average and maximum annual percentage rates for commercial financing transactions it facilitated during the most recent calendar year.
This provision could present practical issues for brokers offering financing products whose economics do not fit neatly within a conventional annual percentage rates (APR) calculation. It also raises questions about how the DFPI will interpret and implement the requirement for products such as factoring and sales-based financing.
Rulemaking and Regulatory Examinations
The DFPI must adopt regulations implementing the new licensing provisions by January 1, 2028. Those regulations will be important in determining the application process, required records, exemptions, examination procedures, and the treatment of products whose economics do not fit neatly within a conventional loan model.
Licensees should expect to be subject to DFPI supervision and regulatory examinations. The California Financing Law authorizes the DFPI to examine licensees and their books, records, and business practices, and AB 2116 places covered commercial financing providers and brokers within that framework. Companies should therefore prepare not only for initial licensing but also for ongoing examination and information requests.
Enforcement Consequences and Borrower Remedies
AB 2116 integrates covered commercial financing providers and brokers into the California Financing Law’s existing enforcement framework.
The DFPI may investigate violations, conduct examinations, issue desist-and-refrain orders, suspend or revoke licenses, and seek ancillary relief, including restitution, refunds, disgorgement, and damages where authorized. Violations may also result in administrative penalties and other relief available under the California Financing Law.
One particularly important provision provides that a commercial financing agreement generally will not be enforceable unless the provider is properly licensed, has submitted a complete license application and is awaiting a decision, or the transaction was entered into before January 1, 2028.
The statute also gives borrowers and other recipients potential defenses and claims based on violations of the Act, including challenges to the enforceability of an agreement entered into by an unlicensed provider. Depending on the violation and the applicable statutory provision, a recipient may seek restitution, damages, injunctive relief, or other remedies available under the California Financing Law and related California law.
Industry Reaction
Industry reaction has been mixed. Supporters of the legislation, including the Responsible Business Lending Coalition (RBLC), have characterized it as an important consumer- and small-business-protection measure that will bring greater transparency and accountability to merchant cash advances, factoring, revenue-based financing, and other products that have not consistently been subject to lender-style oversight.
Industry participants and trade groups, however, have raised concerns about the breadth of the licensing regime, the potential application of the law to out-of-state companies, the APR reporting requirement, and the possibility that rules designed for conventional lenders will not fit products such as receivables purchases and sales-based financing. Those concerns are likely to be addressed, at least in part, through the DFPI’s regulations.
AB 2116 Builds on Existing California Regulation
AB 2116 should not be viewed in isolation.
California already requires disclosures for specified commercial financing transactions of $500,000 or less. Those disclosures include the amount financed, total cost of financing, term or estimated term, payment amounts and frequency, and prepayment policies.
California also already has authority under its California Consumer Financial Protection Law to police unfair, deceptive, and abusive practices involving commercial financing provided to small businesses, nonprofits, and family farms. DFPI’s regulations implementing that authority became effective in 2023, making California an early mover in applying consumer-style unfair, deceptive, or abusive acts or practices (UDAAP) concepts to commercial financing.
AB 2116 takes the next step by placing many of the providers and brokers offering those products directly within a licensing and examination regime.
What Should Commercial Finance Companies Do Now?
Although January 1, 2028, may seem distant, companies potentially covered by AB 2116 should not wait until late 2027 to begin preparing.
Among other things, providers and brokers should:
- Determine which products and transactions fall within the $500,000 threshold and the statutory definition of commercial financing.
- Determine whether their customers qualify as covered small businesses.
- Analyze whether their activities constitute commercial financing brokerage services, including when arranging loans through already licensed lenders.
- Assess whether out-of-state operations involving California-based businesses are subject to the law.
- Review existing agreements for provisions concerning confessions of judgment, powers of attorney, confidentiality, and other contractual restrictions.
- Review compensation arrangements with brokers, referral sources, lead generators, and other intermediaries.
- Prepare books, records, and compliance policies for potential DFPI examinations.
- Monitor DFPI rulemaking, which must be completed by January 1, 2028.
