Mortgage Banking Update - October 16, 2025

October 16 – Read the newsletter below for the latest Mortgage Banking and Consumer Finance industry news, written by Ballard Spahr attorneys. In this issue, our lawyers discuss how the government shutdown is affecting housing programs but not financial regulators, the CFPB's adoption of a final rule extending compliance dates for the 1071 Rule, recent consumer financial services developments at the FTC, and much more.

• Podcast Episode: The U.S. Supreme Court's Landmark Ruling on Universal Injunctions in the Birthright Citizenship Cases – Part 2
• Podcast Episode: First Circuit Rules National Bank Act Does Not Preempt Rhode Island State Law – Is There Still Any Advantage to Having a National Bank Charter?
• Podcast Episode: Recent Consumer Financial Services Developments at the Federal Trade Commission
• Government Shutdown Affecting Housing Programs, but Not Financial Regulators
• Plaintiffs Ask for En Banc Rehearing in CFPB Shutdown Case
• DOJ Attorneys Say Government Shutdown Restricts Their Ability to File Response in Suit Challenging CFPB Firings
• CFPB Adopts Final Rule Extending Compliance Dates for the 1071 Rule
• Stressing Urgency, Fired NCUA Democratic Board Members Ask U.S. Supreme Court to Consider Case on Expedited Basis
• FDIC, OCC Issue Notice of Proposed Rulemaking to Codify Removal of 'Reputational Risk' From Agency Materials
• FDIC, OCC Seek to Define 'Unsafe or Unsound Practice'
• Ballard Spahr Event: Wage and Hour Update for Business
• Looking Ahead

Podcast Episode: The U.S. Supreme Court's Landmark Ruling on Universal Injunctions in the Birthright Citizenship Cases – Part 2

This podcast show is a repurposing of Part 2 of a webinar we produced on August 13, 2025, which explored the U.S. Supreme Court's pivotal 6-3 decision in Trump v. CASA, Inc., a ruling that significantly curtails the use of nationwide or "universal" injunctions. A universal injunction is one which confers benefits on non-parties to the lawsuit. This case marks a turning point in federal court jurisprudence, with profound implications for equitable relief, national policy, and governance.

Our distinguished panel of legal scholars, Suzette Malveaux (Roger D. Groot Professor of Law, Washington and Lee University School of Law), Portia Pedro (Associate Professor of Law, Boston University School of Law), and Alan Trammell (Professor of Law, Washington and Lee University School of Law) are joined by experienced litigators Alan Kaplinsky, Carter G. Phillips (Former Assistant to the Solicitor General of the United States and Partner, Sidley Austin LLP), and Burt M. Rublin (Senior Counsel and Appellate Group Practice Leader, Ballard Spahr LLP). These panelists dive deep into the Court's decision, unpacking its historical foundation, analyzing the majority, concurring, and dissenting opinions, and evaluating its far-reaching effects on all stakeholders, including industry groups, trade associations, federal agencies, the judiciary, the executive branch, and everyday citizens.

This podcast show and the one we released last Thursday, September 25, cover these critical topics:

• The originalist and historical reasoning behind the Court's rejection of universal injunctions
• A detailed analysis of the majority, concurring, and dissenting opinions
• The ruling's impact on legal challenges to federal statutes, regulations, and executive orders
• The potential role of Federal Rule of Civil Procedure 23(a) and 23(b)(2) class actions as alternatives to universal injunctions, including the status of the CASA case and other cases where plaintiffs have pursued class actions
• The use of Section 706 of the Administrative Procedure Act (the APA) to "set aside" or "vacate" unlawful regulations and Section 705 of the APA to seek stays of regulation effective dates
• The viability of associational standing for trade groups challenging regulations on behalf of their members
• The ruling's influence on forum selection and judicial assignment strategies, including "judge-shopping"
• The Supreme Court's increasing use of its emergency or "shadow" docket, rather than its conventional certiorari docket, to render extraordinarily important opinions

This is a unique opportunity to hear from leading experts as they break down one of the most consequential and controversial Supreme Court decisions of this Supreme Court term. These podcast shows will provide you with valuable insights into how this ruling reshapes the legal landscape.

