Our Take: financial services regulatory update – March 14, 2025

• What happened? Consensus reporting this week is that President Trump will nominate Fed Governor Michelle Bowman to be the new Vice Chair for Supervision.
• What are Bowman’s policy positions? Throughout her tenure as a Fed Governor, Bowman has regularly spoken and issued statements on her policy views, including on:
  • Regulatory tailoring. Bowman has consistently supported regulatory tailoring for smaller banks, arguing that community and regional banks should not face the same capital and liquidity requirements as large global banks. She has warned that over-regulation can reduce credit availability and harm local economies.
  • Stress testing and capital. On September 10th, 2024 Fed Governor Michelle Bowman gave a detailed speech on the future of stress testing and the stress capital buffer framework. She outlined concerns regarding (1) volatility in year-over-year results, (2) linking stress testing outcomes with capital through the stress capital buffer, (3) transparency over models and process, and (4) the potential overlap with other capital requirements resulting in increased capital requirements. She suggested several potential policy changes to address these concerns, such as averaging results over multiple years, constraining variability in annual stress test scenario design, providing more detailed descriptions of the Fed’s models, and extending the compliance time frame for adjusting to new stress capital buffers. Separately, Bowman has criticized the Basel III Endgame proposal, arguing that it imposes excessive capital burdens on banks, potentially restricting lending.
  • Supervision. Following the 2023 regional bank failures, Bowman argued that supervisors “failed to sufficiently identify and prioritize the appropriate risks.” She has called for more proactive monitoring of core financial risks rather than relying on backward-looking compliance checklists and focusing on “broader, qualitative, and process- and policy-oriented risks.” Most recently, she has criticized the opacity of supervisory expectations that are delivered as part of the examination process, and thus revealed after-the-fact as criticism. She has also argued that subjective examiner judgments on non-financial risks can misrepresent the true condition of financial institutions, citing the most recent Supervision and Regulation Report’s co-existing findings that only a third of large financial institutions have satisfactory ratings across all components while most of the institutions meet capital and liquidity expectations.
  • Innovation and Emerging risks. Bowman has called for regulators to foster innovation, while also stressing that cybersecurity risks, financial fraud, and the rapid rise of fintechs require more attention from regulators, particularly to the extent that they drive activity out of a regulated entity into a service provider. Moreover, she has called for stress testing and risk assessments to better account for operational risks, including cyber threats and vulnerabilities associated with third-party technology providers.
• What’s next? If formally appointed, Bowman will have a hearing before the SBC followed by a vote in the full Senate.

Our Take

The industry gets their person. Assuming she is nominated and confirmed as VCS, Michelle Bowman would provide the industry with a more sympathetic direction for Fed regulatory and supervisory policy. A former banker and bank supervisor, she understands firsthand both industry perspectives and the supervisory process, and she can follow through on the direction described above to refocus Fed supervision on core financial risks through examination procedures and mandates. Her work will not be without challenges. On stress testing, she will have to navigate reforms in the context of an outstanding lawsuit. For Basel III, she will have to develop an interagency approach to a reproposal that ultimately achieves a more capital neutral impact. On tailoring, she will have to figure out how to recalibrate supervisory expectations to ensure the practice in the field aligns to the original intent of the statute. And she will have to drive the Fed’s approach to innovative products such as crypto and stablecoins while being on the outside of the President’s Working Group on Digital Asset Markets.

• What happened? On March 13^th, New York Attorney General (AG) Letitia James advanced a bill through state Senator Leroy Comrie, the Fostering Affordability and Integrity through Reasonable (FAIR) Business Practices Act, a bill “to protect New Yorkers from a wide array of scams, including deed theft, artificial intelligence (AI)-based schemes, online phishing scams, hard-to-cancel subscriptions, junk fees, data breaches, and other unfair, deceptive, and abusive practices.” This followed a March 5^th meeting of the Conference of State Bank Supervisors (CSBS) to discuss 2025 priorities, consumer protection, and financial access issues.
• What would the FAIR Business Practices Act do? The Act would introduce several new requirements for companies operating in New York:
  • Expanded definitions of unlawful practices. Financial institutions would need to comply with new definitions of unfair, deceptive and abusive acts or practices (UDAAP), including any acts that cause substantial injury to consumers, mislead consumers, or take advantage of consumers' lack of understanding of financial products.
  • Elimination of court-imposed exceptions. The bill would remove exemptions that previously shielded businesses from liability if their actions did not directly impact the public or were isolated incidents. Financial institutions could be held accountable even if a deceptive act affects only a single business or individual.
  • Private right of action and increased penalties. Consumers, small businesses and nonprofits would be able to sue financial institutions for violations and financial institutions would not be able to rely on previous defenses that their actions complied with federal regulations unless specifically authorized. Higher penalties would apply for unfair financial practices targeting seniors, veterans, individuals with disabilities, and non-English speakers.
  • More AG authority. The AG would gain authority to investigate financial institutions suspected of engaging in unfair or abusive practices and could seek injunctions, restitution, and penalties without having to prove broad public impact.
• What’s next? The bill will need to be introduced in the New York State Senate and/or Assembly and then be assigned to a relevant committee.

