Mortgage Banking Update - June 26, 2025 - Financial Services

June 26 – Read the newsletter below for the latest Mortgage Banking and Consumer Finance industry news, written by Ballard Spahr attorneys. In this issue, we delve into the anticipated resurgence of reverse discrimination lawsuits, analyze Connecticut's amendments to its privacy law, explore recent developments in online safety and data privacy for minors, and much more.

Podcast Episode: The Impact of the Newly Established Priorities and Massive Proposed Reduction in Force on CFPB Enforcement – Part 1

Our podcast shows being released on June 12 and June 18 feature two former CFPB senior officers who were key employees in the Enforcement Division under prior directors Eric Halperin and Craig Cowie. Eric Halperin served as the Enforcement Director at the CFPB from 2010 until the former Director, Rohit Chopra, was terminated by President Trump. Craig Cowie was an enforcement attorney at the CFPB from July 2012 until April 2015 and then Assistant Litigation Deputy at the CFPB until June 2018.

The purpose of the shows were primarily to obtain the opinions of Eric and Craig (two of the country's most knowledgeable and experienced lawyers with respect to CFPB Enforcement) about the legal and practical impact of (i) a Memo to CFPB Staff from Mark Paoletta, Chief Legal Officer, dated April 16, 2025, titled "2025 Supervision and Enforcement Priorities" (described below), which rescinded prior priority documents and established a whole new set of priorities, which in most instances are vastly different than the Enforcement Priority documents, which guided former directors, (ii) the dismissal without prejudice of the majority of enforcement lawsuits that were pending when Acting Director Russell Vought was appointed to run the agency, and (iii) other drastic steps taken by CFPB Acting Director Russell Vought to minimize the functions and staffing at the agency. That included, among other things, an order calling a halt to all work at the agency, including the pausing of ongoing investigations and lawsuits and the creation of plans by Vought to reduce the agency's staff (RIF) from about 1,750 employees to about 250 employees (including a reduction of Enforcement staff to 50 employees from 258).

We described in detail the 2025 Supervision and Enforcement Priorities as follows:

Reduced Supervisory Exams: A 50 percent decrease in the overall number of exams to ease burdens on businesses and consumers.
Focus on Depository Institutions: Shifting attention back to banks and credit unions.
Emphasis on Actual Fraud: Prioritizing cases with verifiable consumer harm and measurable damages.
Redressing Tangible Harm: Concentrating on direct consumer remediation rather than punitive penalties.
Protection for Service Members and Veterans: Prioritizing redress for these groups.
Respect for Federalism: Minimizing duplicative oversight and coordinating with state regulators when possible.
Collaboration With Federal Agencies: Coordinating with other federal regulators and avoiding overlapping supervision.
Avoiding Novel Legal Theories: Limiting enforcement to areas clearly within the Bureau's statutory authority.
Fair Lending Focus: Pursuing only cases of proven intentional racial discrimination with identifiable victims and not using statistical evidence for fair lending assessments.

Key Areas of Focus:

Mortgages (highest priority)
FCRA/Regulation V (data furnishing violations)
FDCPA/Regulation F (consumer contracts/debts)
Fraudulent overcharges and fees
Inadequate consumer information protection

Deprioritized Areas:

Loans for "justice involved" individuals
Medical debt
Peer-to-peer lending platforms
Student loans
Remittances
Consumer data
Digital payments

We also described the status of a lawsuit brought by the union representing CFPB employees and other parties against Vought seeking to enjoin him from implementing the RIF. The court has granted a preliminary injunction, which so far has largely prevented Vought from following through on the RIF. The matter is now on appeal before the DC Circuit Court of Appeals and a ruling is expected soon.

These podcast shows complement the podcast show we released on June 5, which featured two former senior CFPB employees, Peggy Twohig and Paul Sanford, who opined about the impact of the April 16 Paoletta memo and proposed RIF on CFPB Supervision.

Eric and Craig considered, among other issues, the following:

How do the new Paoletta priorities differ from the previous priorities and what do the new priorities tell us about what we can expect from CFPB Enforcement?
What do the new priorities tell us about the CFPB's new approach toward Enforcement priorities?
What can we learn from the fact that the CFPB has dismissed without prejudice at least 22 out of the 38 enforcement lawsuits that were pending when Vought became the Acting Director? What types of enforcement lawsuits are still active and what types of lawsuits were dismissed?
What are the circumstances surrounding the nullification of certain consent orders (including the Townstone case) and the implications for other consent orders?
Has the CFPB launched any new enforcement lawsuits under Vought?
What level and type of enforcement is statutorily required?
Realistically, what will 50 employees be able to do in the enforcement area?
What will be the impact of the Supervision cutbacks be on Enforcement since Supervision refers many cases to Enforcement?
Will the CFPB continue to seek civil money penalties for violations of law?
What types of fair lending cases will the CFPB bring in the future?
Will Enforcement no longer initiate cases based on the unfairness or abusive prongs of UDAAP?

Alan Kaplinsky, former practice group leader for 25 years and now senior counsel of the Consumer Financial Group, hosts the podcast show.

To listen to this episode, click here.

Postscript: After the recording of this podcast, Cara Petersen, who succeeded Eric Halperin as head of CFPB Enforcement, resigned abruptly on June 10 from the CFPB after sending out an email message to all its employees (which was shared with the media), which stated, in relevant part: "I have served under every director and acting director in the Bureau's history and never before have I seen the ability to perform our core mission so under attack," wrote Petersen, who had worked at the agency since it became operational in 2011. She continued, "It has been devastating to see the Bureau's enforcement function being dismantled through thoughtless reductions in staff, inexplicable dismissals of cases, and terminations of negotiated settlements that let wrongdoers off the hook." "It is clear that the Bureau's current leadership has no intention to enforce the law in any meaningful way," Petersen wrote in her email. "While I wish you all the best, I worry for American consumers."

Consumer Financial Services Group

Podcast Episode: The Impact of the Newly Established Priorities and Massive Proposed Reduction in Force on CFPB Enforcement – Part 2

Part 2 of our two-part podcast series continues to feature two former CFPB senior officers who were key employees in the Enforcement Division under prior directors: Eric Halperin and Craig Cowie. Eric Halperin served as the Enforcement Director at the CFPB from 2010 until former Director, Rohit Chopra, was terminated by President Trump. Craig Cowie was an enforcement attorney at the CFPB from July 2012 until April 2015 and then Assistant Litigation Deputy at the CFPB until June 2018.

Click here to listen to the episode.

Part 1 of our two-part series was released on June 12.