Consumer Finance Monitor is hosted by Alan Kaplinsky, senior counsel at Ballard Spahr, and the founder and former chair of the firm's Consumer Financial Services Group. We encourage listeners to subscribe to the podcast on their preferred platform for weekly insights into developments in the consumer finance industry.

To listen to this episode, click here.

Consumer Financial Services Group

Podcast Episode: First Circuit Rules National Bank Act Does Not Preempt Rhode Island State Law – Is There Still Any Advantage to Having a National Bank Charter?

As our regular podcast listeners know, we ordinarily release a new podcast show once each week on Thursday. On a very few occasions, we have released a special extra podcast show during the same week. We have only done that when a development occurs which we feel is of extraordinary importance and time sensitive.

On September 22, the United States Court of Appeals for the First Circuit issued its unanimous opinion in Conti v. Citizens Bank, N.A. in which it held, in the context of a motion to dismiss a putative class action alleging that the Bank failed to pay interest on mortgage escrow accounts in violation of a Rhode Island statute which requires the payment of interest on mortgage escrow accounts, that the National Bank Act does not preempt the Rhode Island statute. The Bank had argued that the National Bank Act preempts the Rhode Island statute and that, as such, it was not required to pay any interest on mortgage escrow accounts. The district court had also held that such Rhode Island statute was preempted. See our recently published blog about The First Circuit Opinion in Conti.

While the Conti case involves the narrow question described above, the implications of the opinion are sweeping in nature and will require national banks to comply with a vast litany of state consumer protection laws throughout the country which may no longer be preempted by the National Bank Act. Since 2004, the OCC has had a regulation which expressly purports to preempt state statutes, like the Rhode Island statute, which requires the payment of interest on mortgage escrow accounts That same regulation purports to preempt most categories of other state consumer protection laws. Most national banks have been reasonably relying on the OCC preemption regulations and have not complied with most state consumer protection laws. The Conti opinion implicitly concludes that the OCC preemption regulations are invalid.

During our podcast show, we explain the history of the Conti case and the holding and reasoning of the First Circuit. We also discuss the Cantero opinion in the Supreme Court which led to the First Circuit opinion and similar cases in the Second and Ninth Circuits dealing with the same preemption issues. Most importantly, we will explain how we are helping national banks comply with state laws that are probably not preempted by the National Bank Act.

Alan Kaplinsky, the founder and practice leader of the Consumer Financial Services Group, hosted the webinar. He was joined by Joseph Schuster and Ron Vaske, partners in the Group who focus their practices in part on National Bank Act Preemption.

To listen to this episode, click here.

Consumer Financial Services Group

Podcast Episode: Recent Consumer Financial Services Developments at the Federal Trade Commission

We are pleased to share a new podcast episode, which was taken from our September 9, 2025, webinar featuring Malini Mithal, Associate Director of the Federal Trade Commission's Division of Financial Practices. Malini has been a valued guest on our podcast in past years, and this session provided another timely and insightful discussion. In this episode, she gives her thoughts on the FTC's recent non-antitrust consumer protection initiatives.

Major Key Topics Discussed

1. Fintech oversight – Malini began with FTC activity involving Fintechs, particularly companies promoting faster access to cash, and addressed related lending and payments cases.
2. Subscription practices under ROSCA – She highlighted the FTC's enforcement of the Restore Online Confidence Shoppers Act, including lawsuits against Uber and LA Fitness and a settlement with Match.
3. Unfair and Deceptive Fees Rule – Effective May 12, 2025, this rule bans bait-and-switch pricing and hidden fees in industries such as live-event ticketing and short-term lodging. Malini explained how these practices harm consumers and distort competition.
4. Auto finance transparency – Another area of focus for the FTC, reflecting the agency's broader emphasis on price transparency.
5. Debt collection, debt relief, and credit repair – Malini reviewed recent FTC enforcement activity in these high-risk sectors.
6. Crypto platforms – She concluded with a discussion of the FTC's work addressing crypto platforms that market banking-like services to consumers.

