Insurance Premium Finance Exemption — Maryland Commercial Finance Disclosure Legislation
Maryland recently introduced Commercial Finance Disclosure Law (“CFDL”) legislation in both the House (HB 693) and Senate (SB 754), following a path of other states with laws requiring consumer-like disclosures in certain commercial loans. Maryland has introduced similar legislation in the past but has not yet garnered sufficient support to reach the Governor’s desk.
This legislative session, the sponsors of these bills have added an additional exemption from the law’s application should it be enacted. The bills include an exemption for, among other types of loan products, commercial financing transactions that are insurance premium finance loans. Insurance premium financing loans are short-term, secured loans that enable businesses to purchase insurance coverage. Businesses of all sizes obtain commercial, property, casualty, and liability insurance policies to mitigate operational risk and to protect their interests and those of their customers. While some businesses may choose to pay insurance premiums in full at the time of purchase, others either do not have sufficient funds to pay the premiums in full up front or prefer to finance the premiums permitting other uses of capital. The majority of states regulate insurance premium financing transactions, including Maryland.
This additional CFDL exemption appears appropriate. Insurance premium finance transactions are extensively regulated by the Maryland Department of Insurance and subject to laws that mandate the disclosure of financial terms. (Md. Code Ann., Ins., §§ 23-101 et seq.) Current insurance premium finance law in Maryland requires the disclosure of loan related information in the insurance premium finance agreement itself, including: (i) the total amount of the premiums under the policies purchased; (ii) the amount of the down payment on the loan; (ii) the principal balance; (iii) the amount of the finance charge; (iv) the balance payable by the insured; (v) the number of installments required, the amount of each installment expressed in dollars, and the due date or period of each installment; (vi) any electronic payment fee; and (vii) prepayment particulars. Substantially similar disclosures contemplated under the proposed CFDL bills are required under existing Maryland law regulating insurance premium finance loans. Imposing CFDL standards for insurance premium finance transactions, when already required by other Maryland law, appears redundant and unnecessary. Further, application of multiple disclosure laws could potentially present conflicting obligations for insurance premium finance companies, duplicative regulation by multiple administrative departments, and inconsistent information for borrowers when comparing insurance premium finance loans.
California’s Fashion Environmental Accountability Act: Proposed Regulations for Sustainability in the Fashion Industry
Fashion Industry
On February 4, 2024, California legislators introduced a bill, the Fashion Environmental Accountability Act (AB 405), which would require fashion brands to disclose their environmental impact, carbon emissions, water use, and waste. The proposed regulation would apply to brands with total annual revenue over $1 billion and that do business in California. The law would not apply to retailers that sell used fashion goods and does not include multibrand retailers, unless the total annual gross receipts of all of the private labels under the retailer exceeds $100 million.
Starting in 2026, fashion brands would be required to publicly disclose, and annually thereafter, their scope 1 and scope 2 greenhouse gas emissions, and their scope 3 greenhouse gas emissions in 2027.
Additionally, the proposed bill would require fashion brands to carry out effective environmental due diligence that complies with certain environmental guidelines. These guidelines, at a minimum, require fashion brands to embed responsible business conduct into their policies and management systems, identify areas of significant risk for societal and ecological harm, and assess and mitigate the adverse impacts of those risks. Beginning July 1, 2027, the bill would also require brands to submit an Environmental Due Diligence Report to the department and state board, outlining their environmental diligence efforts and certain information related to their greenhouse gas emissions. By January 1, 2028, fashion sellers will also be required to ensure significant tier 2 dyeing, finishing, printing, and garment washing suppliers annually report wastewater chemical concentrations and water usage in the due diligence report.
AB 405 now awaits referral to its first policy committee. This proposed legislation appears to be part of a broader effort to address the environmental impacts of the fashion industry, as California has already passed and signed into law the Responsible Textile Recovery Act (SB 707) on September 22, 2024.
Major Changes in Affirmative Action Requirements for Federal Contractors
On January 21, President Trump signed an executive order titled “Ending Illegal Discrimination and Restoring Merit-Based Opportunity” (the Order), revoking Executive Order 11246, the long-standing order that required federal contractors to engage in affirmative action, including by annually developing Affirmative Action Plans (AAP’s) concerning women and minorities. The Order further mandates that the Office of Federal Contract Compliance (OFCCP) immediately cease promoting diversity, investigating federal contractors for affirmative action compliance, and allowing or encouraging federal contractors to engage in workforce balancing.
Below are several key points that manufacturers who are federal contractors need to know:
Federal contractors are no longer required to create an AAP about women and minorities. However, this Order does not impact the affirmative action obligations stemming from the Vietnam Era Veterans’ Readjustment Assistance Act (VEVRAA) for protected veterans or the obligations under Section 503 of the Rehabilitation Act of 1973 for individuals with disabilities. Further, this Order does not absolve contractors of any obligations they may have under state law if they are also state contractors or any other applicable legal obligations.
The Order prohibits federal contractors from considering “race, color, sex, sexual preference, religion, or national origin in their employment, procurement or contracting practices in ways that violate the [n]ation’s civil rights laws.” Additionally, the Order states that federal contract recipients will be required to certify that they do not operate diversity, equity, and inclusion (DEI) programs “that violate any applicable Federal anti-discrimination laws.” Importantly, this does not wholly prohibit employers from having DEI-related policies and practices; rather, it prohibits only those that could be found to violate anti-discrimination laws, such as race-based quotas.
The Order provides contractors with a 90-day grace period during which they may continue to comply with the original regulations. Contractors should use that time to audit their policies and practices under attorney-client privilege to evaluate compliance with this order.
In addition, manufacturers that are not federal contractors may also be impacted by this Order. The Order scrutinizes DEI efforts in the private sector and requires federal agencies to, among other things, report a list of large corporations and organizations that should be subject to civil compliance investigations based on unlawful DEI programs. Accordingly, manufacturers may also want to consult with legal counsel about their DEI initiatives to ensure they are lawful.