- Determine whether existing California licenses can be used or whether a separate commercial financing provider or broker license will be required.
Conclusion
AB 2116 marks a substantial expansion of California’s regulation of commercial finance.
The law brings a number of alternative financing products and the companies that provide or broker them into the California Financing Law’s licensing, examination, and enforcement framework. The broker provisions are especially broad: they cover brokers arranging newly regulated alternative products as well as brokers arranging loans through lenders that were already subject to California licensing requirements.
The legislation also imposes substantive restrictions on financing agreements, creates new obligations for commercial financing brokers, and gives the DFPI and potentially affected borrowers meaningful enforcement tools.
With the law becoming operative in 2028, the next important phase will be the DFPI’s rulemaking. The details of those regulations will determine many of the practical questions that AB 2116 leaves open, including the licensing process, the treatment of out-of-state providers, examination procedures, and how the statute will be applied to the increasingly diverse array of commercial financing products available to small businesses. On February 19, 2026, Alan Kaplinsky, host of our Consumer Finance Monitor weekly podcast show, interviewed Louis Caditz-Peck, Executive Director of the RBLC, about the proliferation of state small business lending protection statutes (including California), the policy debates driving them, and what they mean for lenders, Fintechs, banks, and small business borrowers.
John D. Socknat, Alan S. Kaplinsky and John L. Culhane, Jr.Revised Draft Rules for the Colorado ADMT Act and Conversational AI Act Released
On October 6, 2026, the Colorado Department of Law released the newest draft of its Automated Decision-Making Technology (ADMT) and Conversational AI Service Rules (the Revised Draft Rules). This revised draft builds on the initial draft published on August 11, 2026, and provides updated guidance on the Colorado ADMT Act, previously known as the Colorado AI Act.
The Revised Draft Rules differ in notable ways from the initial draft. Perhaps most importantly, whereas the initial draft solicited input on the threshold issue of the definitions of “materially influence” and “de minimis,” the Revised Draft Rules now propose a standard. While the standard chosen is closer to the standard contained in the California Consumer Privacy Act (CCPA)’s ADMT regulations, the Revised Draft Rules contain several important differences, including a rebuttable presumption. The Revised Draft Rules make other important changes to the consumer rights rules, including relating to adverse outcome contents, standards for reviewers, and how consumer rights are structured.
The Colorado Attorney General will hold a public hearing on the Revised Draft Rules on October 26, 2026. Organizations subject to the Act should review the latest draft closely ahead of the hearing.
Megan H. Bryan, Gregory P. Szewczyk, Mudasar Khan, Kelsey Fayer, and Madison Etherington
On October 8, 2026, at the request of Mayor Zohran Mamdani, the New York City Council introduced Int. No. 1105, the POWER (People and Organizations Winning Economic Relief) Act. Sponsored by Council Member Harvey D. Epstein, the bill would prohibit unfair methods of competition and unfair, deceptive, abusive, or unlawful acts or practices in or affecting business, trade, or commerce. If enacted, it could create one of the most expansive municipal consumer-protection regimes in the country. The Mamdani administration has characterized the proposal as a first-in-the-nation measure that would make New York City’s consumer and worker protections the strongest in the country.
The bill’s most consequential feature is a sweeping municipal private right of action. It would permit injured persons to sue on their own behalf, on behalf of similarly situated persons, or on behalf of the general public. Nonprofit organizations would also be authorized to bring specified claims on their own behalf, on behalf of their members, or on behalf of the general public. Its definitions and legislative findings are designed to support a broad interpretation of these prohibitions. The undefined term “unlawful” is particularly significant because it could extend the bill beyond the categories of conduct conventionally addressed by consumer-protection laws. The bill thus would significantly expand the role of private litigation in enforcing New York City, New York State, and federal consumer-protection and competition laws.
If enacted, the bill would subject to litigation all businesses located in New York City (except for an independently owned and operated entity that is not dominant in its field, employs four or fewer employees, and had gross revenue of less than $5 million in the preceding fiscal year) and businesses outside New York City, and even outside New York State, that engage with residents of New York City through any means.