After Malini left the webinar, John Culhane, a partner in our Consumer Financial Services Group, provided an update on developments at the FTC in terms of budget and staffing and the ongoing litigation challenging the Trump administration's removal of two Democratic FTC commissioners without cause and then discussed areas where we expect to see more FTC "regulation by enforcement" activity.

Consumer Finance Monitor is hosted by Alan Kaplinsky, senior counsel at Ballard Spahr, and the founder and former chair of the firm's Consumer Financial Services Group. We encourage listeners to subscribe to the podcast on their preferred platform for weekly insights into developments in the consumer finance industry.

To listen to this episode, click here.

Consumer Financial Services Group

Government Shutdown Affecting Housing Programs, but Not Financial Regulators

As the government shutdown drags on, some financial services programs—particularly housing programs– are being affected.

The CFPB is funded through the Federal Reserve system, not through annual appropriations, and technically is still operating, although as we have reported previously many CFPB employees are not being permitted to work. (That CFPB funding mechanism was the subject of a Supreme Court case and the court found the funding system constitutional.)

The lapse in appropriations also has not affected the federal banking agencies. The FDIC, Federal Reserve, OCC, and NCUA are funded through fees paid by member institutions. They are not subject to the annual appropriations process. Therefore, they still are operating.

The federal banking agencies have urged institutions to work with customers who are having financial problems as a result of the shutdown.

The American Bankers Association said that assistance that member institutions are offering customers includes "fee waivers, loan modifications, payment deadline extensions, payroll advances, and low-rate and zero-rate loans."

House Financial Services Committee ranking Democrat Rep. Maxine Waters, (D-Calif.), sent a letter to financial regulators urging them to encourage the institutions that the regulate to be flexible with their customers.

"We surely agree that prudent workout arrangements that are consistent with safe-and-sound lending practices are generally in the best interests of the financial institution, the borrower and the economy," she wrote. "The individuals and families who, through no fault of their own, face financial challenges that strain their ability to meet existing credit obligations depend on flexibility and continued access to affordable financial services and products from the financial institutions you regulate for their basic daily needs."

The Mortgage Bankers Association has released a guide to the impact the shutdown is having on specific federal agencies and departments:

Department of Housing and Urban Development

The FHA Office of Single-Family Housing will continue to endorse new loans, with the exception of Home Equity Conversion Mortgages (i.e., reverse mortgage loans), Title I loans, and loan endorsements that require assessment by an FHA underwriter (i.e., nondirect endorsements), the MBA said.

The Office of Multifamily Housing will conduct closings and endorsements for projects with Firm Commitments/Firm Approval Letters issued prior to the shutdown. The Office also will process amendments to commitments, while other requests will be handled only on an emergency basis, or if they involve the imminent threat to the safety of residents, or to the protection of property in HUD-insured or assisted multifamily projects.

Regarding HUD, the MBA also reported that:

• Lenders will continue to have access to HUD systems, but actions that require HUD personnel to respond will be delayed or suspended. That also applies to FHA Resource Centers, which will remain open to answer general questions.
• FHA will continue to pay partial claims during the shutdown.
• Ginnie Mae is largely unaffected by the shutdown. It has a two-year MBS guarantee commitment authority that a lapse in appropriations will trigger with OMB's approval.
• HUD advises that:
• Endorsements that need an assessment by an FHA underwriter will not be able to be finalized, but FHA will support manual endorsement actions that lenders cannot process themselves.
• Lenders will be permitted to continue processing condominium approvals under the Direct Endorsement Lender Review and Approval Process (DELRAP).
• The Office of Housing Counseling will not have staff working and will not be able to process requests to draw down grants from the Line of Credit Control System.

Department of Veteran Affairs

The Department of Veteran Affairs (VA) Loan Guarantee Program will draw on available carryover balances from the previous year until those funds are exhausted. As a result, the program will continue its operations, for now. However, the VA notes that during a 2013 shutdown, Loan Guarantee certificates of eligibility and certificates of reasonable value were delayed.