The purpose of these podcast shows were primarily to obtain the opinions of Eric and Craig (two of the country's most knowledgeable and experienced lawyers with respect to CFPB Enforcement) about the legal and practical impact of (i) a Memo to CFPB Staff from Mark Paoletta, Chief Legal Officer, dated April 16, 2025, titled "2025 Supervision and Enforcement Priorities" (described below), which rescinded prior priority documents and established a whole new set of priorities, which in most instances are vastly different than the Enforcement Priority documents, which guided former directors, (ii) the dismissal without prejudice of the majority of enforcement lawsuits that were pending when Acting Director Russell Vought was appointed to run the agency, and (iii) other drastic steps taken by CFPB Acting Director Russell Vought to minimize the functions and staffing at the agency. That included, among other things, an order calling a halt to all work at the agency, including the pausing of ongoing investigations and lawsuits and the creation of plans by Vought to reduce the agency's staff (RIF) from about 1,750 employees to about 250 employees (including a reduction of Enforcement staff to 50 employees from 258).

We described in detail the 2025 Supervision and Enforcement Priorities as follows:

Reduced Supervisory Exams: A 50 percent decrease in the overall number of exams to ease burdens on businesses and consumers.
Focus on Depository Institutions: Shifting attention back to banks and credit unions.
Emphasis on Actual Fraud: Prioritizing cases with verifiable consumer harm and measurable damages.
Redressing Tangible Harm: Concentrating on direct consumer remediation rather than punitive penalties.
Protection for Service Members and Veterans: Prioritizing redress for these groups.
Respect for Federalism: Minimizing duplicative oversight and coordinating with state regulators when possible.
Collaboration With Federal Agencies: Coordinating with other federal regulators and avoiding overlapping supervision.
Avoiding Novel Legal Theories: Limiting enforcement to areas clearly within the Bureau's statutory authority.
Fair Lending Focus: Pursuing only cases of proven intentional racial discrimination with identifiable victims and not using statistical evidence for fair lending assessments.

Key Areas of Focus:

Mortgages (highest priority)
FCRA/Regulation V (data furnishing violations)
FDCPA/Regulation F (consumer contracts/debts)
Fraudulent overcharges and fees
Inadequate consumer information protection

Deprioritized Areas:

Loans for "justice involved" individuals
Medical debt
Peer-to-peer lending platforms
Student loans
Remittances
Consumer data
Digital payments

Eric and Craig considered, among other issues, the following:

How do the new Paoletta priorities differ from the previous priorities and what do the new priorities tell us about what we can expect from CFPB Enforcement?
What do the new priorities tell us about the CFPB's new approach toward Enforcement priorities?
What can we learn from the fact that the CFPB has dismissed without prejudice at least 22 out of the 38 enforcement lawsuits that were pending when Vought became the Acting Director? What types of enforcement lawsuits are still active and what types of lawsuits were dismissed?
What are the circumstances surrounding the nullification of certain consent orders (including the Townstone case) and the implications for other consent orders?
Has the CFPB launched any new enforcement lawsuits under Vought?
What level and type of enforcement is statutorily required?
Realistically, what will 50 employees be able to do in the enforcement area?
What will be the impact of the Supervision cutbacks be on Enforcement since Supervision refers many cases to Enforcement?
Will the CFPB continue to seek civil money penalties for violations of law?
What types of fair lending cases will the CFPB bring in the future?
Will Enforcement no longer initiate cases based on the unfairness or abusive prongs of UDAAP?

Alan Kaplinsky, former practice group leader for 25 years and now senior counsel of the Consumer Financial Group, hosts the podcast show.

Click here to listen to the episode.

Postscript: After the recording of this podcast, Cara Petersen, who succeeded Eric Halperin as head of CFPB Enforcement, resigned abruptly on June 10 from the CFPB after sending out an email message to all its employees (which was shared with the media), which stated, in relevant part: "I have served under every director and acting director in the Bureau's history and never before have I seen the ability to perform our core mission so under attack," wrote Petersen, who had worked at the agency since it became operational in 2011. She continued: "It has been devastating to see the Bureau's enforcement function being dismantled through thoughtless reductions in staff, inexplicable dismissals of cases, and terminations of negotiated settlements that let wrongdoers off the hook." "It is clear that the Bureau's current leadership has no intention to enforce the law in any meaningful way," Petersen wrote in her email. "While I wish you all the best, I worry for American consumers."

During this part of the podcast show, we discussed the fact that the CFPB has entered into agreements with a few companies that had previously entered into consent agreements with former Director Chopra. After the recording of this podcast, the federal district court that presided over the Townstone Financial enforcement litigation involving alleged violations of the Equal Credit Opportunity Act refused to approve the rescission or undoing of the consent agreement based on Rule 60(b)(6) of the Federal Rules of Civil Procedure because of the strong public policy of preserving the finality of judgments.

Consumer Financial Services Group

Senate Parliamentarian Says Elimination of CFPB Funding Cannot Be Included in Budget Bill but Delay of Section 1071 Rule Passes Muster

The Senate parliamentarian has ruled that a key Senate Banking, Housing, and Urban Affairs (Banking Committee) provision that would eliminate all funding for the CFPB cannot be included in the massive budget reconciliation bill now being prepared for Senate consideration.

Under the existing funding structure, the CFPB may draw up to 12 percent of the Federal Reserve's inflation-adjusted total operating expenses in 2009. The Banking Committee Republicans had intended to recommend reducing that cap to zero percent, according to proposed legislative language.

The Senate rules-keeper ruled that that provision is outside the scope of the reconciliation process and therefore not immune from a filibuster. As a result, it would take 60 votes to include it in the bill to avoid a filibuster—a threshold that Republicans are highly unlikely to reach.

The reconciliation process can be used to make changes in revenue and spending and may not be used to make other public policy changes.

However, the parliamentarian ruled that Scott's proposal to delay implementation for 10 years of the Section 1071 rule, a Dodd-Frank rule that requires financial institutions to report information contained in loan applications submitted by small businesses, including women-owned, minority-owned, and LGBTQI+-owned small businesses, may be included in the budget bill.

According to press reports, Senate Banking Chairman Tim Scott said GOP members "remain committed to cutting wasteful spending at the CFPB and will continue working with the Senate parliamentarian on the Committee's provisions in the larger bill."

Democrats hailed the parliamentarian's decision that the CFPB funding provision cannot be included in the bill.

Senate Banking Committee ranking Democrat Senator Elizabeth Warren, (D-Mass.), said the CFPB provision and others in the bill "are a reckless, dangerous attack on consumers and would lead to more Americans being tricked and trapped by giant financial institutions and put the stability of our entire financial system at risk–all to hand out tax breaks to billionaires. Democrats fought back, and we will keep fighting back against this ugly bill."

And Senate Banking Committee ranking Democrat Senator Jeff Merkley, (D-Ore.), said, "As much as Senate Republicans would prefer to throw out the rule book and advance their families lose and billionaires win agenda, there are rules that must be followed and Democrats are making sure those rules are enforced. We will continue examining every provision in this Great Betrayal of a bill and will scrutinize it to the furthest extent."

Consumer Financial Services Group

Senate Banking Republican Reconciliation Bill Would Eliminate CFPB Funding Source

The Senate Banking, Housing, and Affairs Committee (Banking Committee) would eliminate the CFPB's current funding source, as part of the Committee's Republican version of its part of the massive budget reconciliation bill, according to legislative language released by the Banking Committee.

