Our Take: financial services regulatory update – May 9, 2025

• What happened? The past week saw a number of digital assets-related activities from regulators and policymakers: the OCC issued an interpretive letter clarifying banks’ abilities to provide custody services; members of Congress proposed a draft digital assets framework bill and legislation to prevent public figures from using their position to profit off of digital assets; and the Senate narrowly voted against the GENIUS ACT stablecoin bill.
• What does the OCC’s interpretive letter say? The letter affirms banks’ abilities to provide custody services and services in relation to custodied assets such as facilitating exchange transactions, settlement, trade execution, recordkeeping, valuation, tax services and reporting. Notably, the letter also affirms that banks may use third parties for these services. It also reminds banks that they must operate in a safe and sound manner, including activities conducted through a third party.
• What does the framework bill contain? The draft bill, which was introduced in the House Agriculture Committee would define most non-stablecoin crypto asset transactions as commodity exchanges and therefore subject to CFTC regulation, while capital raising activities by allowing investors an ownership stake in a digital asset project would be subject to SEC requirements.
• What’s next? Members of Congress from both sides the aisle have pledged to continue negotiations around the GENIUS Act. The other draft pieces of legislation will be discussed in committee before proceeding to a vote.

Our Take

The door opens to third-party crypto service providers. While most industry participants had presumed that they already had the green light to engage in the majority of activities the OCC’s letter explicitly affirmed, the letter’s confirmation that banks may use third parties to provide these services is new. Partnering with third parties for custody and related services will be attractive to many banks as they already have the technology, expertise and experience to conduct these services rather than building them from the ground up. However, banks will still be on the hook for any consumer harm, compliance failures, or safety and soundness issues stemming from third-party weaknesses, and they will need to have the crypto and blockchain expertise to properly oversee their third-party service providers.

GENIUS Act down but not out. Despite the Senate’s vote against the GENIUS Act, there is still bipartisan support for stablecoin legislation. We expect that the bill will earn enough Democratic votes to pass once certain amendments around areas such as anti-money laundering are added. While many Democrats want legislation to prevent public figures from using their position to profit from digital assets advanced, it is unlikely to gain Republican support and would face a Presidential veto. Nevertheless, firms offering memecoins, including those related to public figures, should carefully consider whether such assets are suitable for their customers and how offering them may pose legal, compliance and reputation risk. As for the House Agriculture Committee’s framework bill, we do not expect a bill that would give the CFTC significant regulatory jurisdiction over crypto to pass, especially considering that the Presidential Working Group on Digital Asset Markets is set to recommend its own framework in the coming months.

What’s the bottom line? The future of legislation remains uncertain – but in the meantime, banks can move forward with digital asset activities – including third-party partnerships – so long as they maintain strong oversight and risk controls.

• What happened? On May 6^th, the CFPB announced that it “will not prioritize” enforcement actions based on the “Buy Now, Pay Later” (BNPL) rule that was finalized in May 2024.

On May 9th, the CFPB filed to remove over 70 past guidance documents from the Federal Register. Acting Director Russell Vought emphasized that the withdrawal process is not yet final but that the identified guidance should not be enforced or relied upon.

On May 1^st, Pennsylvania launched a new, centralized consumer protection hotline, website and email address to “fill the void left by weakened federal consumer protections.” These sources will refer issues to the Pennsylvania Insurance Department and Department of Banking and Securities as appropriate.

• What did the BNPL rule do? The rule classified BNPL lenders as credit card providers subject to Truth in Lending Act (TILA) requirements (Regulation Z). Such requirements include providing consumers with a mechanism to dispute charges; offering refunds for returned merchandise; disclosing key credit terms and fees; and following the same billing error resolution process applicable to credit cards. A January 2025 report found that usage of BNPL products is growing, particularly for subprime, credit-stressed, and younger borrowers.
• What guidance is the CFPB seeking to withdraw? The targeted documents are policy statements, interpretive rules, advisory opinions and other guidance across wide range of policy areas, including gender discrimination in lending, the use of algorithms in credit decisions, debt collection practices, private student loans, marketing practices and the public disclosure of consumer complaint data. The BNPL rule is included in the list.
• What’s next? The guidance withdrawal filing will take effect when it is published in the Federal Register on May 12^th.