U.S. Department of Agriculture Rural Development

The program will cease operations, according to the MBA. That includes most mortgage operations within the Single-Family Housing Guaranteed Program, "with the exception of functions approved by the Deputy Under Secretary for Rural Development to facilitate activities already in progress, such as (but not limited to) construction draws; review and processing of guaranteed loss claims; and actions necessary to support foreclosure sales."

Fannie Mae, Freddie Mac, and FHL Banks

Fannie Mae and Freddie Mac are not directly affected, although as noted by the MBA there may be impacts to the extent that they rely on functions of other agencies that are affected.

The Federal Home Loan Banks also are not directly affected by the shutdown.

Internal Revenue Service

The IRS's Income Verification Express Service and Revenue and Income Verification Service have been classified as exempt activities under the Anti-Deficiency Act. The Inflation Reduction Act provides supplemental appropriations to the IRS through September 30, 2031, according to the MBA. However, the IRS updated its Contingency Plan and released it on October 8. According to press reports, the agency plans to furlough half of its staff if the shutdown continues.

Social Security Administration

MBA said it is its "understanding that in the past the SSA has not processed requests for verification of social security numbers during a government shutdown. Automation provided by eCBSV may improve outcomes."

National Flood Insurance Program

The NFIP program authorization expired on September 30. The Congressional Research Service has said that flood insurance contracts that are entered into before the expiration would continue until the end of their policy term of one year. The authority for the NFIP to borrow funds from the U.S. Treasury is reduced from $30.425 billion to $1 billion.

In past NFIP lapses, borrowers were not able to purchase flood insurance to close, renew, or increase loans secured by property that required flood insurance. CRS has estimated that during a lapse in June 2010, each day more than 1,400 home sale closings were canceled or delayed. That represents more than 40,000 sales each month.

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

Plaintiffs Ask for En Banc Rehearing in CFPB Shutdown Case

Contending that the decision of a divided three-judge panel of the U.S. Circuit Court of Appeals for the District of Columbia would lead to a shutdown of the CFPB by the Trump administration, plaintiffs in a lawsuit challenging proposed Reductions-in-Force (RIF) at the Bureau are asking for an en banc rehearing in the case before all of the active judges of the D.C Circuit.

"The Executive Branch may not unilaterally abolish an agency created by Congress," the plaintiffs in the case, (the National Treasury Employees Union, the CFPB Employee Association, the Virginia Poverty Law Center, the NAACP, and the NCLC) said. The union represents CFPB workers.

They added, "As the district court found, absent a preliminary injunction, the defendants 'will eliminate' the CFPB."

A divided appeals court has said that the Trump administration can resume plans to begin firing more than 1,400 employees at the CFPB.

In a 2-1 majority opinion, the D.C. Circuit dissolved a preliminary injunction issued by District Court Judge Amy Berman Jackson. On March 28, Judge Jackson had issued an injunction that required the reinstatement with back pay of CFPB employees that had been terminated by the administration. At that time, she had also enjoined the CFPB from terminating any employees except for good cause related to the individual employee. In addition, she had required the CFPB to fully maintain the consumer complaint portal, ordered the defendants to reinstate all third-party contracts which had been earlier terminated, ordered the defendants to not enforce a February 10 stop-work order and required that the CFPB not destroy any records. Shortly thereafter, she had expanded the injunction to preliminarily preclude a Reduction-in-Force, which would have left the CFPB with only about 200 employees.

Among other things, the appeals court said that the Trump administration had announced the firing of the employees but never announced a final decision to close the agency.

"Yet because the agency had not made that announcement, the majority concluded that it had not taken any agency action at all," the plaintiffs said. "The majority believed that absent a statement, the shut-down decision could not be an 'agency rule.'"

The decision also "allows the Executive Branch to alter the fundamental structure of our government without congressional authorization or judicial review," the plaintiffs said. "And to reach its decision, the majority rewrote core principles of administrative and constitutional law that will have far-reaching impact beyond this case."