Our Take

States stepping up. With CFPB enforcement eroding at the federal level, states like New York are moving to fill the gap. As currently written, the FAIR Business Practices Act could have significant impact on financial institutions doing business in New York. They would need to reassess their activities against expanded UDAAP definitions and strengthen their compliance programs to confront increased risk of lawsuits from individual consumers, businesses and the state as well as higher penalties. If it is passed, there is a strong likelihood that financial institutions will challenge this law, arguing that the National Bank Act and Dodd-Frank Act provide federal preemption for national banks, limiting states’ ability to impose additional consumer protection rules that affect lending, fees, and disclosures. It will take time for this bill to work through the New York legislature and for any legal challenges to play out, but financial institutions should not underestimate the determination of New York, and likely other states like California and Illinois, to increase consumer protection oversight in the absence of CFPB enforcement. Accordingly, financial institutions should closely follow actions across the states and prepare to adapt to a fragmented compliance environment that may raise preemption questions requiring resolution through the courts.

These notable developments hit our radar recently:

Judges issue orders requiring rehiring of fired federal agency employees. On March 13th, federal judges in California and Maryland issued orders requiring the mass reinstatement of fired federal employees at 19 federal agencies. First, a California federal court ordered the Defense, Treasury, Energy, Interior, Agriculture and Veterans Affairs departments to “immediately” offer all fired probationary employees their jobs back. Later that day, a Maryland federal court ruled that the administration had implemented “reductions in force” without providing legally required notice to state governments and ordered the mass reinstatement of fired probationary employees at 18 agencies. The agencies impacted by this order include the Departments of Agriculture, Commerce, Education, Energy, Health and Human Services, Homeland Security, Labor, State, Transportation and Treasury, among others. The Administration has appealed the district court rulings to the Supreme Court.

House Financial Services Committee (HFSC) stablecoin hearing. On March 11^th, the HFSC held a hearing titled “Navigating the Digital Payments Ecosystem: Examining a Federal Framework for Payment Stablecoins and Consequences of a U.S. Central Bank Digital Currency.” The hearing examined the promise of blockchain technology, specifically in payments with stablecoins and discussed how the Committee’s STABLE Act will impact payment stablecoin issuers, protect consumers, and foster competition and innovation.

CFTC withdraws registration requirement. On March 13^th, the CFTC’s Division of Market Oversight (DMO) announced it would be withdrawing the Staff Advisory on swap execution facility (SEF) registration requirements in its entirety, effective immediately. DMO cited regulatory uncertainty regarding whether certain entities that operate in the swaps market are required to register as SEFs as the reasoning for withdrawing the original advisory letter.

Debanking legislation advances out of committee. On March 13^th, the Senate Banking Committee voted to advance Chairman Scott’s Financial Integrity and Regulation Management (FIRM) Act out of committee. The FIRM Act will eliminate all references to reputational risk as a measure to determine the safety and soundness of regulated financial institutions. The FIRM Act will be sent for a vote in the full chamber.

SEC Chair challenges proposed rule on crypto trading venues. On March 10^th, SEC Acting Chairman Uyeda spoke at the 2025 annual Washington Conference of the Institute of International Bankers, and highlighted areas in which he believes the SEC can improve the efficiency and resiliency of the U.S. treasuries market. During his remarks, he expressed his belief that the SEC had made a misstep by equating the regulation of Treasury markets with attempts to impose stringent oversight on the burgeoning crypto market and emphasized the need to refocus the proposal on its original intent, which aimed to include proprietary trading firms that actively trade US Treasuries.

Pulte confirmed by Senate. On March 13th, Bill Pulte was confirmed by the Senate to lead the Federal Housing Finance Agency for the Trump Administration. As head of the Federal Housing Finance Agency (FHFA), Pulte will help oversee the government-charted system created to help support home ownership.

CFPB seeks pause in credit card late fee rule litigation. On March 12th, the CFPB requested a stay on pending deadlines in the case challenging the agency’s rule capping credit card fees at $8. In the court filing, the CFPB noted that the bureau “respects this Court’s ruling granting a preliminary injunction and considering plaintiffs’ likelihood of success on the merits of their claims” and is planning to resolve the case within the next 30 days.