A Look at U.S. Government’s Changed Approach to Artificial Intelligence Development and Investments
Highlights
In January 2025, the new administration took several steps related to AI technologies and infrastructure
Many previous executive orders were rescinded, but a prior executive order regarding using federal lands for data centers remains in place
The U.S. has also announced major private investments into state-of-the-art AI data centers
Since the new administration took office, the U.S. has taken several steps to implement new strategies and priorities related to the development of, and investment in, artificial intelligence (AI) technologies.
On Jan. 20, 2025, Executive Order 14110 titled Safe, Secure, and Trustworthy Development and Use of Artificial Intelligence, was rescinded. It required companies developing AI to share information about their technologies with the federal government before their products could be made publicly available. All other previous executive orders pertaining to AI also were rescinded, except for an order related to using public lands for data centers.
On Jan. 21, 2025, several private companies announced from the White House a new private venture called the Stargate Project, which intends to invest $500 billion over the next four years building new AI infrastructure, including AI-focused data centers, in the U.S.
On Jan. 23, 2025, Executive Order 14179, Removing Barriers to American Leadership in Artificial Intelligence. was implemented. This new order states that to maintain U.S. leadership in AI innovation, “we must develop AI systems that are free from ideological bias or engineered social agendas.” It also “revokes certain existing AI policies and directives that act as barriers to American AI innovation, clearing a path for the United States to act decisively to retain global leadership in artificial intelligence.”
The order further states that it is the “policy of the United States to sustain and enhance America’s global AI dominance in order to promote human flourishing, economic competitiveness, and national security.”
To accomplish those objectives, the order requires:
1) Within 180 days, the Assistant to the President for Science and technology (APST), the Special Advisor for AI and Crypto, and the Assistant to the President for National Security Affairs (APNSA), in in coordination with the Assistant to the President for Economic Policy, the Assistant to the President for Domestic Policy, the Director of the Office of Management and Budget (OMB Director), and the heads of such executive departments and agencies (agencies) as the APST and APNSA deem relevant, shall develop and submit to the President an action plan to achieve the policy set forth in section 2 of this order.
2) The APST, the special advisor for AI and crypto, and the APNSA, in coordination with the heads of relevant agencies shall (1) identify policies, directives, regulations and orders taken pursuant to EO 14110 and (2) suspend, revise, or rescind such actions if they are inconsistent with the order’s objectives.
3) Within 60 days, the OMB shall revise its published guidance on AI to align with the order.
Takeaways
The U.S. is taking strides to maintain and extend its edge in AI innovations amid competition from others. The new executive order is one of the steps being taken, and the AI regulatory landscape is continuing to rapidly evolve, making it important to monitor the steps the U.S. and others take in connection with AI.
Disappearing CFPB? What’s Happened And What’s Next
These are interesting times we live in.
During the transition period between Trump’s election and inauguration, Elon Musk stated that the there were “too many duplicative regulatory agencies” and he would “delete” the Consumer Financial Protection Bureau (CFPB).
Well, it looks like that process has been begun. And if not deleted, then erased significantly.
On Friday afternoon, Elon Musk tweeted out “CFPB RIP”. Subsequently, people noticed the CFPB’s website and X page went dark.
On Saturday night, Russell Vought, the director of the Office of Management and Budget tweeted that the CFPB will NOT be taking its “next draw of unappropriated funding because it is not ‘reasonably necessary’ to carry out its duties.” And the CFPB’s current balance of over $700 million is “excessive in the current fiscal environment”.
Then on Sunday, Mr. Vought, sent an email to all CFPB employees essentially telling them all to go pencils down and they must get approval from the Chief Legal Officer IN WRITING before performing any work task. The letter was signed by Mr. Vought as “Acting Director”.
So, a lot going on. But, what does this mean?
It is helpful to remember the CFPB is funded through the Federal Reserve without Congressional approval. This was the basis of the challenge which the Supreme Court ruled on last year. The Supreme Court found that the CFPB’s funding scheme fell squarely within the definition of a Congressional “appropriation” in a vote of 7-2.