The impact will not be limited to the Bureau, according to the plaintiffs. They said that if the decision stands, it would license the destruction of any agency at the whim of the Executive Branch without Congressional approval.

They said that if the agency is closed, consumers would face immediate harm as they would go unaided. In addition, the nation's largest banks would go unsupervised, according to the plaintiffs. "And the same regulatory gap that led to the 2008 financial crisis—out of which the CFPB was born—will once again threaten the economy," they added.

They concluded that once the CFPB shuts down, it simply cannot be restarted. "Building an agency takes years," they said. "And in those years, the CFPB's absence will be devastating for consumers and the American economy."

The government may not file a response to the petition unless requested by the en banc court. The petition may not be granted unless the court first requests such a response.

When it dissolved the injunction, the appeals court withheld the mandate in the case until the plaintiffs timely petitioned for a rehearing en banc. The mandate will now remain in effect unless and until seven days after the petition for rehearing is denied or a motion for a further stay is granted, whichever is later. A further stay of 90 days may be granted upon motion to the court saying that the plaintiffs intend to file a petition for a writ of certiorari with the Supreme Court. The circuit court may grant the stay only if it believes that the cert petition would raise a "substantial question."

The petition for rehearing will be granted only if a majority of the active judges of the court votes in favor of it. Five of the eight active judges were appointed by Democratic presidents. Two of the three judges on the panel that decided the case were appointed by President Trump.

In a related development, House Financial Services ranking Democrat Rep. Maxine Waters, (D-Calif.), wrote OMB Director and acting CFPB Director Russell Vought expressing concern that the Trump administration intends to use the government shutdown as an excuse to furlough CFPB employees.

"Such an action would be both legally baseless and extremely harmful to American consumers at a time when they are suffering from the Trump administration's harmful economic policies that are increasing inflation and unemployment," she wrote.

And she reminded Vought that the CFPB is not subject to the annual appropriations process, and instead, is funded by the Federal Reserve.

"A shutdown does not apply to the CFPB," she wrote.

Strangely, Rep. Waters did not mention the litigation discussed above and the fact that the administration has been and still is subject to the injunction issued by the district court precluding any reduction-in-force at the CFPB.

Alan S. Kaplinsky, Richard J. Andreano, Jr., and John L. Culhane, Jr.

DOJ Attorneys Say Government Shutdown Restricts Their Ability to File Response in Suit Challenging CFPB Firings

Saying that the federal government shutdown makes it impossible for them to work on the case, Justice Department attorneys are asking a federal appeals court to delay its response to a request for an en banc hearing in the lawsuit challenging mass firings at the CFPB.

"At the end of the day on September 30, 2025, the appropriations act that had been funding the Department of Justice expired and appropriations to the Department lapsed," the attorneys told the U.S. Court of Appeals for the District of Columbia. "The same is true for several other Executive agencies. The Department does not know when funding will be restored by Congress."

They go on to say that without an appropriation, DOJ attorneys "are prohibited from working, even on a voluntary basis, except in very limited circumstances involving the safety of human life or the protection of property."

The DOJ attorneys requested that, when appropriations are restored, the deadline for filing a response be extended for the number of days commensurate with the lapse in appropriations, plus an additional 14 days. "The Government will need this additional time following the end of the lapse to restart regular government operations and finalize a response for filing," the DOJ attorneys said.

The appeals court had directed the Trump administration to file a response to the plaintiffs' request for an en banc hearing by October 21.

The attorneys said that the plaintiffs in the lawsuit do not oppose the motion for an extension of time.

The plaintiffs, including the National Treasury Employees Union, filed suit against the Trump administration, contending that mass firings at the CFPB would result in the agency being shut down.

A divided appeals court has said that the Trump administration can resume the firing of more than 1,400 employees at the CFPB.

In a 2-1 majority opinion, the D.C. Circuit dissolved a preliminary injunction issued by District Court Judge Amy Berman Jackson. On March 28, Judge Jackson issued an injunction that required the reinstatement with back pay of CFPB employees that had been terminated by the administration.