Our Take

Deprioritizing enforcement and withdrawing guidance doesn’t eliminate risk. The CFPB’s mass withdrawal of guidance aligns with actions to streamline enforcement and reduce staff but adds further uncertainty to an already unclear future for consumer protection oversight. Removing guidance and related enforcement may relieve immediate supervisory pressure, but it also removes guardrails that many firms relied on to interpret their responsibilities. One thing is clear – the underlying statutes, including TILA, remain in place and financial institutions are required to follow them. In addition, lapses in consumer protection can still damage firms’ competitive standing, draw criticism from both sides of the aisle, and trigger reputational or legal risk. These risks can be increased for products utilized by vulnerable populations, such as BNPL lending.

Looking to the states. The Pennsylvania announcement adds to the chorus of states stepping up their enforcement activities in light of the curtailed CFPB. However, changes to state-level enforcement will take time and training while also facing likely litigation on the preemption of federal law. While all of that plays out, financial institutions will need to navigate a more fragmented regulatory environment with state-level compliance obligations layered on top of core federal statutes.

What’s the bottom line? Even with the CFPB pulling back on guidance and enforcement, financial institutions still face supervisory and reputational risks. Firms that remain committed to fairness, transparency, and customer responsiveness will be better positioned to adapt – no matter how the policy environment evolves.

These notable developments hit our radar recently:

McKernan tapped for top Treasury role. On May 9^th, Treasury Secretary Scott Bessent announced President Trump’s intent to nominate Jonathan McKernan for the position of Under Secretary for Domestic Finance at the U.S. Department of the Treasury. If confirmed, McKernan would play a key role in advancing the administration’s agenda to revise and scale back financial regulations. McKernan was previously nominated and approved by the Senate Banking Committee to lead the CFPB but that nomination will now be withdrawn.

Bowman passes Senate Banking. On May 6^th, the Senate Banking Committee advanced President Trump’s nominee for Fed Vice Chair of Supervision, Michelle Bowman. Next, the nomination will head to the Senate floor for a full chamber vote.

Bessent makes first House appearance. On May 7th, Treasury Secretary Scott Bessent appeared before the House Financial Services Committee (HFSC) to provide testimony on the state of the international financial system. Secretary Bessent provided a broad overview of Treasury’s achievements, future plans and spoke on the core components of the Trump administration’s economic agenda. Additionally, Bessent noted that the administration is working on selecting a nominee to serve as chairman of the FDIC stating that he was “constantly reviewing the list and thinking who is best to lead that important institution.”

SEC crypto roundtable. On May 12^th, the SEC’s crypto task force will hold another roundtable as part of its ongoing series discussing crypto asset regulation. This round table will focus on the future of tokenization, including the potential of tokenization to enable on-chain asset movement, thereby bridging the gap between traditional finance (TradFi) and decentralized finance (DeFi).

Upcoming HFSC hearings. Multiple HFSC hearings are scheduled to take place next week. First, the Sub-committee on Financial Institutions will hold a hearing entitled “Enhancing Competition: Shaping the Future of Bank Mergers and De Novo Formation” on May 14^th. Next, the committee’s task force on monetary policy, treasury market resilience, and economic prosperity will hold a hearing entitled “Examining Treasury Market Fragilities and Preventative Solutions.”

CFPB open banking lawsuit update. On May 5^th, a hearing in the Bank Policy Institute (BPI) vs. CFPB case was held to determine if the Financial Technology Association's motion to intervene could be heard during the current stay. Judge Danny C. Reeves of the U.S. District Court for the Eastern District of Kentucky indicated he would rule on FTA's motion to intervene before the stay is lifted on May 26. The CFPB and the BPI have until May 12^th to file a response to FTA’s motion to intervene, and FTA will have until May 16 to file its reply. Bank trade groups and open banking experts have been talking for weeks about whether and how the Trump administration would change the rule.