Under the existing funding structure, the CFPB may draw up to 12 percent of the Federal Reserve's inflation-adjusted total operating expenses in 2009. The Banking Committee Republicans will propose reducing that cap to zero percent , according to the legislative language.

An earlier Banking Committee memo stated that the CFPB still could request money through the appropriations process. The current legislative language does not specifically mention this, but presumably the Bureau could do that.

The House bill would set CFPB funding for 2025 at no more than $249 million, with an annual adjustment for inflation in the future.

By comparison, the CFPB had incurred about $755.1 million in fiscal year 2024 expenses, according to a Bureau report (the federal government's fiscal year runs from October 1 to September 30). Of that total, about $480 million was spent on employee compensation and benefits for the 1,755 bureau employees who were on board at the end of the quarter.

The Supreme Court has ruled that the CFPB's funding mechanism is constitutional. However, Senate Banking Committee Chairman Senator Tim Scott, (R-S.C.), and other Congressional Republicans have long been advocates of making the CFPB subject to the appropriations process, saying that the current funding mechanism leaves the bureau unaccountable to Congress.

With regard to the magnitude of CFPB funding, the Trump administration has proposed eliminating more than 1,400 employees at the agency, leaving about 200 workers. That plan has temporarily been blocked by the Court of Appeals for the District of Columbia Circuit. The circuit court held oral arguments on May 16, 2025, and we are awaiting a decision in the case.

The Senate Banking Committee proposal also would delay for 10 years the CFPB's implementation of Dodd-Frank's Section 1071 rule. That rule requires financial institutions to report information contained in loan applications submitted by women-owned, minority-owned, and LGBTQI+-owned small businesses.

The House bill does not contain that provision.

Consumer Financial Services Group

President Trump's Budget Goes to Work Against Enforcement Agencies With Significant Cuts to DOL and NLRB

President Trump's proposed budget for Fiscal Year (FY) 2026 includes substantial reductions to the U.S. Department of Labor's (DOL) budget and staff. The proposed discretionary budget is slashed from $13.5 billion to $9 billion, reducing it by one third. The number of employees is reduced by nearly 4,000 from 14,855 to 10,879—or a more than 25 percent cut.

The DOL budget proposes consolidating 11 workforce development programs into a single "Make America Skilled Again" grant program to provide funding directly to states and localities. It also would eliminate the Office of Federal Contract Compliance (OFCCP), Job Corps, and the Women's Bureau. The budget justifies the elimination of the OFCCP based on the revocation of Executive Order 11246, which provided the basis for OFCCP requiring most affirmative action plans of federal contractors. The budget proposes transferring OFCCP's remaining enforcement obligations to the Veterans' Employment and Training Service and the Equal Employment Opportunity Commission.

The DOL budget also contains staffing cuts to various enforcement agencies. The Employee Benefits Security Administration, which oversees retirement, health, and other workplace benefits, faces a staffing reduction of 47. The budget proposes reducing the Wage and Hour Division's budget by $25,000,000 and headcount by over 400. The Occupational Safety and Health Administration would be reduced by over 220 employees with almost $50,000,000 cut from its budget. For more details on the proposed cuts see the DOL's FY 2026 Budget in Brief here.

The National Labor Relations Board (NLRB) also reduced its budget request by $14 million from $299.2 million in FY 2025 to $285.2 million in FY 2026. The NLRB also plans on reducing staff by 99 employees through its participation in the Deferred Resignation Program and offers of voluntary early retirement. The most significant cuts are to the NLRB's Casehandling and Mission Support activities. Casehandling — encompassing unfair labor practice proceedings, representation proceedings, and compliance proceedings — will have a reduced headcount of 61 employees and budget reductions of $8.9 million. Mission Support, which includes administration, human resources, ethics, training, accounting, facilities, property, security, and technology infrastructure, will reduce its budget by $4.5 million and its headcount by 29 employees. For more details see the NLRB's FY 2026 Justification of Performance Budget for the Committee on Appropriations here.

Whether Congress or the courts can stymie President Trump's proposed cuts remains to be seen. President Trump previously reduced the Federal Mediation and Conciliation Service (FMCS) from over 200 employees to around a dozen by executive order, but a federal judge granted a permanent injunction against it. The Ninth Circuit also recently refused to stay a district court's preliminary injunction against President Trump's mass federal worker layoffs. The district court that issued the preliminary injunction against the mass federal worker layoffs indicated recent proposed cuts at the State Department may also violate the injunction. The First Circuit also recently denied the government's request of a stay of a district court's preliminary injunction against layoffs at the Department of Education.

Ballard Spahr's Labor and Employment Group advises employers on labor, employment, and policy issues. We will keep monitoring developments under the new administration and their impact on employers. Please contact us if we can assist you with these matters.

Brian D. Pedrow, Shirley S. Lou-Magnuson, and Ian T. Maher

CFPB Extends Section 1071 Rule Compliance Dates

As previously reported, in addressing the fact that current stays of the Section 1071 small business data collection and reporting rule only apply to the applicable plaintiffs, intervenors and their members, the CFPB advised in May 2025 that it would not make enforcement of the rule a priority in order to provide relief to parties not covered by any court stay of the rule. The CFPB has now issued an interim final rule to extend the compliance dates of the rule for all lenders subject to the rule. The original, revised, and new compliance dates are as follows:

Compliance Tier	Original Compliance Date in the 2023 Final Rule	Revised Compliance Date in the 2024 Interim Final Rule	New Compliance Date	New First Filing Deadline
Tier 1 Lenders	October 1, 2024	July 18, 2025	July 1, 2026	June 1, 2027
Tier 2 Lenders	April 1, 2025	January 16, 2026	January 1, 2027	June 1, 2028
Tier 3 Lenders	January 1, 2026	October 18, 2026	October 1, 2027	June 1, 2028

Under the rule as adopted originally, lenders are in Tier 1 if they originated at least 2,500 covered loans in both 2022 and 2023, lenders are in Tier 2 if they originated at least 500 covered loans in both 2022 and 2023 and were not in Tier 1, and lenders are in Tier 3 if they originated at least 100 covered loans in both 2024 and 2025 and were not in Tiers 1 or 2. In the preamble to the final rule, the CFPB advises that "[c]overed financial institutions are permitted to continue using their small business originations from 2022 and 2023 to determine their compliance tier, or they may instead use their originations from 2023 and 2024, or from 2024 and 2025." The CFPB also advises that "[c]overed financial institutions are permitted to begin collecting protected demographic data required under the 2023 final rule 12 months before their new compliance date, in order to test their procedures and systems."

As we also reported previously, the CFPB has indicated that it plans to reopen rulemaking on the Section 1071 rule.

Comments on the interim final rule are due by July 18, 2025.

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

House Passes 'Trigger Leads' Bill

The House has passed legislation that would ban "trigger leads," except in limited circumstances.