Therefore, since the CFPB is funded by Treasury, Mr. Vought declining to ask for more money from Treasury is the first step to defund the CFPB. However, it would not be that simple to eliminate the CFPB, the Bureau’s power could be significantly limited.
The legal maneuvers required to completely eliminate the CFPB could require a supermajority vote in the Senate, which seems unlikely, but how could a massive cutback in force affect lead generators?
First, does it stop all new enforcement and rulemaking? This is an organization that has filed over 140 enforcement actions in the last 5 years and has over 20 proposed rules in various stages.
Second, what actions does the new administration take regarding prior actions. Does it rollback all guidance including the guidance around lead generation and pay to play? Does it pause all litigation? This could radically change the playing field for comparison shopping websites and the lenders that rely on them.
These are big questions with many downstream effects in the ecosystem.
My initial suggestion:
Don’t let this change your current business practices.
Like the 1:1 rule being vacated, the cutback of the CFPB doesn’t eliminate existing laws or regulations. And also like the 1:1 rule, don’t be surprised if other parties step into the vacuum created by the CFPB’s sudden diminishing stature.
SEC Extends Compliance Date for Short Sale Reporting Rule to 2026
On February 6, 2025, the SEC announced that it was providing a temporary exemption from compliance with Rule 13f-2 under the Securities Exchange Act of 1934 (the “Exchange Act”), which establishes a mandatory short reporting requirement for institutional investment managers. As a result, the first reporting deadline for reporting short position information on Form SHO confidentially with the SEC, covering the January 2026 reporting period, will be February 14, 2026. The extension follows concerns raised by market participants regarding operational and technical issues in developing the systems necessary to comply with the rule, as well as the SEC’s failure to release technical specifications for the reports until just before the winter holidays. This is a welcome respite for managers, provided one week in advance of the initial reporting deadline. In addition to the operational and technical issues noted by the SEC, we anticipate that the SEC will address the interpretive issues that managers and practitioners have identified when seeking to prepare their Form SHO filings, including providing additional clarity on the scope of equity securities subject to the reporting requirement.
As described in our previous Alert, Rule 13f-2 was originally adopted in October 2023 and requires certain institutional investment managers to report short sale data to the SEC on a confidential basis, which the agency would subsequently publish in aggregated form. The rule has faced legal challenges from industry groups, which argue that it exceeds the SEC’s authority under the Exchange Act. The lawsuit is in the Fifth Circuit U.S. Court of Appeals, which has already ruled against the SEC in the last year on challenges to other rules, although the agency has also prevailed in the circuit in recent years on cases involving its shareholder proposal rule and its modifications to Form N-PX. Oral arguments in the proceeding in this case on short sales reporting were heard in October 2024, but the court has not yet issued a ruling and so it remains ongoing.
Despite the change in Administration, it is likely that the SEC will continue to support the new short sale reporting rule and vigorously defend the agency’s position in court based on comments from the interim SEC Chairman. Indeed, if the rule is invalidated, the agency may well seek review in the Supreme Court, and might use its enforcement arm and other approaches more actively to address what the interim Chairman described last week, in announcing the compliance extension, as “abusive naked short selling as part of a manipulative scheme. . . .”
The SEC’s Exemptive Order can be found here.
Delaware Supreme Court Applies the Business Judgment Rule to Fiduciary Duty Claims Related to Reincorporation Out of Delaware
The Delaware Supreme Court, in Maffei v. Palkon, No. 125, 2024 (Del. Feb. 4, 2025), has reversed the Court of Chancery and decided that business judgment deference applied to breach of fiduciary duty claims related to a controlled corporation’s decision to reincorporate from Delaware to Nevada. The Delaware Supreme Court held that claims regarding additional litigation or liability protections that TripAdvisor’s controlling stockholder and/or board of directors could receive following the conversion from a Delaware to Nevada corporation were highly speculative. The speculative nature of such claims failed to demonstrate that there was a material non-ratable benefit involved in the conversion which created a conflicted controller transaction subject to entire fairness review.