A plaintiff could seek compensatory, declaratory, and injunctive relief. The bill also authorizes actual damages and $2,500 per violation (without any overall cap on the civil penalty for multiple violations) together with reasonable attorneys’ fees and costs for a prevailing plaintiff. It would eliminate reliance as a requirement for a claim and would not limit its protections to transactions involving personal, family, or household purposes or require the kind of consumer-oriented conduct ordinarily associated with New York General Business Law § 349. There is a three-year statute of limitations, which begins to run based on the plaintiff’s notice of wrongdoing. While the plaintiff has an obligation to provide the defendant with 10 business days’ notice of wrongdoing and an opportunity to correct the wrongdoing before filing a lawsuit, it does not appear that a defendant’s elimination of the wrongdoing is a defense to such lawsuit.
The proposal has drawn sharply contrasting reactions. The Manhattan Chamber of Commerce opposes the POWER Act as drafted, warning that it could expose small businesses to litigation over undefined standards. Its president and CEO, Jessica Walker, calls it “an opening for lawsuit mills.” The Partnership for New York City likewise warns that the proposal would invite costly litigation and lead to “fewer jobs, less investment, and higher prices.” By contrast, the American Economic Liberties Project strongly supports the legislation. Its executive director, Nidhi Hegde, argues that “[n]o enforcement agency — not a city department, not a state AG, not the federal government — has the resources to police every corporation that breaks the law.” The Legal Aid Society also supports the bill, describing it as a measure that would close longstanding gaps in existing law. (See the Manhattan Chamber’s statement, the Partnership for New York City’s statement, and the American Economic Liberties Project’s statement.)
A companion proposal, sponsored by Council Member Chi Ossé, would amend the City’s Consumer Protection Law to permit the Department of Consumer and Worker Protection (DCWP) to penalize “unconscionable” business practices without first completing the rulemaking process. The administration says this change would allow DCWP to respond more quickly to serious misconduct. A third measure, the Truth in Pricing Act, would simplify the City’s price-display rules.
These proposals reflect the administration’s broader consumer- and worker-protection agenda. Mayor Mamdani has directed DCWP to address hidden fees and subscription traps, while the department continues work on debt collection, pay transparency, and tip transparency. Commissioner Samuel A. A. Levine, who joined us on the Consumer Finance Monitor podcast on April 23, 2026, to discuss the department’s consumer-protection initiatives, is a central figure in this effort. The POWER Act would take that agenda a significant step further by transferring substantial enforcement responsibility from government agencies to private plaintiffs and nonprofit organizations.
The bill also raises difficult legal and policy questions. Among them: whether the City has authority to create such a broad private right of action; whether the prohibition against “unlawful” practices could permit private suits predicated on violations of other laws that do not themselves authorize private enforcement; whether plaintiffs would have standing to pursue individual, class, or public-interest claims in state or federal court; whether state-law preemption or federal jurisdictional rules would constrain the legislation; whether the $2,500-per-violation remedy is permissible in cases involving little or no actual damages; and whether arbitration agreements could be used to compel arbitration of claims under the Act, including representative claims.
The policy debate is equally important. Supporters contend that private enforcement would fill gaps left by resource-constrained agencies and give consumers, workers, tenants, and small businesses meaningful remedies. Opponents argue that the bill’s broad and undefined standards, statutory damages, attorneys’ fees, and limited small-business exemption could generate substantial litigation costs that ultimately are passed on to consumers.
We intend to publish additional articles and produce a webinar and podcasts about the bills, in which we will cover many of the issues identified above. We are already counseling several clients about the bill.
Alan S. Kaplinsky, Thomas Burke, and John L. Culhane, Jr.
California’s MBA – 2026 Legal Issues and Regulatory Compliance Conference
December 7 – 8, 2026 | Hyatt Regency Huntington Beach, California
Please join co-chair of the conference, Ballard’s Richard J. Andreano, Jr., as he speaks on two panels:
Session 8: People, Pay and the Workplace – Employment Law in the Real World, and
Session 12: Compliance Super Session - Ask the Experts
December 8, 2026 – 10:00 AM PT and 2:30 PM PT
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