The "Homebuyers Privacy Protection Act of 2025,"H.R. 2808, passed the House by voice vote.The Senate has passed, S. 1467, a slightly different version of the bill by unanimous consent. The two bodies must now reconcile differences between their bills. The House-passed version calls for a Government Accountability Office study on the value of trigger leads by text message.

We have addressed the trigger leads bills earlier, including here.

Supporters of the bill hailed House passage of the measure.

"The Homebuyers Privacy Protection Act would dramatically reduce the number of unwanted calls and messages that millions endure during the homebuyer process," said Rep. John Rose, (R-Tenn.), a primary sponsor of the House bill.

Bob Broeksmit, President and CEO of the Mortgage Bankers Association, also applauded the bill's passage.

"The passage of this consequential bill, on the heels of the Senate passing its similar bill on June 12, is another important step forward in our fight to provide relief for consumers who face a torrent of unwanted emails, texts, and phone calls the moment they apply for a mortgage," he said.

Richard J. Andreano, Jr.

Court Denies CFPB/Townstone Bid to Undo Consent Order

As previously reported, in March 2025 the CFPB and Townstone Financial (Townstone) filed a joint motion with a U.S. District Court seeking to reverse the November 2024 consent order between the parties that resolved CFPB allegations of redlining on the part of Townstone in violation of the Equal Credit Opportunity Act (ECOA). The court recently denied that motion.

A central basis of the CFPB July 2020 redlining claim against Townstone, which was made during the first Trump administration, was the Regulation B provision that provides "A creditor shall not make any oral or written statement, in advertising or otherwise, to applicants or prospective applicants that would discourage on a prohibited basis a reasonable person from making or pursuing an application." The CFPB alleged that radio shows and podcasts hosted by Townstone included statements that would discourage African American prospective applicants from applying for mortgage loans from Townstone.

Townstone filed a motion to dismiss the lawsuit in October 2020. A key argument made by Townstone was that while Regulation B refers to "prospective applicants," the ECOA only refers to "applicants" and, therefore, a redlining claim cannot be brought under the ECOA because such a claim focuses on persons who are not yet applicants. The district court agreed with Townstone in a February 2023 opinion and dismissed the lawsuit.

In April 2023 the CFPB appealed the decision to the U.S. Court of Appeals for the Seventh Circuit. In a July 2024 opinion that we criticized, the Seventh Circuit reversed the district court's ruling, finding that redlining claims may be brought under the ECOA because the statute prohibits the discouragement of prospective applicants for credit.

The parties then decided to settle. Pursuant to the settlement, Townstone is prohibited from taking any actions in connection with offering or providing mortgage loans that violate the ECOA and was required to pay a $105,000 penalty to the CFPB's victims relief fund.

In a release announcing the filing to vacate the settlement, the CFPB stated that the Bureau under former Director Rohit Chopra used a "redlining screen" based on an arbitrary number of mortgages. . "[The] CFPB [then] set out to destroy a small Midwest firm with about 10 employees and a radio program called Townstone Financial," the Bureau said. "After a thorough review, the CFPB is seeking to make Townstone whole by returning the six-figure penalty they were forced to pay."

Acting CFPB Director Russ Vought stated that "CFPB abused its power, used radical 'equity' arguments to tag Townstone as racist with zero evidence, and spent years persecuting and extorting them – all to further the goal of mandating DEI in lending via their regulation by enforcement tactics."

CFPB Senior Advisor Dan Bishop added that "This was a flagrant misuse of government resources to destroy a small business that did nothing wrong." He continued, "For the crime of protected political speech, this firm was targeted and harassed for years by this rogue agency. We are righting this wrong and protecting the First Amendment." Neither the district court nor the court of appeals addressed the First Amendment issues raised by Townstone, as both courts focused on whether the ECOA applies only to applicants, or to both applicants and prospective applicants.

Fourteen nonprofit organizations focused on fair housing and consumer protection filed an amicus brief with the district court opposing the joint motion to reverse the settlement.

In its opinion denying the motion to reverse the settlement, the district court noted that Federal Rule of Civil Procedure 60(b) allows a court to grant relief to a party from a final judgment or order for several listed reasons, and that Rule 60(b)(6) allows a court to grant relief for "any other reason that justifies relief." Citing a Seventh Circuit decision, the district court stated that "Rule 60(b)(6) is reserved for cases that present extraordinary circumstances," and that a party "seeking relief under Rule 60(b)(6) must show extraordinary circumstances justifying the reopening of a final judgment."

An initial issue addressed by the district court was whether it should, following other court decisions, relax Rule 60(b)(6)'s requirement for vacating a final judgment or order because the motion to vacate is a joint motion. The district court stated:

"Here, the court must balance the parties' desire to vacate the judgment with the public interest in the finality of judgments. What distinguishes this case from the cases cited by the [CFPB and Townstone], among other reasons, is the fact that [Townstone's] alleged wrongdoing affected the public. This was not a private matter between private parties. CFPB's complaint alleged that [Townstone] discouraged prospective African American applicants in the Chicago metropolitan area from applying for mortgage loans. Indeed, the consent decree enjoined Townstone from engaging in the allegedly improper practices.

Under these circumstances, the court finds that relaxing Rule 60(b)(6)'s requirement would be improper."

The district court then turned to the CFPB's and Townstone's substantive arguments for reversing the settlement. The court stated as follows:

"Having considered the arguments presented, the issue before the court is whether the Parties have met their substantial burden of showing an extraordinary circumstance that justifies vacatur of the final judgment and consent decree. The court finds they have not.

Notably, the Motion, as observed by Amici, is unprecedented. The Parties in this case—a government agency and private parties—voluntarily entered into a settlement and consent decree to resolve the dispute. As previously noted, the consent decree, among other things, enjoined Townstone from engaging in any acts that violate the ECOA in connection with offering or providing mortgage loans. The voluntary nature of the resolution of this case cannot be overemphasized. It was only after a change at the leadership at CFPB that CFPB now seeks—along with Defendants—to unwind the very settlement and consent decree that it negotiated."

In concluding its analysis, the district court stated as follows:

"At bottom, to grant the Motion based on the arguments advanced by the Parties would be to undermine the finality of judgments. This, the court declines to do. Indeed, the importance of preserving finality was illustrated by the Supreme Court just a few days ago, when it reaffirmed that it is "essential" to apply a strict standard to Rule 60(b) motions to preserve the finality of judgments.

Moreover, the court agrees with Amici that granting the Motion would erode public confidence in the finality of judgments. It would set a precedent suggesting that a new administration could seek to vacate or otherwise nullify the voluntary resolution of a case between a prior administration (or the same administration ,but under different agency leadership) and a private party merely because its leadership thought the original litigation unwise or improperly motivated. That is a Pandora's box the court refuses to open.

All in all, balancing the benefits [of vacating the settlement] against the public interest in the finality of judgment, the court finds that the latter outweighs the former." (Citations omitted.)