California AB 3108 Creates Potential Mortgage Fraud Issue for Lenders on Owner-Occupied Mortgage Loans Made for a Business Purpose
California Assembly Bill 3108 became effective on January 1, 2025 and could conceivably make certain business purpose loans secured by owner-occupied property subject to mortgage fraud claims by the borrowers. The primary goal of the new law—passed unanimously by the State Assembly and nearly unanimously by the State Senate (with one apparent absentee)—is to protect borrowers from certain predatory practices by mortgage lenders and brokers. However, unintended consequences may arise.
Assembly Bill 3108 makes it felony mortgage fraud for a “mortgage broker or person who originates a loan” to intentionally:
Instruct or otherwise deliberately cause a borrower to sign documents reflecting the terms of a business, commercial, or agricultural loan, with knowledge that the borrower intends to use the loan proceeds primarily for personal, family, or household use.
Instruct or otherwise deliberately causes a borrower to sign documents reflecting the terms of a bridge loan, with knowledge that the loan proceeds will be not used to acquire or construct a new dwelling. For purposes of this subdivision, a bridge loan is any temporary loan, having a maturity of one year or less, for the purpose of acquisition or construction of a dwelling intended to become the consumer’s principal dwelling.
This law is clearly intended to go after bad actors with respect to both mortgage loans and bridge loans. However, it also opens up the possibility that a delinquent or defaulting borrower with a business purpose loan could claim that the mortgage lender or broker committed a felony by persuading the borrower to claim that the loan was made for business purposes when the lender knew that the loan was actually for personal purposes.
Putting It Into Practice: All mortgage lenders and mortgage brokers should have policies in place for determining and documenting when loans are made for business purposes. This is the time to review those policies and make sure they are as protective as possible. At a minimum, those policies should include the following:
Obtain a handwritten letter signed in the lender’s presence by the borrower detailing the business purpose of the loan.
Gather corroborating evidence of the business purpose, such as financial statements and invoices.
Have the applicant sign a business purpose certificate.
If possible, fund the loan proceeds to a business bank account.
Consider recording a telephone conversation with the applicant discussing the business purpose, but be sure to inform the applicant that the call is being recorded, as required by California law.
Consider obtaining a legal opinion from the borrower’s counsel.
Having these policies in place could significantly reduce the risk that a borrower will later claim that the mortgage lender or broker has committed felony mortgage fraud in violation of AB 3108.
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Attorney General Pam Bondi Narrows FCPA Enforcement Focus
Attorney General (AG) Pam Bondi has issued a directive that both: (1) effectively shifts the DOJ’s FCPA enforcement focus towards those cases related to foreign bribery involving cartels and transnational criminal organizations (TCOs); and (2) expands the DOJ’s ability to prosecute certain types of FCPA violations.
Questions around how and to what extent FCPA enforcement will be impacted under the current Trump administration have been swirling. While early into President Trump’s second term, his administration has already taken steps aimed at implementing substantive changes throughout the Executive Branch, reforming the DOJ, as well as reducing the size of the federal workforce. This has led many to anticipate the potential scaling back of FCPA enforcement efforts in the near future.
Shift in FCPA Enforcement Focus
AG Bondi has recently issued fourteen memos, addressed to all DOJ employees, detailing new policies and priorities for the DOJ across a range of enforcement activities. The FCPA was specifically named in the “Total Elimination of Cartels and Transnational Criminal Organizations” directive (the “Directive”). The Directive provides more insight as to the DOJ’s priorities around FCPA enforcement going forward.
Specifically, the Directive states that “[t]he Criminal Division’s FCPA Unit shall prioritize investigations related to foreign bribery that facilitates the criminal operations of Cartels and TCOs, and shift focus away from investigations and cases that do not involve such a connection.”
The Directive also overrides certain sections of the Justice Manual, as it relates to foreign bribery involving cartels or TCOs, that required FCPA cases to be either conducted by Fraud Section prosecutors or approved by the Criminal Division. In other words, U.S. Attorney Offices are now empowered to also pursue criminal FCPA cases involving foreign bribery and cartels or TCOs – no longer requiring approval to bring such matters – having provided 24 hours notice to the Criminal Division before proceeding.
FCPA Background
The FCPA is a two-pronged federal statute that contains anti-bribery provisions as well as accounting provisions; the accounting provisions address both internal controls (e.g., maintaining robust internal systems designed to prevent and identify corrupt activities) and books and records (e.g., maintaining accurate records that make it challenging to hide improper payments). The DOJ and SEC have dual enforcement authority over the FCPA, with the DOJ pursuing criminal violations of the FCPA and the SEC handling civil matters pertaining to publicly traded companies.
Since the FCPA was enacted in 1977, enforcement has focused on targeting corporate corruption where companies – including through, indirectly or directly, their third-party intermediaries (e.g., consultants, distributors, sales agents, etc.) – have improperly gained or retained unfair business advantages in exchange for providing something of value to foreign government officials. With the current shift in FCPA enforcement priorities, the DOJ is anticipated to redirect efforts away from targeting bribery in the context of legitimate corporate industries to focusing on bribery schemes in connection with organized crime and cartels.
It will be interesting to see how objectives under the Directive play out, given the logistics of the FCPA. For instance, the FCPA’s scope covers issuers (publicly traded companies with securities listed on a national securities exchange in the U.S.), domestic concerns (U.S. companies or U.S. persons), as well as any other persons that engage in acts furthering corruption while in the U.S. These limitations may exclude many individuals and entities involved in cartels or TCOs. In other words, the FCPA’s design – considering its jurisdictional reach and entity-focus – may limit its effectiveness as a tool against organized crime.
Why Compliance Still Matters
While DOJ’s FCPA enforcement priorities may be shifting under the Trump Administration to focus on cartels and TCOs, this should not be read as DOJ will no longer pursue other forms of foreign corruption. The Directive does not suggest any plans to repeal or even weaken the FCPA, rather the Directive refocuses DOJ’s FCPA enforcement priorities.