On a motion to dismiss these claims, the Delaware Court of Chancery previously held that the controlling stockholder and board of directors of TripAdvisor and its affiliate Liberty TripAdvisor would receive a material unique benefit in the reincorporation, in the form of greater protection from personal liability afforded by Nevada law. As a result, the Court of Chancery determined that the entire fairness standard of review would apply in the absence of Delaware law procedures for cleansing breach of fiduciary duty claims.
Given the important legal issues involved, the Delaware Supreme Court accepted an interlocutory appeal. The Delaware Supreme Court noted that temporality of any litigation against the defendants (and corresponding benefits of protection in such litigation) is a key factor in determining the materiality of any unique benefits that the defendants might derive from the reincorporation. In the absence of allegations that the reincorporation was used to avoid threatened or pending litigation or in contemplation of a particular transaction, the Court viewed any benefit as too speculative to be material and therefore determined that the reincorporation was not subject to entire fairness review. The Court also noted that, although it was not an independent ground for its decision, its holding furthered the goals of comity by declining to engage in a comparison of the Delaware and Nevada corporate governance regimes.
This decision provides useful guidance regarding the standard of review applicable to breach of fiduciary duty claims related to reincorporation transactions (including mergers, conversions, and domestications), as well as board considerations in connection with such a transaction. We will continue to monitor this issue from Delaware, Nevada, and other related perspectives.
European Commission Rejects Draft DORA RTS on Sub-contracting
The European Commission (Commission) recently published a letter (Letter) that it sent to the European Supervisory Authorities (ESAs) rejecting certain draft regulatory technical standards (RTS) under the EU Digital Operational Resilience Act (DORA). The draft RTS specified the conditions and criteria to be considered by financial entities when sub-contracting information communication and technology (ICT) services supporting critical or important functions. The Letter, dated 21 January 2025, follows the ESAs’ submission of its final report on the draft RTS in July 2024.
In the Letter, the Commission explained its rejection on the basis that the requirements introduced by Article 5 of the draft RTS on the “Conditions for sub-contracting relating to the chain of ICT sub-contractors providing a service supporting a critical or important function by the financial entity” go beyond the mandate provided to the ESAs under Article 30(5) of DORA. This is because they introduce requirements not specifically linked to the conditions for sub-contracting.
In light of this, the Commission considered that Article 5 of the draft RTS and the related Recital 5 should be removed to ensure the ESAs comply with its mandate set out in DORA.
The Commission intends to adopt the RTS once its concerns are addressed and the necessary modifications are made by the ESAs.
The Letter is available here.
CFPB Signals Shift in Position on Section 1071 Compliance Pause
This week, the CFPB filed an emergency notice in the Fifth Circuit Court of Appeals, indicating that it no longer opposes a pause in compliance with its Section 1071 small business data-collection rule (previously discussed here, here, and here). This marks a significant departure from its previous stance as it navigates ongoing legal challenges from lenders.
The notification was submitted just before a scheduled hearing in the case challenging the rule’s validity, and states “Counsel for the CFPB has been instructed not to make any appearances in litigation except to seek a pause in proceedings.” This shift raises questions about the rule’s near-term enforceability, particularly for financial institutions that have been preparing for its implementation.
The Section 1071 rule, established under the Dodd-Frank Act, is designed to enhance transparency in small business lending. It mandates that financial institutions:
Collect and retain data on small business credit applications. Businesses must track and document applications for credit from small businesses to ensure fair lending practices and monitor access to credit for minority- and women-owned businesses.
Gather applicants’ demographic details. Lenders are required to ask applicants for self-reported demographic information including race, ethnicity, and gender. This will be used to assess lending trends and potential disparities.
Report lending decisions to regulatory bodies for oversight. Collected data must be submitted to the CFPB and other relevant regulatory agencies to facilitate enforcement actions and policy assessments related to fair lending laws.
Establish compliance protocols to ensure adherence with reporting requirements. Institutions must implement internal systems to collect, store, and submit required data while ensuring privacy protections for applicants.