In announcing the effort to reverse the settlement, Acting Director Vought hinted that the CFPB may take similar actions in the future. "The more we uncover at CFPB, the more we see how this agency was weaponized against targeted Americans," he said. Potentially the district court's opinion may give pause to the CFPB in assessing whether to seek reversal in other matters.

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

DOJ Seeks Early Termination of Lakeland Bank Redlining Consent Order

The U.S. Department of Justice (DOJ) has filed a motion with a federal district court to terminate early the September 2022 consent order with Lakeland Bank (Lakeland) that settled allegations of redlining under the Fair Housing Act and Equal Credit Opportunity Act. The motion also seeks the dismissal with prejudice of the case that the DOJ brought that resulted in that consent order.

By its terms, the consent order was scheduled to end in September 2027, unless Lakeland had not fully invested the loan subsidy fund provided for in the consent order, in which case it would have continued until three months after Lakeland fulfilled that obligation and submitted a confirming report to the DOJ.

Supporting the request for the early termination, the unopposed motion provides "that Lakeland Bank has demonstrated a commitment to remediation and has reached substantial compliance with the monetary and injunctive terms of the Consent Order. Lakeland has also committed to continuing its disbursement of the loan subsidy fund and to provide the United States confirmation of that disbursement upon completion." (Citations omitted.)

The motion also indicates that the DOJ conferred with Lakeland, and that Lakeland did not oppose the motion.

Note, this differs from the recent early termination of the consent order with the DOJ, CFPB, and Trustmark Bank, as Trustmark had fully disbursed the $3.85 million loan subsidiary fund provided for in its consent order, whereas Lakeland has not fully disbursed the $12.0 million loan subsidy fund provided for in its consent order.

Various consumer groups have filed appearances apparently seeking to challenge the motion for early termination, and it appears that the court will consider the motion on July 7, 2025.

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

More Early Terminations of Redlining Consent Orders

As previously reported, based on an unopposed motion submitted by the Department of Justice (DOJ) and Consumer Financial Protection Bureau (CFPB) the October 2021 redlining consent order with Trustmark National Bank was terminated early, and the DOJ is seeking early termination of the September 2022 consent order with Lakeland Bank. The Lakeland Bank motion for early termination is being opposed by the Housing Equality Center of Pennsylvania, the National Fair Housing Alliance, and the New Jersey Citizen Action Education Fund.

Also, while the CFPB sought court approval to rescind the November 2024 redlining consent order with Townstone Financial, the court denied the motion.

The DOJ also has sought, and obtained court approval, for the early terminations of the following redlining consent orders:

The September 2022 consent order with Evolve Bank and Trust (terminated May 29, 2025).

The DOJ stated in its unopposed motion for early termination that the bank "has complied with the requirements in the Consent Order to compensate aggrieved borrowers and pay a civil penalty to the United States, and Defendant is in substantial compliance with the injunctive terms of the Consent Order."
The October 2023 consent order with Ameris Bank (terminated May 20, 2025).
The DOJ stated in its unopposed motion for early termination that the bank "has disbursed the full amount of the loan subsidy fund ($7,500,000) as required" and "is substantially in compliance with the other monetary and injunctive terms of the Consent Order."
The January 2024 consent order with Patriot Bank (terminated June 6, 2025).
The DOJ stated in its unopposed motion for early termination that the bank "has demonstrated a commitment to remediation and has reached substantial compliance with the monetary and injunctive terms of the Consent Order." The DOJ also stated that the bank "has also committed to continuing its disbursement of the loan subsidy fund and to provide the United States confirmation of that disbursement upon completion."

The DOJ also filed a motion for the early termination of the June 2023 redlining consent order with Essa Bank. That motion is being challenged by the Housing Equality Center of Pennsylvania, the National Fair Housing Alliance, and POWER Interfaith.

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

Keynote Speaker Announced for SEPA SHRM and Ballard Spahr 2025 HR Legal Summit

Participating in SEPA SHRM's premier legal conference, co-hosted with Ballard Spahr's Labor and Employment Group, is essential for HR professionals and in-house counsel to stay informed about legal trends and developments, ensuring compliance and effective management of workplace issues.

Ballard Spahr LLP and the Southeastern Pennsylvania Chapter of SHRM (SEPA SHRM) are hosting our 13th Annual HR Legal Summit, where over 200 HR professionals will gain practical insights into Labor and Employment compliance for 2025 and beyond.

This year's event will feature Keynote Speaker, Andre Young, a speaker, author, and mental health therapist focused on positive living, personal growth, relationship growth, healthy living, and lifestyle enhancement. His energetic and engaging presentation will give attendees the ability to enhance their leadership skills, work culture and work/life harmony for themselves, their team, and their organization.

Presenters from Ballard Spahr will discuss legal changes relevant to HR, labor and employment attorneys, and decision-makers, with opportunities for Q&A sessions and interactions with exhibitors and sponsors, with a particular focus on the changing legal landscape under the New administration. Staying proactively informed is crucial for supporting organizations and the workforce in these evolving times.

Early bird registration deadline now through August 15, 2025.

Thursday, September 18, 2025
8:00 AM – 4:30 PM ET

Presidential Caterers
2910 Dekalb Pike
East Norriton, PA 19401

Become a Sponsor or Exhibitor

For more information about the conference, sponsorship opportunities or exhibiting, please contact Laurie Sample at sepa-administrator@sepashrm.org or visit the 2025 HR Legal Summit Event Page.

CLE Credits: Approval for CLE Credits in CA, NJ, NY, and PA is pending. Uniform Certificates of Attendance will be provided for the purpose of applying for CLE credit in other jurisdictions.

Brian D. Pedrow

Reverse Discrimination Lawsuits Are Back

On June 5, 2025, a unanimous Supreme Court eliminated the requirement for a higher evidentiary standard for majority plaintiffs (white, male, heterosexual, etc.) who claim discrimination under Title VII (also known as reverse discrimination). Ames v. Ohio Department of Youth Services, 605 U.S. ___ (2025). This ruling is expected to make it easier for reverse discrimination claimants to bring their claims in federal court.

The Lawsuit. The plaintiff, a heterosexual woman, worked for the Ohio Department of Youth Services. In 2019, the plaintiff applied for a promotion and the agency interviewed her but ultimately hired a lesbian woman for the role. Shortly thereafter, the plaintiff was demoted and her vacant position filled by a gay man. She filed suit, claiming that the agency discriminated against her as a heterosexual. The district court granted summary judgment based on Sixth Circuit precedent requiring majority plaintiffs to show "background circumstances suggesting that the agency was the rare employer who discriminates against members of a majority group," "in addition to" the prima facie case of discrimination non-majority group plaintiffs must show. The Sixth Circuit affirmed.

The Opinion. Authored by Justice Ketanji Brown Jackson, the Court concluded in a relatively brief opinion that the "background circumstances" heightened evidentiary standard could not be "squared with the text of Title VII or our longstanding precedents," because "Title VII's disparate-treatment provision draws no distinctions between majority-group plaintiffs and minority-group plaintiffs."