For nearly two decades, the FCPA has been a cornerstone of DOJ’s corporate enforcement efforts. This continued focus has resulted in steady and substantial financial recoveries – with penalties exceeding one billion dollars in some cases – over the course of several presidential terms spanning both Democratic and Republican leadership, including President Trump’s first term. Precedent suggests that FCPA enforcement is an entrenched priority for the DOJ and SEC, transcending individual administrations and political affiliations. Further, several countries have also enacted similar anti-bribery and anti-corruption regulations. When pursuing FCPA resolutions, international cooperation between the U.S. and foreign authorities has been essential in order to navigate the complexities of FCPA cases, which usually involve international transactions, multiple actors, and diverse legal frameworks.
Regarding corporate compliance programs, the DOJ will frequently give credit when considering the appropriate resolution, monetary penalty, and subsequent compliance obligations, if the company is able to demonstrate it has a robust and well-designed compliance program, including having made improvements to the program in response to the investigated misconduct. In other words, a company may be able to secure a more favorable outcome if it maintains a strong compliance program, which may ultimately result in the DOJ determining not to prosecute.
There are other benefits for companies that invest in their compliance programs:
Risk Management: Robust compliance programs help prevent potential compliance issues before they occur. Further, early detection of potential violations allows for timely intervention, remediation, and disclosure, if necessary.
Informed Decision-Making: Companies are better positioned to make strategic business decisions with a strong compliance foundation. This includes evaluating and responding to potential enforcement-related situations.
Long-Term Business Integrity: Maintaining high compliance standards fosters a culture of ethical business practices, which can enhance a company’s reputation and promote stakeholder confidence.
Adaptability to Regulatory Changes: A well-designed and effective compliance program is more easily adaptable to shifting regulatory landscapes and emerging risks, enabling companies to more efficiently respond to new enforcement trends.
Takeaway
Regardless of the DOJ’s FCPA enforcement priorities shifting, companies will continue to meaningfully benefit from maintaining and investing in their compliance programs. Further, the Directive does not impact SEC enforcement of FCPA violations; in other words, issuers that fall under the SEC’s jurisdiction will need to continue to comply with the FCPA regardless of DOJ’s shift in FCPA enforcement focus. Moreover, the applicable statute of limitations for FCPA violations generally extends beyond the current administration. Ultimately, companies would be well advised to continue to ensure that their compliance programs are effective and well-resourced in order to mitigate risks.
Beltway Buzz, February 7, 2025
NLRB: New Acting GC; Former Member Challenges Removal. There is a lot going on at the National Labor Relations Board (NLRB) these days. In fact, the Board may find itself embroiled in a case involving the constitutional powers of the presidency. Again.
General Counsel Musical Chairs. President Donald Trump removed Jessica Rutter from her position as acting general counsel at the Board and replaced her with William B. Cowen, who has served as regional director in the Board’s Los Angeles Regional Office (Region 21) since 2016. Cowen has held various positions at the Board over the years, including a stint as a Board member in 2002.
Former Member Wilcox Challenges Her Removal. Former NLRB member Gwynne Wilcox has filed a lawsuit challenging her removal from the Board. Wilcox claims that her termination was unlawful, as the National Labor Relations Act allows the president to remove Board members only “upon notice and hearing, for neglect of duty or malfeasance in office, but for no other cause.” Wilcox claims that she was never provided a hearing and that the email she received notifying her of her removal failed to identify any neglect of duty or malfeasance. Wilcox seeks a court order reinstating her to her position on the Board. The lawsuit likely sets up a protracted legal challenge testing the president’s constitutional power to remove officials from multimember boards and commissions, such as the NLRB and the U.S. Equal Employment Opportunity Commission (EEOC).
Board Operations Update. As the Buzz noted last week, with only Chair Marvin Kaplan and Member David Prouty remaining, the Board lacks an operating quorum. To address stakeholder concerns about the situation, the Board released a statement noting that field offices “will continue their normal operations of processing unfair labor practice cases and representation cases” and that “all representation cases may continue to be processed.”
EEOC Update. The EEOC still lacks a quorum and a Senate-confirmed general counsel, but there is now some clarity.
After removing EEOC General Counsel Karla Gilbride, President Trump appointed Andrew Rogers as acting general counsel. Rogers previously served as EEOC Chair Andrea Lucas’s chief counsel. As such, there is likely to be substantial alignment between the general counsel’s office—which oversees the enforcement at the EECO—and the commissioner’s office.
Like the NLRB, the Commission lacks a quorum (only Chair Andrea Lucas and Commissioner Kalpana Kotagal remain), which places limitations on its policy-making agenda. Accordingly, this week the Commission released a series of frequently asked questions (FAQs) addressing “The State of the EEOC.” The FAQs note, “The lack of a quorum of Commissioners does not impact the intake, processing, investigation, or resolution of charges of discrimination, nor does it impact the issuance of notices of right to sue.” On the other hand, the FAQs are clear that the lack of a quorum prohibits the Commission from engaging in rulemaking, issuing new policies, or rescinding guidance documents.
DHS Terminates TPS for Venezuela. On February 5, 2025, Secretary of Homeland Security Kristi Noem published a notice in the Federal Register that terminates the October 3, 2023, designation of Venezuela for Temporary Protected Status (TPS), effective April 7, 2025. A second group of Venezuelan nationals who have protection through a separate TPS designation that expires on September 10, 2025, are not affected by this action. Federal law provides that there is no judicial review of “any determination of the [Secretary] with respect to the designation, or termination or extension of a designation, of a foreign state” for TPS.
Anti-DEI Bill Introduced. This week, Senator Eric Schmitt (R-MO) and Representative Michael Cloud (R-TX) reintroduced the Dismantle DEI Act. In many ways, the bill mirrors some of the executive actions we have seen President Trump take with regard to diversity, equity, and inclusion (DEI). For example, the bill would eliminate DEI offices, training, grants, and programs within the federal government. Unlike the executive orders, which can be repealed, the bill would codify these provisions into federal law. The bill would also prohibit the federal government from contracting with entities that engage in “a prohibited diversity, equity or inclusion practice.” The bill could serve as the subject for hearings and press conferences on Capitol Hill, but is unlikely to pass the U.S. Senate as long as the legislative filibuster is intact.