Putting It Into Practice: The CFPB finalized the rule as a result of a lawsuit brought by the California Reinvestment Coalition and other plaintiffs who sought to compel the agency to implement Section 1071 of the Dodd-Frank Act, which had been enacted in 2010 but not enforced for years. The lawsuit led to a settlement agreement in 2020, under which the CFPB committed to a timeline for proposing and finalizing the rule. So while it may not be possible to rescind the law, a pause may lead to the Bureau carving back some of the data collection requirements. We will continue monitor the Section 1071 compliance landscape for further developments.
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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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Treasury Secretary Scott Bessent Appointed as Acting CFPB Director
On January 31, 2025, the CFPB announced President Donald Trump had appointed Scott Bessent as Acting Director of the CFPB. In a brief statement, Bessent expressed his commitment to advancing the administration’s agenda to lower costs for Americans and accelerate economic growth.
Industry groups have welcomed Bessent’s leadership, anticipating a rollback of regulations established during tenure of former Director Rohit Chopra.
Putting It Into Practice: Given Bessent’s background in investment and finance, there may be a move towards more industry-friendly regulations. Financial institutions should monitor potential shifts in CFPB policies and enforcement priorities under Secretary Bessent’s leadership. We will continue to monitor these developments.
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New York AG Reaches $1 Billion Settlement with ‘Predatory’ Lender
On January 22, New York Attorney General Letitia James announced a $1 billion settlement with a now defunct cash advance firm and its officers. The settlement resolves allegations that the firm and its officers repeatedly engaged in fraudulent and deceptive predatory lending practices aimed at small business owners in violation of New York law.
The lawsuit alleges that the firm and its network of affiliated companies engaged in a range of deceptive lending practices. These alleged transgressions included misrepresenting the true cost of financing by disguising high-cost loans as merchant cash advances, which often led to small business owners to believe they were not taking on debt. The lawsuit also claimed the firm charged unreasonable interest rates, frequently exceeding 100%, and imposed hidden fees. These practices allegedly trapped borrowers in debt cycles, making it difficult for them to sustain their businesses. The firm was also accused of employing aggressive and harassing debt collection tactics, including threats and intimidation, which led to significant distress to small business owners.
Specifically, the settlement requires the firm to:
Forgive debts of affected small businesses. Over $534 million of outstanding debt owned by more than 18,000 small businesses nationwide will be canceled.
Pay restitution to affected small business owners. $16.1 million will be paid immediately for distribution to borrowers who were harmed by the firm’s practices.
Settling officers to pay a fine. The settling officers agree to pay a fine of $12.7 million dollars.
The company and its officers are also permanently banned from the merchant-cash advance industry.
Putting It Into Practice: This state-level settlement underscores the importance of monitoring actions by state regulators, particularly during a period of potential shifts in federal regulatory authority (previously discussed here). Companies engaged in lending or debt collection practices should proactively review their policies and procedures to ensure compliance with state laws and regulations.
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Asset Management Regulatory Year in Review 2024
2024 was a year of meaningful regulatory change for asset managers globally. The regulatory activity was wide ranging and without a particular unifying theme. In fact, the wide, and in cases diverging focuses of key global regulators requires asset managers to closely review what has happened, and potentially more importantly, keep tabs on what is likely to happen going forward.
This year, we expanded our overview of the legal and regulatory actions beyond the borders of the United States to include Australia, Hong Kong, Japan, Qatar, Singapore, the United Arab Emirates, and the United Kingdom. A brief summary of select regulatory developments by region is provided, followed by a more detailed overview. The summaries include key developments throughout the year that may impact the future of the asset management industry, addressing topics such as cryptocurrency, ESG, enforcement actions, fiduciary responsibilities, and more.
To access the Asset Management Regulatory Year in Review 2024, click here.