The Court's opinion struck down all similar heightened evidentiary standards previously adopted by four other circuit courts of appeals and the District of Columbia.

The Concurrences. Although joining in the Court's opinion, Justice Thomas's concurrence (joined by Justice Gorsuch) criticized "atextual" "judge-made doctrines," DEI initiatives, and affirmative action plans. The concurrence focused significantly on the burden-shifting framework to evaluate Title VII cases attributed to McDonnell Douglas v. Green, 411 U.S. 792 (1973). In what may be a harbinger of things to come, Justice Thomas seems to invite litigants to challenge the framework so that the Court could eventually "consider whether the McDonnell Douglas framework is a workable and useful evidentiality tool."

Expected Effects. The Court's opinion allows plaintiff to continue her lawsuit in the Ohio federal district court. Beyond plaintiff, it is expected that more reverse discrimination claimants will pursue their claims in the coming days, as well as potential challenges to the long-standing McDonnell-Douglas framework.

Ballard Spahr's Labor and Employment Group continues to advise employers on labor, employment, and policy issues. We will keep monitoring developments under the new administration and their impact on employers. Please contact us if we can assist you with these matters.

Ethan Picone, Brian D. Pedrow, Denise M. Keyser, and Priya B. Vivian

Connecticut Amends Privacy Law

On June 11, 2025, Connecticut passed Senate Bill 01295 (SB 01295). If signed by the governor, SB 01295 will amend the existing Connecticut Data Privacy Act (CTDPA) in several important ways, with the amendments going into effect on July 1, 2026.

Expanded Scope: In what is seen as a general trend, SB 01295 broadens the reach of the CTDPA by lowering exemption thresholds: The law will apply to organizations that control or process the personal data of 35,000 consumers or more, controls or processes any sensitive data, or engage in the sale of personal data. The bill also expands the definition of sensitive data, thereby increasing the number of covered entities.

Signaling another important trend, the amendment would remove the entity-level exemption for financial institutions under the Gramm-Leach-Bliley Act (GLBA), and instead only exempt data subject to the GLBA. Notably, however, certain types of financial institutions may continue to enjoy entity-level exemptions.

Stricter Regulations for Minors: Social media platforms and online services targeting minors (individuals under 18) would also be subject to heightened obligations and standards, including restrictions related to processing minors' personal data related to certain risks and automated decisions.

Additional Changes: Additionally, the amended changes would include additional responsibilities placed on data controllers, including those related to consumer rights requests, data protection assessments, and privacy notices and disclosures.

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Although this legislative season has not seen revolutionary new laws passed, amendments in states like Connecticut, Colorado, and Montana are important reminders that changes to existing laws can have significant impacts–both in broadening the scope of their application and in current compliance regimes.

Sofia Reed, Gregory P. Szewczyk, and Kelsey Fayer

Developments in Online Safety and Data Privacy for Minors

There have been numerous developments in the online safety and data privacy space for minors in particular over the last few months. Here we cover some notable decisions in the federal courts and cases with nationwide implications in addition to final and pending legislative and regulatory action by the Federal government.

Notable Court Decisions

The Salesforce Decision

A recent decision by the Fifth Circuit held that a suit brought by sex trafficking victims against Salesforce for allegedly participating in a sex trafficking venture could move forward. The court ruled that under certain circumstances, companies such as Salesforce that provide web-based business services to entities or individuals engaged in sex trafficking may be civilly liable as a beneficiary of a sex trafficking venture. The decision interprets Section 230 of the Communications Decency Act (Section 230), which generally protects web platform hosts from liability for content created by users. This is the most recent in a series of decisions limiting Section 230's protections for entities that fail to take measures to prevent the use of their services by criminal actors engaged in sex trafficking.

The plaintiffs in Doe v. Salesforce are a group of sex trafficking victims who were trafficked through Backpage.com (Backpage), a Craigslist-type platform notorious for its permissiveness and encouragement of sex trafficking advertisements. They seek to hold Salesforce civilly liable under 18 U.S.C. § 1595, which creates a cause of action for victims against anyone who "knowingly benefits ... from participation in a [sex trafficking] venture." Salesforce allegedly provided Backpage cloud-based software tools and related services, including customer relationship management support. The Plaintiffs allege that Salesforce was aware that Backpage was engaged in sex trafficking, citing, inter alia, emails between Salesforce employees and a highly publicized Congressional report that found that Backpage actively facilitated prostitution and child sex trafficking.

Salesforce moved for summary judgment, arguing that Section 230 served as a complete bar to liability. While courts have generally interpreted Section 230 broadly in dismissing claims against internet platform hosts that are premised on the ways in which others use those platforms, the statute has been increasingly under fire by legislators and courts alike. Lawmakers on both sides of the aisle have discussed amending or repealing Section 230 in recent years and courts have slowly chipped away at the broad immunity by interpreting the statute more narrowly. This trend has been especially stark in cases dealing with sex trafficking and child sexual abuse. The Fifth Circuit's decision in Doe v. Salesforce is a prime example of this, and a substantial step away from the breadth of protections afforded under earlier interpretations of Section 230.

The Fifth Circuit rejected a "but-for test," which would shield a defendant if a cause of action would not have accrued without content created and posted by a third party. Salesforce advocated for what the court dubbed the "only-link" test, which would protect defendants when the only link between the defendant and the victims is the publication of third-party content. The court rejected that argument, instead ruling that "the proper standard is whether the duty the defendant allegedly violated derives from their status as a publisher or speaker or requires the exercise of functions traditionally associated with publication." The key question is whether the claim treats the defendant as a publisher or speaker. The Fifth Circuit found that the duty the plaintiffs alleged Salesforce breached was "a statutory duty to not knowingly benefit from participation in a sex-trafficking venture." Because this duty is unrelated to traditional publishing functions, Section 230 does not serve as a shield. This decision underscores the need for companies to establish processes that will identify potential dangers of trafficking in or in relation to their businesses including but not limited to facilitation of trafficking using online platforms. Without proper safeguards, even businesses providing neutral tools and operations support may be held civilly liable for the harms the users of their services perpetrate.

Garcia v. Character Technologies, Inc. et al.

The mother of a 14-year-old boy prevailed on a motion to dismiss her lawsuit against Character Technologies, Google, Alphabet, and two individual defendants in connection with the suicide of her child. The plaintiff alleged that her son was a user of Character A.I., which the court describes as "an app that allows users to interact with various A.I. chatbots, referred to as 'Characters.'" The court also describes these "Characters" as "anthropomorphic; users interactions with Characters are meant to mirror interactions a user might have with another user on an ordinary messaging app." In other words, it is intended to and gives the impression to the user that he is communicating with a real person. The plaintiff alleged that the app had its intended impact on her child; she asserted that her son was addicted to the app and could not go one day without communicating with his Characters, resulting in severe mental health issues and problems in school. When his parents threatened to take away his phone, he took his own life. The plaintiff filed suit asserting numerous tort claims, along with an alleged violation of Florida's Unfair Trade and Deceptive Practices Act and under a theory of unjust enrichment.