From the Super Bowl to Capitol Hill. Like many Americans, our federal lawmakers will tune in to watch the Super Bowl this Sunday. But having played in a Super Bowl forty-four years ago, Representative Burgess Owens (R-UT) probably has a particular interest in the big game. These days, Congressman Owens serves on the House Committee on Education and the Workforce, and the Buzz has discussed his proposed legislation that would require increased transparency from union salts. But on January 25, 1981, the future Utah lawmaker—who spent ten seasons playing professional football—won Super Bowl XV as a member of the Oakland Raiders. Of course, the MVP of that Super Bowl was Raider quarterback Jim Plunkett, who threw three touchdown passes.
SECURE Act 2.0 Mandatory Automatic Enrollment Requirements for New Retirement Plans Guidance Released
One of the hallmarks of the SECURE 2.0 Act of 2022 (SECURE Act 2.0) legislation was to increase participation in retirement plans. On January 10, 2025, the Treasury Department and the IRS came one step closer when they announced the issuance of proposed regulations requiring automatic enrollment for new Code Section 401(k) and 403(b) retirement plans (Proposed Regulations). As background, the SECURE Act 2.0 added Code Section 414A, which provides that a retirement plan will not be qualified unless it satisfies certain automatic enrollment requirements under Code Section 414(w). These requirements:
Require automatic enrollment of employees with elective deferral contributions of at least 3% and no more than 10% in the first year of participation (with 1% increases between 10-15%)
Permit participants to withdraw their automatic elective deferrals within 90 days of their first elective deferral contributions being made
If no investment election is made, permit the automatic elective deferrals to be invested in qualified default investment alternatives (QDIAs)
The legislation, as originally enacted, provides that the automatic enrollment requirements do not apply to 1) retirement plans established before December 29, 2022; 2) retirement plans that have been in existence for less than three years; 3) governmental plans; 4) SIMPLE 401(k) plans; and 5) retirement plans with fewer than 10 employees. The Proposed Regulations provide additional regulatory guidance and clarification on issues such as eligibility for the automatic enrollment feature, contribution requirements, permissive withdrawals and investment requirements. The Proposed Regulations also incorporate previous IRS automatic enrollment guidance issued last year (provided in Notice 2024-2) with some modifications.
Highlights From the Proposed Regulations
Eligibility – Provides that an employer cannot exclude groups of employees, and the automatic enrollment requirements must apply to all employees eligible to elect to participate in the plan. However, an employer can exclude employees who already have an election on file (whether an election to contribute or to opt out) on the date the plan is required to comply with the automatic enrollment requirements.
Contribution limits – Clarifies how an employee’s “initial period” is determined for purposes of initial contributions. The initial period begins on the date the employee is first eligible to participate in the plan and ends on the last day of the following plan year. This is important for the application of the automatic escalation rule that requires the plan to automatically increase an auto-enrolled participant’s contribution percentage by one percentage point (up to 10%) each plan year following the employee’s initial period.
Plan mergers and spinoff – Generally, incorporates guidance provided in Notice 2024-2 regarding the application of the automatic enrollment requirement to plans that are the result of mergers but expands the guidance to address mergers involving multiple employer plans; incorporates the guidance in Notice 2024-2 regarding spinoffs. Importantly, the merger of two plans established prior to December 29, 2022, into one plan will not create a new plan subject to the automatic enrollment requirements.
New and small business – Provides that the automatic enrollment requirements should start on the first day of the first plan year that begins after the employer has been in existence for three years. Further, the 10-employee requirement is determined by the Consolidated Omnibus Budget Reconciliation Act (COBRA) regulations under Q&A-5, Treasury Regulation Section 54,4980B-2.
Multiple employer plans – Clarifies that if an employer adopts a multiple employer plan, the automatic enrollment requirements apply to the employer as if it adopted a single employer plan (i.e., they apply if adopted after December 29, 2022) regardless of when the multiple employer plan was adopted. This would not affect the employers who adopted the multiple employer plan on or before December 29, 2022.
The Proposed Regulations will not take effect until the first plan year beginning six months after the issuance of final regulations. However, the change in presidential administration (and related changes within the administrative agencies) casts uncertainty on whether these regulations will be finalized without further modifications or withdrawn all together. A plan sponsor should proceed in good faith to apply these rules until they are final.
New Executive Orders May Contradict Federal Collective Bargaining Agreements
During his first two weeks in office, President Donald Trump issued several executive orders that may conflict with provisions embedded in federal union contracts and that have led to lawsuits challenging the actions.
Quick Hits
A number of new executive orders may contradict the terms of federal policies and union contracts, especially on issues like telework and diversity, equity, and inclusion (DEI).
Unions have responded by suing to block the executive actions that would end job protections for certain federal employees.
On January 20, 2025, President Trump issued an executive order to reclassify thousands of federal employees as at-will workers, in a category called “Schedule Policy/Career.” At-will employment would make it easier to discharge federal government employees, who will no longer be in the “competitive service” category and benefit from associated job protections.
Also on January 20, President Trump also released an executive order that directs all federal agencies to end remote work arrangements and require employees to return to the workplace full-time “as soon as practicable.” In some cases, this contravenes telework benefits provided in collective bargaining agreements. Prior to the executive order, more than half of federal employees were eligible to telework, according to a report from the U.S. Office of Personnel Management (OPM).
Another January 20 executive order halts all diversity, equity, and inclusion (DEI) programs, policies, and offices in the federal government. It directs OPM to review and revise all federal employment practices, union contracts, and training programs to comply with this new policy. It also instructs the U.S. attorney general to scrutinize private-sector DEI programs.
Furthermore, another January 20 executive order states that the federal government will recognize only two genders: male and female. It rejects the transgender and nonbinary categories. It rescinds previous guidance from the U.S. Equal Employment Opportunity Commission (EEOC) under the Biden administration, which held that LGBTQ employees are legally protected from harassment and discrimination under Title VII of the Civil Rights Act of 1964.
The EEOC’s new acting chair, Andrea Lucas, recently announced a policy shift on enforcement of antidiscrimination laws. She opposes the position that unlawful harassment under Title VII includes the “denial of access to a bathroom or other sex-segregated facility consistent with [an] individual’s gender identity” and the “repeated and intentional use of a name or pronoun inconsistent with [an] individual’s known gender identity.”