However, when it dissolved the injunction, the appeals court withheld the mandate in the case until the plaintiffs timely petitioned for a rehearing en banc. The plaintiffs subsequently filed a request for the en banc hearing.

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

CFPB Adopts Final Rule Extending Compliance Dates for the 1071 Rule

As previously reported, in June 2025 the CFPB issued an interim final rule extending the compliance dates for the section 1071 small business data collection and reporting rule. The CFPB has now issued a final rule with the same extended compliance dates provided for in the June interim final rule. The final rule is effective December 1, 2025.

The CFPB previously revised the original compliance dates in a June 2024 interim final rule. The original, revised, and new compliance dates are as follows:

(insert table)

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." The CFPB also made these statements in the preamble to the June 2025 interim final rule.

In the preamble the CFPB also addresses the three lawsuits challenging the 1071 rule and its plans to reconsider the rule, which we have reported on previously. With regard to the reconsideration of the rule, the CFPB states that it "anticipates issuing a notice of proposed rulemaking as expeditiously as reasonably possible." In its Spring 2025 Regulatory Agenda the CFPB indicated an October 2025 timeframe for the issuance of a notice of proposed rulemaking. The CFPB notes that while the courts in the three lawsuits have issued stays of the 1071 rule, the stays only apply to the plaintiffs and their members.

As previously reported, in July 2025 Rise Economy, fka California Reinvestment Coalition (Rise), the National Reinvestment Coalition (NCRC), the Main Street Alliance (MSA), and Reshonda Young (a small business owner and member of MSA) filed a complaint against Acting CFPB Director Russell Vought and the CFPB seeking to force the agency to implement the section 1071 rule. The complaint was filed with the U.S. District Court for the District of Columbia. In September 2025 the plaintiffs filed a motion for a summary judgment on three of the four counts alleging violations of the Administrative Procedure Act. The plaintiffs also seek to have the court declare unlawful both the CFPB position announced earlier this year that it will not make enforcement of the reporting requirements under the rule a priority and the June 2025 interim final rule, and to vacate and set aside those agency actions. Presumably the groups will now challenge the October 2025 final rule. The CFPB has until October 10, 2025, to file its response to the summary judgment motion.

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

Stressing Urgency, Fired NCUA Democratic Board Members Ask U.S. Supreme Court to Consider Case on Expedited Basis

The two Democratic NCUA board members ousted by President Trump without cause are asking the U.S. Supreme Court to consider their challenge of the firings on an expedited basis.

Todd Harper and Tanya Otsuka are challenging their firings even though the Federal Credit Union Act, unlike some federal laws governing other financial regulators, does not state that members of the agency board may only be removed for cause.

The firings left one member on the NCUA board—Republican Chairman Kyle Hauptman.

"This case squarely implicates the historical tradition of insulating those who regulate banks and financial institutions, and who lend to those institutions and safeguard consumer deposits there," Harper and Otsuka said.

They added, "The NCUA Board is by no means the only multimember agency Congress has endowed with for-cause protection without using the words the Government claims to be necessary."

They said that while the NCUA board regulates credit unions subject to its oversight, it exercises the sort of powers exercised by the Federal Reserve Board with respect to financial institutions it supervises.

"If these powers are constitutionally suspect in the hands of the NCUA Board, they would be equally so in the hands of the Federal Reserve Board," Harper and Otsuka argued.

And they ask the court to consider their case when the court considers a case in which Rebecca Slaughter is challenging her firing by President Trump from the FTC. The court has agreed to hear that case, with oral arguments scheduled for December.

"Immediate action is necessary to restore the functions of the NCUA Board and public confidence in the credit-union system," Harper and Otsuka said.

Judge Amir H. Ali, of the U.S. District Court for the District of Columbia had determined that Harper and Otsuka could only be removed for cause.

Because no stay had been issued by the time of a July meeting, the two participated in that meeting.