In denying the motion to dismiss, Judge Anne Conway, District Court Judge for the Middle District of Florida, made several notable rulings. Among them, she found that the plaintiff had adequately pled that Google is liable for the "harms caused by Character A.I. because Google was a component part manufacturer" of the app, deeming it sufficient that plaintiff pled that Google "substantially participated in integrating its models" into the app, which allegedly was necessary to build and maintain the platform. She also found that the plaintiff sufficiently pled that Google was potentially liable for aiding and abetting the tortious conduct because the amended complaint supported a "plausible inference" that Google possessed actual knowledge that Character's product was defective. The court further found that the app was a product, not a service, and that Character A.I.'s output is not speech protected by the First Amendment. The court determined that plaintiff had sufficiently pled all her tort claims with the exception of her claim of intentional infliction of emotional distress, along with allowing her claims to go forward under Florida's Deceptive and Unfair Trade Practices Act, and a theory of unjust enrichment.

New York v. TikTok

In October 2024, the Attorney General for State of New York filed suit against TikTok to hold it "accountable for the harms it has inflicted on the youngest New Yorkers by falsely marketing and promoting" its products. The following day, Attorney General James released a statement indicating that she was co-leading a coalition of 14 state Attorneys General each filing suit against TikTok for allegedly "misleading the public" about the safety of the platform and harming the mental health of children. Lawsuits were filed individually by each member of the coalition and all allege that TikTok violated the law "by falsely claiming its platform is safe for young people." The press release can be found here.

The New York complaint includes allegations regarding the addictive nature of the app and its marketing and targeting of children, causing substantial mental health harm to minors. The complaint additionally includes allegations that TikTok resisted safety improvements to its app to boost profits, made false statements about the safety of the app for minors, and misrepresented the efficacy of certain safety features. The complaint asserts nine causes of action, including violations of New York law relating to fraudulent business conduct, deceptive business practices, and false advertising, along with claims asserting design defects, failure to warn, and ordinary negligence. In late May, Supreme Court Justice Anar Rathod Patel mostly denied TikTok's motion to dismiss in a brief order that did not include her reasoning, allowing the case to proceed.

Federal Legislative and Regulatory Developments

President Trump Signs the TAKE IT DOWN Act; The Kids Online Safety Act (KOSA) is Reintroduced

President Trump signed the "TAKE IT DOWN Act" on May 19, 2025. The bill criminalizes the online posting of nonconsensual intimate visual images of adults and minors and the publication of digital forgeries, defined as the intimate visual depiction of an identifiable individual created through various digital means that, when viewed as a whole, is indistinguishable from an authentic visual depiction. The statute also criminalizes threats to publish such images. The bill additionally requires online platforms to establish no later than one year from enactment clear processes by which individuals can notify companies of the existence of these images and a requirement that the images be removed "as soon as possible, but not later than 48 hours" after receiving a request. The bill in its entirety can be found here.

Also in May, the Kids Online Safety Act (KOSA) was reintroduced in the Senate by a bipartisan group of legislators. In connection with their announcement of the revised version of KOSA, Senators Blackburn and Blumenthal thanked Elon Musk and others at X for their partnership in modifying KOSA's language to "strengthen the bill while safeguarding free speech online and ensuring it's not used to stifle expression" and noted the support of Musk and X to pass the legislation by the end of 2025. In its May announcement, the senators noted that the legislation is supported by over 250 national, state, and local organizations and further gained the support of Apple. KOSA provides that platforms "shall exercise reasonable care in the creation and implementation of any design feature to prevent and mitigate" listed harms to minors where those harms were reasonably foreseeable. Those harms include eating disorders, depressive and anxiety disorders, compulsive use, online harassment, and sexual and financial exploitation. It requires that platforms provide minors (and parents) with readily accessible and easy to use safety tools that limit communication with the minor and limit by default access to and use of certain design features by minors. The legislation further mandates reporting tools for users and the establishment of internal processes to receive and substantively review all reports. The current version of KOSA is lengthy and contains numerous additional mandates and notice requirements including third-party audits and public reporting regarding compliance. The most recent version of KOSA can be found here.

New COPPA Rule Takes Effect June 23, 2025

The Federal Trade Commissions (FTC) has amended the Children's Online Privacy Protection Rule (COPPA Rule) effective June 23, 2025. COPPA imposes obligations on entities operating online that collect the personal information of children under the age of thirteen. The new COPPA Rule seeks to address new challenges in the digital landscape.

Under the new COPPA Rule, the FTC will consider additional evidence in determining whether a website or online service is directed at children. COPPA applies wherever children under the age of thirteen are a website or service's intended or actual audience, and the FTC applies a multifactor test for assessing this. Under the new COPPA Rule, the FTC will now consider "marketing or promotional materials or plans, representations to consumers or to third parties, reviews by users or third parties, and the age of users on similar websites or services." While FTC has stated that this amendment simply serves to clarify how it analyzes the question of whether a website is child-directed (rather than acting as a change in policy), online operators should note that whether they are subject to COPPA depends in part on elements outside of their control—such as online reviews and the age of users of their peer websites and services.

The type of information protected by COPPA will also expand. COPPA mandates that websites and online services directed at children under the age of thirteen obtain verifiable parental consent before collecting, using, or disclosing any personal information from children. To date, this has included details like names, addresses, phone numbers, email addresses, and other identifiable data. The new COPPA Rule expands this definition to include biometric identifiers "that can be used for the automated or semi-automated recognition of an individual, such as finger prints; handprints; retina patterns; iris patterns; genetic data, including a DNA sequence; voiceprints; gait patterns; facial templates; or faceprints[.]" The definition will also include government identifiers such as social security or passport numbers, and birth certificates.

Data security requirements have also been enhanced. Operators subject to COPPA must maintain a written data security program, designate one or more employees to coordinate it, and conduct an annual assessment of risks. If they share any protected data with third parties, the disclosing party must ensure that the third-party has sufficient capability and policies in place to maintain the data securely and within the bounds of COPPA regulations. Notably, the new COPPA Rule forbids indefinite retention of data, requiring that operators only retain protected information as long as is reasonably necessary to serve the purposes for which it was collected.

The new COPPA Rule contains a number of other policy changes, such as enhanced requirements for parental notice and control regarding the data collected, stored, and shared with third parties, new mechanisms for obtaining parental consent, and changes to an exception to the bar on collecting children's data without parental consent for the limited purpose of determining whether a user is a child under the age of thirteen.

Entities operating a business or service online that may be used by children under the age of 13—even where children are not the intended audience—should carefully review the new rule, and take steps to ensure they are in full compliance. The new rule underscores the FTC's continued interest in this space and its desire to take action against online services for practices it views as posing unacceptable risks to children's privacy and online safety.