Some union contracts have clauses protecting LGBTQ workers from harassment, discrimination, and retaliation. Likewise, some union contracts guarantee workers access to restrooms that align with their gender identity, and require management to use an employee’s preferred name and pronouns.
Finally, on January 31, 2025, President Trump released an executive order nullifying collective bargaining agreements that were finalized with federal agencies during the last month of the Biden administration. The status of those recently ratified union contracts remains uncertain.
Next Steps
Depending on their written terms, some provisions in union contracts governing the employment of federal workers may no longer be enforceable based on the Trump administration’s executive orders related to telework, DEI, and protections for LGBTQ workers. The new executive orders that conflict with written union contract language call into question whether the directives are enforceable without collective bargaining.
Even though unions have filed lawsuits to challenge the new executive orders, the outcomes of those lawsuits remain uncertain.
Congressional Review Act: A Legislative Tool to Overturn Late-Term Regulations
The Congressional Review Act (CRA) provides the 119th Congress with a special procedure to overturn regulations finalized in the final months of President Biden’s term. But the window for action is limited.
The CRA applies to all final rules, broadly defined. The statute requires federal agencies to report new rules to Congress. After receiving such a report, members of either or both chambers may introduce a joint resolution to overturn the rule. If both the House and Senate pass a CRA joint resolution of disapproval and the president signs it – or if Congress successfully overrides a presidential veto – the rule at issue cannot go into effect or continue in effect. The statute also prohibits the agency from reissuing a rule or issuing a new rule that is “substantially the same” unless specifically authorized by a subsequently enacted law.
Senate Fast-Track Procedure
Members of Congress introduce a joint resolution of disapproval the same way as they would any other measure. Because the House can move quickly to consider any type of legislation, the CRA does not provide any special procedures for consideration in that chamber. But the Senate operates under more time-consuming procedural rules. In recognition of that difference, the CRA provides a fast-track procedure for Senate consideration of joint resolutions of disapproval.
Once introduced, the joint resolution is referred to the Senate committee with jurisdiction over the relevant issue. That committee may report out the measure, but it may not amend it. If the committee takes no action, then after the expiration of a 20-calendar-day period, counted from the day that both the House and the Senate received the rule and referred it to a committee, 30 Senators may sign a petition that discharges the joint resolution from further consideration by the committee.
Once the committee reports the joint resolution or is discharged, any Senator may offer a non-debatable motion to proceed to floor consideration, subject to a simple majority vote of approval. Debate is limited to 10 hours, and no amendments are permitted. Passage of the joint resolution requires a simple majority vote (as compared to the 60-vote threshold usually required to move legislation through that chamber).
Timing Constraints
Members of Congress must introduce a CRA joint resolution of disapproval within 60 session days, in the case of the Senate, or 60 legislative days, in the case of the House, calculated as of the date that both the House and the Senate received the published rule and referred it to committee. Determination of the period for introduction counts weekends and holidays but excludes days that either chamber is adjourned for more than three days. In recent years, Congress has opted to hold pro forma sessions during periods of absence lasting three or more days, effectively making the introduction period 60 calendar days.
The CRA extends the introduction period for rules issued late in a session of Congress (commonly referred to as midnight rules). When an agency submits a report to Congress less than 60 session/legislative days before that Congress adjourns a session sine die and the succeeding session convenes, the calculation of the introduction period restarts in the next session. In such circumstances, the rule is treated as though Congress received the report on the published rule on the 15th session/legislative day of the new session – this year, that date is January 24, 2025. The Senate Parliamentarian has determined that the lookback period began on August 16, 2024, for rules submitted in the second session of the 118th Congress, which ended on January 3, 2025.
The CRA allows for use of the Senate fast-track procedure outlined above only if the chamber acts on a properly introduced disapproval resolution within 60 session days, again calculated as of the date that both chambers of Congress have received the published rule and referred it to committee. The Senate may still consider a joint resolution after that deadline passes, but it must do so pursuant to usual Senate rules, making passage significantly more difficult. The Senate Parliamentarian has the final say with respect to determination of this and all other applicable deadlines and time periods.
Legislative Efforts to Expand the CR
Each CRA resolution applies to only one rule in its entirety. Last year, members of Congress introduced companion bills, titled the Midnight Rules Relief Act, that would allow the disapproval of multiple regulations under a single joint resolution. That bill did not become law, but it remains a priority for the Freedom Caucus, a group of conservative House Republicans.
Historical Use and Political Outlook
Successful use of the CRA to disapprove a rule is historically rare. For obvious political reasons, the process is most effectively employed in presidential transition years, when the White House and both chambers of Congress shift to the opposing party. Since enactment of the statute in 1996, Congress has used it to overturn just 20 rules. Sixteen of those were disapproved by Congress during the first months of President Donald Trump’s first term.
Following their sweep in the last election, Republicans indicated their intent to use the CRA this year to target as many Biden administration rules as possible. Former Senate Republican Leader Mitch McConnell said last year that Republicans have a “crystal clear mandate” to undo Biden administration rules, referencing the CRA as a tool to “hit the brakes on runaway regulation.” Rep. Andy Harris (R-MD), leader of the House Freedom Caucus, has stated that the GOP will target “anything that the [Biden] administration has done in the last days of” his term.
More than 1,300 rules could be subject to the CRA disapproval process. The George Washington University Regulatory Studies Center maintains an exploratory dashboard tracking final rules that might be subject to CRA disapproval.
Conclusion
The CRA offers a powerful tool for Congress to overturn certain executive branch regulations.
The Colorado AI Act: Implications for Health Care Providers
Artificial intelligence (AI) is increasingly being integrated into health care operations, from administrative functions such as scheduling and billing to clinical decision-making, including diagnosis and treatment recommendations. Although AI offers significant benefits, concerns regarding bias, transparency, and accountability have prompted regulatory responses. Colorado’s Artificial Intelligence Act (the Act), set to take effect on February 1, 2026, imposes governance and disclosure requirements on entities deploying high-risk AI systems, particularly those involved in consequential decisions affecting health care services and other critical areas.