Later, a temporary administrative hold and a stay was issued, while the U.S. Court of Appeals for the District of Columbia considers the case.

The two Democrats stressed the urgency of the case.

"The NCUA Board thus lacks a quorum to adopt decisions necessary for the efficient regulation and stable operation of credit unions, including, most notably, to address the interest-rate ceiling that credit unions may charge," they said." This is a months-long process that, by statute, requires consultation with other financial regulators and careful assessments of money-market trends and risks to credit-union stability."

NCUA officials have stressed that the agency can operate as it normally does even if the board has only one member.

"Please be assured that the NCUA has precedent and standing delegations of authority in place to continue performing all operational and statutory requirements under the authority of a single Board Member," the agency said, following the firings.

During the George W. Bush administration, Dennis Dollar, who was chairman of the NCUA board, held a board meeting, voted, and took several administrative and operational actions, after two members left the board, the agency said.

Consumer Financial Services Group

FDIC, OCC Issue Notice of Proposed Rulemaking to Codify Removal of 'Reputational Risk' From Agency Materials

The FDIC and the OCC have approved the joint publication of a Notice of Proposed Rulemaking that would codify the removal of reputational risk from their supervisory programs.

"Examining for reputation risk can result in agency examiners implicitly or explicitly encouraging institutions to restrict access to banking services on the basis of examiners' personal views of a group's or individual's political, social, cultural, or religious views or beliefs, constitutionally protected speech, or politically disfavored but lawful business activities," the FDIC staff said, in a memo.

The proposed rule "would define 'reputational risk' as the risk that an action or activity, or combination of actions or activities, or lack of actions or activities, of an institution or its employees could negatively impact public perception of the institution for reasons unrelated to the current or future financial or operational condition of the institution."

Without clear standards, the FDIC staff said the agencies' supervision for reputation risk has been inconsistent and at times, has not been data-driven. On the other hand, risks such as credit and liquidity risks are more concrete and measurable and allow examiners to more objectively assess a bank's financial condition.

"The proposed rule would not alter or affect the ability of an institution to make business decisions regarding its customers or third-party arrangements and to manage them effectively, consistent with safety and soundness and compliance with applicable laws," the staff said, in the memo.

The moves are based on an executive order that President Trump signed on August 7. That order, "Guaranteeing Fair Banking for All Americans," prohibits financial institutions of any size from denying services to individuals or businesses based on political or religious beliefs, orientation, or lawful industry involvement.

The executive order directed banking agencies to adopt policies to ensure that financial institutions do not use reputational risk as a basis for restricting access to banking services.

Several financial regulators have taken action to delete reputational risk from their policies. The OCC removed references to reputation risk from its handbooks and guidance documents. The agency said at the time that it also was developing a rule that will delete reputational risk references from its regulations. The NPRM issued jointly with the FDIC would codify that decision, if it is adopted.

In addition, the SBA sent letters to its network of more than 5,000 lenders instructing them to end what the Trump administration said is politicized or unlawful debanking.

Most recently, the NCUA took action to remove reputational risk from its examination materials. "NCUA employees will no longer base supervisory concerns on reputation risk, nor will they refer to or engage in discussions about reputation risk as a part of examinations and supervision contacts of a credit union or Credit Union Service Organization," NCUA Chairman Kyle Hauptman wrote, in a letter to credit unions.

He said that the agency is reviewing and updating regulations, manuals, guidance, and training materials to remove references to reputational risk. He added that until then, his letter supersedes any prior direction or requirements related to reputational risk.

Ronald K. Vaske and Scott A. Coleman

FDIC, OCC Seek to Define 'Unsafe or Unsound Practice'

The FDIC and the OCC have issued a Notice of Proposed Rulemaking (NPRM) that seeks to establish a standard definition for what constitutes an "unsafe or unsound practice."

"Too often, examiners focus on a litany of process-related items that are unrelated to a bank's current or future financial condition," Acting FDIC Chairman Travis Hill said, in a statement outlining the NPRM, which was unanimously adopted by the agency board.