Senate Judiciary Committee, Subcommittee on Privacy, Technology, and the Law Holds Hearing on AI-Generated Deep Fakes

On May 21, the Senate Judiciary Committee's subcommittee on privacy, technology, and the law held a hearing titled, "The Good, the Bad, and the Ugly: AI-Generated Deep Fakes in 2025." Witnesses included representatives of the Recording Industry Association of America, Consumer Reports, and YouTube, along with multi-award winning musician Martina McBride. They all testified about the potential benefits of AI, but also the potential harms to creators, including musicians, and different but substantial harms to consumers. The witnesses discussed specific examples of the images and voices of both known and lesser-known innocent individuals used to defraud and exploit others, impacting reputations and livelihoods. A representative from the National Center on Sexual Exploitation (NCOSE) also testified about the pervasive and harmful impact of deep fakes on adults and children when their images are used to create pornography, which is then spread worldwide and unchecked on the internet. All of the witnesses testified in support of the NO FAKES Act of 2025, a bipartisan bill and a compliment to the TAKE IT DOWN Act. The language of the current legislation can be found here. The bill currently provides for a civil cause of action with a detailed penalty regime for individuals who have their image or voice used without their permission and protects online service providers from liability if those providers have systems in place to identify and address the publication and dissemination of deep fakes. The bill also provides for legal process for individuals to obtain information from providers regarding the source of the published materials. The current version additionally endeavors to preempt state law, stating that the "rights established under this Act shall preempt any cause of action under State law for the protection of an individual's voice and visual likeness rights in connection with a digital replica, as defined in this Act, in an expressive work."

Jill Steinberg and Kelly McGlynn

OCC Confirms That Its National Bank Preemption Regulations Are Valid and Require No Changes Despite Cantero Supreme Court Opinion

The OCC has mounted a vigorous defense of federal preemption, calling it "a cornerstone of the dual banking system, under which federally and state-chartered banks operate alongside each other."

"Federal preemption has proven to be a powerful enabler of local and national prosperity and growth," Acting Comptroller Rodney Hood wrote in a letter to Brandon Milhorn, President and CEO of the Conference of State Bank Supervisors, who called for rescinding the preemption rules. "Federally chartered banks, many of which operate across state lines, therefore may rely on preemption to remove barriers and achieve efficiencies associated with a uniform set of rules. Thus, federal preemption has helped to foster the development of national products and services and multi-state markets, which have benefited individuals and businesses in every state and powered this Nation's economy."

This position differs from that of Biden administration Acting Comptroller Michael Hsu, who said last year he believed the agency needed to reexamine the preemption rules.

Hood's strong statement comes in response to a letter from Milhorn, who argued, among other things, that the preemption rules violate two of President Trump's executive orders. One executive order directs federal departments and agencies to rescind regulations that "are based on anything other than the best reading of the underlying statutory authority."

The second executive order directs agency heads to "eliminate regulations that are anti-competitive, including those that "have the effect of limiting competition between competing entities."

Rather than reflecting the best reading of the statute, Milhorn asserted that the OCC's preemption rules, finalized in 2011, ignore the plain language of and congressional intent reflected in the National Bank Act, which codifies the standard for when the OCC may preempt a state consumer finance law.

"The preemption regulations are anticompetitive by inappropriately shielding national banks from state consumer financial laws that apply to similarly situated state-chartered banks and state-licensed nonbank firms," Milhorn added.

The CSBS argues that instead of considering preemption on a case-by-case basis after enactment of Dodd-Frank, the OCC reissued its broad preemption rules from 2004.

"The OCC's preemption regulations are clearly unlawful, inconsistent with Supreme Court rulings, and contrary to the public interest," according to Milhorn.

In his response Hood contends that federal preemption allows federally and state-chartered banks to operate alongside each other.

Hood wrote that the OCC has thoroughly reviewed the points Milhorn raised and reaffirmed that its preemption regulations are valid under federal law.

The OCC's preemption regulations are consistent with Dodd-Frank and Supreme Court precedent and as a result, they meet the requirements of the executive order requiring the rescinding of unlawful regulations, Hood added. And he told Milhorn that the OCC reviewed its preemption regulations following the enactment of Dodd-Frank.

The Supreme Court ruling in Cantero v. Bank of America could have a profound impact on preemption. In that case, the Supreme Court reversed and remanded the case to the Second Circuit, and rather than articulating a bright line test for preemption, instructed the circuit court to conduct a "nuanced analysis" to determine whether the National Bank Act preempts a New York state law requiring the payment of two percent interest on mortgage escrow accounts.

Per the Supreme Court, the Second Circuit must apply the preemption standard described in the Dodd-Frank Act, which provides that a state consumer financial law is preempted "only if" it discriminates against national banks in comparison with state banks; is preempted by another Federal law; or "prevents or significantly interferes with the exercise by the national bank of its powers," as determined "in accordance with the legal standard for preemption in the decision of the Supreme Court of the United States" in Barnett Bank, N.A. v. Nelson. See 12 U.S.C. § 25b(b)(1).

As noted, Hood's defense of the preemption rules also differs from that of Biden administration Acting Michael Hsu, who said in a July 2024 speech to the Exchequer Club that in light of Cantero, the OCC intended to review the preemption rules.

"W]e are reviewing the agency's 2020 interpretation of preemption [OCC Interpretive Letter No. 1173] under the Dodd-Frank Act to determine whether updates are needed in light of the recent Cantero decision," Hsu said. "We need to develop a more nuanced and balanced approach to Barnett. Updating that interpretation could be a helpful step toward that."

Hsu continued, "The combination of vigorously defending core preemption, while being more precise in defining and applying the Barnett standard, will sharpen the OCC's preemption powers. Doing so will allow us to meet the challenges of increasing polarization consistent with our rich history and deep roots."

Now, Acting Comptroller Hood's strong defense of the preemption rules appears to negate Hsu's effort to reexamine the rules.

But that strong defense of the preemption rules may soon be tested in court. In addition to the Second, Circuit, the First and Ninth Circuit Courts of Appeal are currently considering whether the National Bank Act preempts various state laws which require the payment of interest on residential mortgage escrow accounts under the Supreme Court's holding last year in the Cantero case. One or more of those three circuit courts may comment on the legality of the OCC's preemption regulations.

In light of the Supreme Court's opinion in Loper Bright Enterprises, which overruled the Chevron Deference Doctrine (i.e. the doctrine which required courts to defer to the reasonable regulations of a federal agency, which interprets an ambiguous statute), it is doubtful that any court will simply defer to the OCC's regulations. As a result, we have counseled national bank clients not to rely exclusively on OCC regulations in evaluating whether particular state statutes are preempted.

Alan S. Kaplinsky

Looking Ahead

Understanding State Attorneys General Triggers in Antitrust and Privacy Actions

A Ballard Spahr Webinar | July 9, 2025, 12 PM ET

Speakers: Mike Kilgarriff, Joseph J. Schuster, Gregory Szewczyk, and Christopher Wyant

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

Mortgage Banking Update - June 26, 2025

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