Given the Act’s broad applicability, including its potential extraterritorial reach for entities conducting business in Colorado, health care providers must proactively assess their AI utilization and prepare for compliance with forthcoming regulations. Below, we discuss the intent of the Act, what types of AI it applies to, future regulation, potential impact on providers, statutory compliance requirements, and enforcement mechanisms.
1. What Is the Act Trying to Protect Against?
The Act primarily seeks to mitigate algorithmic discrimination, defined as AI-driven decision-making that results in unlawful differential treatment or disparate impact on individuals based on certain characteristics, such as race, disability, age, or language proficiency. The Act seeks to prevent AI from reinforcing existing biases or making decisions that unfairly disadvantage particular groups.
Examples of Algorithmic Discrimination in Health Care
Access to Care Issues: AI-powered phone scheduling systems may fail to recognize certain accents or accurately process non-English speakers, making it more difficult for non-native English speakers to schedule medical appointments.
Biased Diagnostic Tools and Treatment Recommendations: Some AI diagnostic tools may recommend different treatments for patients of different ethnicities, not because of medical evidence but due to biases in the training data. For instance, an AI model trained primarily on data from white patients might miss early signs of disease that present differently in Black or Hispanic patients, resulting in inaccurate or less effective treatment recommendations for historically marginalized populations.
By targeting these and other AI-driven inequities, the Act aims to ensure automated systems do not reinforce or exacerbate existing disparities in health care access and outcomes.
2. What Types of AI Are Addressed by the Act?
The Act applies broadly to businesses using AI to interact with or make decisions about Colorado residents. Although certain high-risk AI systems — those that play a substantial factor in making consequential decisions — are subject to more stringent requirements, the Act imposes obligations on most AI systems used in health care.
Key Definitions in the Act
“Artificial Intelligence System” means any machine-based system that generates outputs — such as decisions, predictions, or recommendations — that can influence real-world environments.
“Consequential Decision” means a decision that materially affects a consumer’s access to or cost of health care, insurance, or other essential services.
“High-Risk AI System” means any AI tool that makes or substantially influences a consequential decision.
“Substantial Factor” means a factor that assists in making a consequential decision or is capable of altering the outcome of a consequential decision and is generated by an AI system.
“Developers” means creators of AI systems.
“Deployers” means users of high-risk AI systems.
3. How Can Health Care Providers Ensure Compliance?
Although the Act sets out broad obligations, specific regulations are still forthcoming. The Colorado Attorney General has been tasked with developing rules to clarify compliance requirements. These regulations may address:
Risk management and compliance frameworks for AI systems.
Disclosure requirements for AI usage in consumer-facing applications.
Guidance on evaluating and mitigating algorithmic discrimination.
Health care providers should monitor developments as the regulatory framework evolves to ensure their AI-related practices align with state law.
4. How Could the Act Impact Health Care Operations?
The Act will require health care providers to specifically evaluate how they use AI across various operational areas, as the Act applies broadly to any AI system that influences decision-making. Given AI’s growing role in patient care, administrative functions, and financial operations, health care organizations should anticipate compliance obligations in multiple domains.
Billing and Collections
AI-driven billing and claims processing systems should be reviewed for potential biases that could disproportionately target specific patient demographics for debt collection efforts.
Deployers should ensure that their AI systems do not inadvertently create financial barriers for specific patient groups.
Scheduling and Patient Access
AI-powered scheduling assistants must be designed to accommodate patients with disabilities and limited English proficiency to prevent inadvertent discrimination and delayed access to care.
Providers must evaluate whether their AI tools prioritize certain patients over others in a way that could be deemed discriminatory.
Clinical Decision-Making and Diagnosis
AI diagnostic tools must be validated to ensure they do not produce biased outcomes for different demographic groups.
Health care organizations using AI-assisted triage tools should establish protocols for reviewing AI-generated recommendations to ensure fairness and accuracy.
5. If You Use AI, With What Do You Need to Comply?
The Act establishes different obligations for Developers and Deployers. Health care providers will in most cases be “Deployers” of AI systems as opposed to Developers. Health care providers will want to scrutinize contractual relationships with Developers for appropriate risk allocation and information sharing as providers implement AI tools into their operations.
Obligations of Developers (AI Vendors)
Disclosures to Deployers: Developers must provide transparency about the AI system’s training data, known biases, and intended use cases.
Risk Mitigation: Developers must document efforts to minimize algorithmic discrimination.
Impact Assessments: Developers must evaluate whether the AI system poses risks of discrimination before deploying it.
Obligations of Deployers (e.g., Health Care Providers)
Duty to Avoid Algorithmic Discrimination
Deployers of high-risk AI systems must use reasonable care to protect consumers from known or foreseeable risks of algorithmic discrimination.
Risk Management Policy & Program
Deployers must implement a risk management policy and program that identifies, documents, and mitigates risks of algorithmic discrimination.
The program must be iterative, regularly updated, and aligned with recognized AI risk management frameworks.
Requirements vary based on the deployer’s size, complexity, AI system scope, and data sensitivity.
Impact Assessments (Regular & Event-Triggered Reviews)
Timing Requirements: Deployers must conduct impact assessments:
Before deploying any high-risk AI system.
At least annually for each deployed high-risk AI system.
Within 90 days after any intentional and substantial modification to the AI system.
Required Content: Each impact assessment must include the AI system’s purpose, intended use, and benefits, an analysis of risks of algorithmic discrimination and mitigation measures, a description of data processed (inputs, outputs, and any customization data), performance metrics and system limitations, transparency measures (including consumer disclosures), and details on post-deployment monitoring and safeguards.
Special Requirements for Modifications: If an impact assessment is conducted due to a substantial modification, it must also include an explanation of how the AI system’s actual use aligned with or deviated from its originally intended purpose.
Notifications & Transparency
Public Notice: Deployers must publish a statement on their website describing the high-risk AI systems they use and how they manage discrimination risks.
Notices to Patients/Employees: Before an AI system makes a consequential decision, individuals must be notified of its use.
Post-Decision Explanation: If AI contributes to an adverse decision, deployers must explain its role and allow the individual to appeal or correct inaccurate data.
Attorney General Notifications: If AI is found to have caused algorithmic discrimination, deployers must notify the Attorney General within 90 days.