As a result, FDIC officials said courts and administrative tribunals have provided different definitions of the term. The proposal, agency officials said, is intended to provide greater consistency for financial institutions.

FDIC officials advised that the definition would focus institution and examiner attention on practices that are likely to materially harm an institution's financial condition, and that this approach would provide an institution's officials additional flexibility to enact day-to-day decisions based on their business judgment and risk tolerance.

FDIC officials also advised that the proposal would establish uniform standards for when and how the agencies may communicate Matters Requiring Attention (MRA) and nonbinding supervisory observations as part of the examination process. In addition, the proposal would provide for the tailoring of enforcement actions and MRAs.

The NPRM would establish the following definition of an unsafe or unsound practice:

"An 'unsafe or unsound practice' is a practice, act, or failure to act, alone or together with one or more other practices, acts, or failures to act, that:

1. Is contrary to generally accepted standards of prudent operation; and
2. (i) If continued, is likely to—

1. Materially harm the financial condition of the institution; or
2. Present a material risk of loss to the Deposit Insurance Fund; or

(ii) Materially harmed the financial condition of the institution."

Banking trade groups expressed support for the proposal.

"For too long, bank supervision has shifted away from focusing on the most important factors affecting safety and soundness — a shift that has had negative consequences for banks, their customers and the broader economy," Rob Nichols, President and CEO of the American Bankers Association said. "That is finally beginning to change thanks to new leadership at the regulatory agencies."

Greg Baer, President and CEO of the Bank Policy Institute also applauded the proposal.

The "proposed rule should help to refocus the examination process on material financial risks," he said." Furthermore, it seeks public comment on how best to do that — in contrast with a previously opaque process."

Scott A. Coleman, Ronald K. Vaske, and Richard J. Andreano, Jr.

Ballard Spahr Event: Wage and Hour Update for Business

Arizona employers are being sued by individuals and groups of employees for alleged overtime and wage and hour violations. Please join us to learn how to protect your company from these expensive lawsuits and prepare for government investigations.

This seminar will update attendees on:

• The marked increase of litigation over wage and hour issues and how your company can avoid being sued
• How employers can efficiently review their classifications of employees as exempt or nonexempt from overtime
• Address recordkeeping requirements for overtime and hours worked
• How to effectively track hours for remote and hybrid worker
• Avoiding and responding to state and federal investigations and considering self-reporting programs

Thursday, October 30, 2025
7:30 AM – 9:00 AM
Arizona Biltmore Golf Club
2400 Biltmore Estates Drive
Phoenix, AZ 85016

Register Here

Program Details
7:30 AM – 8:00 AM | Registration and Breakfast
8:00 AM – 9:00 AM | Program

CLE Credit: This program is approved for 1.0 CLE credits in CA, NJ, NY, and PA. 1.0 HRCI and SHRM credits are pending. The State Bar of AZ does not approve or accredit CLE activities for the MCLE requirement. This activity may qualify for up to 1.0 hours toward your annual CLE requirement for State Bar of AZ. Uniform Certificates of Attendance will be provided for the purpose of seeking CLE credit in other jurisdictions.

For more information, contact Meg Connolly at connollymr@ballardspahr.com.

Jay Zweig and Melissa Costello

Looking Ahead

13^th Annual Green Infrastructure Conference

October 29, 2025 | Ballard Spahr LLP, Philadelphia, PA

Register Here

The CFPB's Most Ambitious Regulatory Agenda Ever

A Ballard Spahr Webinar | November 4, 2025, 12 PM ET

Speakers: Alan S. Kaplinsky, Richard J. Andreano, Jr., Gregory Szewczyk, Kristen Larson, Robert T. Lieber, Jr., Aja D. Finger, Mudasar Pham-Khan, and Daniel Wilkinson

CaMBA – Legal Issues and Regulatory Compliance Conference

December 8-9, 2025 | Irvine Marriott Hotel, Irvine, CA

Employment Law Updates – How to Protect Yourself

December 9, 2025 – 11:00 AM PT

Speaker: Richard J. Andreano, Jr.

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.