Illinois ‘Swipe Fee’ Law Faces Continued Pushback as Court Partially Extends Injunction
On February 6, 2025, the U.S. District Court of the Northern District of Illinois declined to issue a preliminary injunction to stop an Illinois “swipe fee” law that would ban certain credit and debit card fees from applying to credit unions while extending a previous preliminary injunction to apply to out-of-state banks. (See our previous coverage of this litigation here, here, and here).
The Interchange Fee Prohibition Act (“IFPA”) is a novel law that would prohibit credit and debit companies from charging fees on the tax and tip portions of credit and debit card transactions beginning July 1, 2025. The rest of the transaction, including the price of goods or services, would still be subject to the fees.
In August, banking industry groups filed a lawsuit challenging the state law, arguing that it was preempted by federal banking statutes and regulations. In addition to preemption arguments, they expressed concerns that financial institutions would be unable, from a practical standpoint, to comply with the law by the July 1 deadline. They further contended that the proposed new law would require banks and credit card companies to implement costly new computer systems to distinguish between transaction amounts, taxes, and tips.
In December, U.S. District Court Judge Virginia Kendall issued a preliminary injunction barring the IFPA from applying to federally chartered banks but declined to extend the relief to state banks and credit card companies. After reviewing supplemental briefing from the parties, on Thursday, Judge Kendall further denied an extension of the injunction to credit unions, holding that the Federal Credit Union Act did not preempt the new state law. But Judge Kendall granted preliminary injunctive relief to out-of-state banks operating in Illinois, holding that the Riegle–Neal Interstate Banking and Branching Efficiency Act “likely preempts” the IFPA.
Putting It Into Practice: When it was enacted last year, Illinois’ new swipe fee law was a bold and novel change to the payment processing landscape that threatened to upend how everyday payment transactions are processed. The mixed preemption rulings in this pending litigation are likely to create additional uncertainty in that the new proposed law would apply to certain industry participants, but not others. This underscores the key challenges and difficulties that arise when states attempt to pass legislation related to payment systems that are national and international in scope.
It Lives: Trump Administration Defends Corporate Transparency Act; May Modify its Application
On February 5, 2025, the Trump administration added a new chapter to the saga that has been implementation of the Corporate Transparency Act (CTA), filing a notice of appeal and motion for stay against an Eastern District of Texas injunction in Smith v. United States Department of the Treasury on enforcement of the CTA’s filing deadline.
In its filing, the Treasury Department stated that it would extend the filing deadline for 30 days if the stay is granted, and would use those 30 days to determine if lower-risk categories of entities should be excluded from the reach of the filing requirements. In light of the Supreme Court’s stay of the injunction in Texas Top Cop Shop, Inc., et al. v. Merrick Garland, et al., also from the Eastern District of Texas, it is likely that stay will be granted.
Passed in the first Trump administration but implemented during the Biden presidency, the CTA – an anti-money laundering law designed to combat terrorist financing, seize proceeds of drug trafficking, and root out illicit assets of sanctioned parties and foreign criminals in the United States – has faced legal challenges around the country.
The constitutionality of the CTA was challenged in several cases, with most courts upholding the law, but some issuing either preliminary injunctions or determining that the law is unconstitutional. In addition to the appeals of Texas Top Cop Shop and Smith, both before the Fifth Circuit, appeals are currently pending in the Fourth, Ninth, and Eleventh Circuits.
Although enforcement of the CTA deadline is currently paused, the granting of a stay in Smith, or a ruling by one of the circuits, could reinstate the deadline at any time, triggering the start of the 30-day clock to file. Entities may file now notwithstanding the injunction if they choose to do so, and entities may wish to complete the filing so that they do not need to monitor the situation and to avoid high traffic to the filing website in the event a deadline is reimposed.
Please note that if you file or have already filed and the law is ultimately found unconstitutional or otherwise overturned or rescinded, you will not be under any continuing obligation regarding that filing.
Entities can, of course, choose not to file or to keep filings updated. However, be aware that in addition to the potential need to file on short notice should the preliminary injunction be limited, stayed, or overturned, financial institutions may inquire as to whether the entity has filed a CTA and could require filing as part of the financial institution’s anti-money laundering program.