Small deployers (those with fewer than 50 employees) who do not train AI models with their own data are exempt from many of these compliance obligations.
6. How is the Act Enforced?
Only the Colorado Attorney General has enforcement authority.
A rebuttable presumption of compliance exists if Deployers follow recognized AI risk management frameworks.
There is no private right of action, meaning consumers cannot sue directly under the Act.
Health care providers should take early action to assess their AI usage and implement compliance measures.
Final Thoughts: What Health Care Providers Should Do Now
The Act represents a significant shift in AI regulation, particularly for health care providers who increasingly rely on AI-driven tools for patient care, administrative functions, and financial operations.
Although the Act aims to enhance transparency and mitigate algorithmic discrimination, it also imposes substantial compliance obligations. Health care organizations will have to assess their AI usage, implement risk management protocols, and maintain detailed documentation.
Given the evolving regulatory landscape, health care providers should take a proactive approach by auditing existing AI systems, training staff on compliance requirements, and establishing governance frameworks that align with best practices. As rulemaking by the Colorado Attorney General progresses, staying informed about additional regulatory requirements will be critical to ensuring compliance and avoiding enforcement risks.
Ultimately, the Act reflects a broader trend toward AI regulation that is likely to extend beyond state borders. Health care organizations that invest in AI governance now will not only mitigate legal risks but also maintain patient trust in an increasingly AI-driven industry.
If health care providers plan to integrate AI systems into their operations, conducting a thorough legal analysis is essential to determine whether the Act applies to their specific use cases. This should also include careful review and negotiation of service agreements with AI Developers to ensure that the provider has sufficient information and cooperation from the Developer to comply with the Act and to properly allocate risk between the parties.
Compliance is not a one-size-fits-all process. It requires careful evaluation of AI tools, their functions, and their potential to influence consequential decisions. Organizations should work closely with legal counsel to navigate the Act’s complexities, implement risk management frameworks, and establish protocols for ongoing compliance. As AI regulations evolve, proactive legal assessment will be crucial to ensuring that health care providers not only meet regulatory requirements but also uphold ethical and equitable AI practices that align with broader industry standards.
Ohio Lawmakers Introduce Bipartisan Bill to Ban Noncompete Agreements
Ohio could become the latest state to join the growing list of jurisdictions to ban or significantly restrict the use of noncompete agreements in employment under bipartisan legislation introduced by a pair of state lawmakers.
Quick Hits
Ohio state senators have introduced bipartisan legislation to ban noncompete agreements that restrict workers post-employment and provide them with the right to take legal action against employers.
The proposed bill would void any noncompete agreements entered into or modified after the bill’s effective date.
If passed, Ohio would join the growing number of states implementing restrictions on noncompete agreements, following a broader trend.
On February 5, 2025, Ohio state Senators Bill Blessing (R-Colerain Township) and Bill DeMora (D-Columbus) filed Senate Bill (SB) 11, which would prohibit employers from entering into or attempting to enter into a noncompete agreement with a worker or “prospective worker.” The cosponsorship signals the possibility of bipartisan support for the measure.
Ohio is currently one of fewer than a dozen states without legislation on noncompetes, such as prohibiting them, requiring notice, limiting them to high-wage earners, or other similar limitations.
Instead, the enforceability of noncompetes in Ohio remains governed by the 1975 Ohio Supreme Court case Raimonde v. VanVlerah, which sets forth factors for a court to consider as to whether a restrictive covenant is reasonable and based upon a protectable business interest.
SB 11
As introduced, SB 11 would prohibit employers from enforcing agreements that prohibit or penalize workers for seeking or accepting work or operating a business after the conclusion of the relationship between the employer and worker. Such prohibited restrictions include an agreement that:
“the worker will not work for another employer for a specified period of time, not work in a specified geographic area, or not work for another employer in a capacity similar to the worker’s work for the employer”;
“requires the worker to pay for lost profits, lost goodwill, or liquidated damages because the worker terminates the work relationship”;
“imposes a fee or cost on a worker for terminating the work relationship”;
requires a worker who terminates his or her employment to reimburse the employer for expenses incurred for training, orientation, evaluation, or other services to improve the workers’ performance; and
the worker will not work for another employer for a specified period of time, not work in a specified geographical area, or not work for another employer in a capacity similar to the worker’s work for the employer.
Such agreements would be void if entered into, modified, or extended after the effective date of the bill.
Employers would be prohibited from requiring claims for violations of the noncompete ban outside of the state or depriving claimants of state legal protection for disputes arising in the state. However, that choice of law restriction would not apply to workers who are represented by legal counsel and choose a venue or forum to adjudicate the claim, or choose the law to be applied.
SB 11 would further provide workers with a right of action to bring civil claims against employers for violations to seek damages, including costs, attorneys’ fees, actual damages, punitive damages up to $5,000, and injunctive relief. Workers would also be able to file complaints with the attorney general or the director of commerce, who will investigate and may bring actions on behalf of the worker.
Next Steps
It is too soon to predict whether SB 11 will have momentum, but state-level limitations on restrictive covenants have been trending in the last decade. That trend could continue, particularly after a 2024 Federal Trade Commission (FTC) rule that sought to ban nearly all noncompete agreements in employment was struck down in court. It is unclear whether the Trump administration will continue to pursue the Biden-era ban, leaving it to states to regulate noncompete agreements.
McDermott+ Check-Up: February 7, 2025
THIS WEEK’S DOSE
Key Nominations Move Forward. Having advanced from the Senate Finance Committee this week, Robert F. Kennedy Jr.’s nomination for secretary of Health & Human Services will now go to the Senate floor.
Pathway on Reconciliation Is Uncertain. While the House Budget Committee was expected to start the reconciliation process this week with a markup of a budget resolution, that did not happen.
House Energy & Commerce Health Subcommittee Holds Hearing on Drug Threats. Members examined solutions to the opioid crisis.
Trump Issues EO Modifying the Regulatory Process. The executive order (EO) calls for fewer regulations and rescinds changes to the regulatory cost-benefit analysis.
Administration Modifies Public Health Data. The Centers for Disease Control & Prevention scrubbed its websites of mentions of gender identity and diversity, equity, and inclusion.
Legal Challenges Continue in Response to Trump Administration Actions. Federal judges have taken additional actions to block efforts to freeze certain federal funding, and a lawsuit was filed in response to a Trump EO on care for transgender youth.
CONGRESS
Key Nominations Move Forward. The Senate Finance Committee advanced Robert F. Kennedy (RFK) Jr.’s nomination to lead the US Department of Health & Human Services (HHS) in a 14 – 13 vote along party lines. The nomination now moves to the Senate floor. If every Democrat opposes the nomination in the floor vote, RFK Jr. could lose up to three Republican votes and still be confirmed as HHS secretary.
The Senate confirmed Russell Vought as director of the Office of Management & Budget (OMB) by a 53 – 47 vote. The Senate voted to confirm Doug Collins to lead the US Department of Veterans Affairs in a vote of 77 – 23. Dr. Mehmet Oz, President Trump’s nominee to lead the Centers for Medicare & Medicaid Services (CMS), began meeting with senators on Capitol Hill this week, the first step in his nomination process. He has not spoken publicly on Medicaid much before, but he was quoted this week as saying, “We have to take care of the most vulnerable among us. It’s a social calling for all of us . . . that funding freeze was not designed to affect Medicaid at all.”
Pathway on Reconciliation Is Uncertain. While the House was expected to start the reconciliation process with a markup of a budget resolution in the Budget Committee this week, that did not happen. House Republicans continue to negotiate with one another about the level of spending cuts and held a meeting at the White House with President Trump, after which they announced they were moving closer to an agreement. Because this will be a partisan process, Republicans need to be largely unified in order to proceed. During this uncertainty, Senate Budget Committee Chairman Lindsey Graham (R-SC) made it clear that the Senate is prepared to move forward with its own budget resolution, which would begin a two-bill approach to reconciliation, with an immigration, energy, and defense bill completed first and a tax bill tackled later in the year. Senate Republicans are set to meet with President Trump Friday night at Mar-a-Lago to promote this approach. The budget resolution is a necessary first step in the reconciliation process, and healthcare programs are expected to be on the table for spending cuts. For an overview on the budget reconciliation process and its impact on health policies, read our +Insight.
House Energy & Commerce Health Subcommittee Holds Hearing on Drug Threats. The hearing discussed the importance of expanding access to addiction and mental health services and ensuring wide availability of Narcan. Republican members primarily focused on the importance of border security in combatting the opioid crisis, and Democratic members emphasized the funding freeze’s adverse impacts on medical research and the critical roles that Medicaid and federally qualified health centers play in enabling access to care for substance use disorders.
ADMINISTRATION
Trump Issues EO Modifying the Regulatory Process. This EO requires that whenever an agency promulgates a new rule, regulation, or guidance, it must identify at least 10 existing rules, regulations, or guidance documents to be repealed. The EO tasks the director of OMB with ensuring standardized measurement and estimation of regulatory costs, and it requires that, for fiscal year 2025, the total incremental cost of all new regulations, including repealed regulations, be significantly less than zero. It is unclear what this 10 – 1 ratio means in practice or how it will be implemented.
Administration Modifies Public Health Data. To comply with President Trump’s EOs related to gender identity and diversity, equity, and inclusion, the Centers for Disease Control & Prevention first removed, then uploaded a modified version of, public information and data related to HIV and health information for teens and LGBTQ+ people on both its data directory and main webpage. In response, a medical advocacy group has sued multiple health agencies, stating that the removal of data deprives physicians and researchers of access to necessary information.
COURTS
Legal Challenges Continue in Response to Trump Administration Actions. Following legal challenges last week to the Trump administration’s now-rescinded OMB memo directing agencies to freeze certain federal funding, more federal judges have acted to halt the federal freeze. On January 31, a federal judge in Rhode Island granted a temporary restraining order to block the freeze, following a lawsuit from Democratic attorneys general from 22 states and the District of Columbia. On February 3, a federal judge in the District of Columbia issued a similar injunction in a lawsuit filed by several coalitions of nonprofits.
PFLAG National, GLMA, and transgender individuals and their families filed a federal lawsuit against the Trump administration’s EO “Protecting Children from Chemical and Surgical Mutilation.” The EO states that federal agencies shall not “fund, sponsor, promote, assist, or support the so-called ‘transition’ of a child from one sex to another.” Plaintiffs in the lawsuit, filed in the US District Court for the District of Maryland, argue that the EO will create harm by denying access to physician-prescribed, medically recommended care. Read the press release here.
In response to a lawsuit brought by unions representing federal workers, a federal judge in Massachusetts paused the deadline for the administration’s buyout program for federal workers. There is another hearing set for next week.
QUICK HITS
HHS OCR Announces Action on Anti-Semitism. The HHS Office for Civil Rights (OCR) will initiate compliance reviews related to reported incidents of anti-Semitism at four medical schools.
House Democratic Leaders Send Letter to GAO on Medicare Drug Price Negotiation. In the letter, Energy & Commerce Ranking Member Frank Pallone (D-NJ), Ways & Means Ranking Member Richard Neal (D-MA), and Education & Workforce Ranking Member Bobby Scott (D-VA) urged the US Government Accountability Office (GAO) to monitor the Medicare Drug Price Negotiation Program to ensure the Trump administration complies with the Inflation Reduction Act, which directed and authorized the GAO to conduct oversight of the program.
CMS Releases Statement on DOGE Collaboration. The short statement notes that two senior CMS officials are working with Elon Musk’s Department of Government Efficiency (DOGE).
NEXT WEEK’S DIAGNOSIS
Both chambers will be in session next week. The House Veterans’ Affairs Health Subcommittee will hold another hearing on community care, the House Ways & Means Health Subcommittee will hold a hearing on modernizing healthcare, and the Senate Special Committee on Aging will hold a hearing on optimizing longevity. As noted, the House Budget Committee may mark up a budget resolution that would start the budget reconciliation process, or the Senate could move first. The full Senate is on track to approve RFK Jr.’s nomination, and we expect the administration to continue taking executive action related to healthcare.