Maryland Legal Alert for Financial Services

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Stablecoin Opportunities for Financial Institutions

Ninth Circuit Decision on NCUA Preemption of State Laws Regulating Account Fees

No PMI Refund Unless Borrower Meets Statutory Requirements

Stablecoin Opportunities for Financial Institutions

On July 18, 2025, the federal Guiding and Establishing National Innovation for U.S. Stabelcoins Act (GENIUS Act) was signed into law. The GENIUS Act establishes a framework for stablecoin issuance and regulation in the U.S., with specific implications for financial institutions, particularly regarding their subsidiaries. Stablecoins are a class of digital asset tied to a “reference” asset to maintain a stable value and they are intended to be used as a medium of payment exchange that can be processed faster and at less cost than traditional fund transfer/payment mechanisms. Only entities designated as "permitted payment stablecoin issuers" can issue stablecoins in the U.S. This includes subsidiaries of insured depository institutions (subject to receiving prior approval from their primary financial regulator).  Entering the stablecoin arena will come with additional regulatory oversight from a financial institution’s primary federal regulatory. In addition, issuance of stablecoins is subject to reserve requirements. 

Stablecoin issuers must maintain reserves backing their stablecoins at a one-to-one ratio. These reserves must consist of highly liquid assets, such as U.S. dollars, short-term U.S. Treasury securities, or certain other low-risk assets approved by federal regulators. Issuers must publish monthly reports detailing the composition of their reserves and must disclose information about their redemption policies. Stablecoin issuers also must have the technical capability to freeze, seize, or burn payment stablecoins when legally required to do so. 

The GENIUS Act opens up several potential revenue streams for financial institutions: 

• Because the GENIUS Act requires stablecoins to be fully backed by reserves, financial institutions can generate income by investing these reserves in short-term government securities and earning interest on those investments.
• As stablecoins offer faster and potentially cheaper transaction settlements (relative to traditional banking methods), financial institutions will have the opportunity to charge fees for facilitating payment transactions, attracting businesses looking to reduce their costs and accelerate payment processing.
• Financial institutions will also have opportunities to manage related services, such as custody and redemption.

The GENIUS Act generally will take effect on the earlier of 18 months after the July 18, 2025 enactment date; or 120 days after federal regulators issue coordinated regulations to implement the new law. The GENIUS Act presents an opportunity for financial institutions to capitalize on the growing demand for stablecoins by leveraging their existing regulatory credibility and financial infrastructure to offer new and efficient payment and financial services.

For more information, contact Christopher R. Rahl.

Contact Christopher R. Rahl | 410-576-4222

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Ninth Circuit Decision on NCUA Preemption of State Laws Regulating Account Fees 

On August 1, 2025, the United States Court of Appeals for the Ninth Circuit issued a decision, affirming the dismissal of a putative class action brought under California’s Unfair Competition Law (“UCL”). In the case, the plaintiff alleged that the credit union violated state law by charging a $15 returned-check fee even though the check deposit failure was not attributable to the member’s conduct. The Ninth Circuit held that the claim was expressly preempted by 12 C.F.R. § 701.35(c), which authorizes a federal credit union’s board of directors to determine the types of fees or charges associated with the maintenance of member accounts, consistent with federal law. 

The court’s opinion makes clear that this preemption provision applies broadly to all state laws that would regulate account fees, whether those laws are directed specifically at regulation of deposit products or are generally applicable consumer protection statutes such as the UCL. The court rejected the plaintiff’s argument that a generally applicable law falls outside the preemptive scope of § 701.35(c), reasoning that such an interpretation would permit states to regulate federal credit union fees indirectly through broad consumer protection laws. The court further emphasized that the preemption clause and the requirement that fees be “consistent with federal law” are independent; thus, even if a fee were inconsistent with federal law, that would not remove the bar on state regulation. 
This decision reinforces the protections afforded to federal credit unions under the National Credit Union Administration's (NCUA) regulatory framework and effectively narrows the practical effect of the “consumer protection” carve-out in NCUA preemption guidance. 

For more information, contact Tamia J. Morris.

Contact Tamia J. Morris | 410-576-4021

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No PMI Refund Unless Borrower Meets Statutory Requirements

In a recent decision, the Fourth Circuit Court of Appeals held that a borrower was not entitled to a refund of private mortgage insurance (PMI) premiums that had been prepaid because the borrower’s PMI cancellation was not subject to the mandatory PMI cancellation triggers under the federal Homeowners Protection Act (HPA). In this case, the borrower made a down payment on the purchase of his property of less than 20% of the purchase price. The lender required PMI and the borrower prepaid certain PMI premiums.

Under the HPA, PMI is generally subject to cancellation when: (a) (at a borrower’s request and subject to certain conditions) the principal balance of the loan is scheduled to be equal to 80% of the home’s original value; or (b) (automatically if the loan is not in default) the principal balance of the loan is scheduled to be equal to 78% of the home’s original value.  

In addition, if a borrower has not requested termination of PMI and there has not been an automatic termination trigger, the HPA requires termination of PMI by the first day of the month immediately following the midpoint of the loan’s repayment term (if the loan is not in default). In this case, after a year of timely loan payments, the borrower submitted a request to the applicable loan servicer requesting termination of PMI. At the time of the request, the borrower did not meet any of the HPA statutory triggers for PMI cancellation, but the servicer agreed to a voluntary termination of PMI if the borrower met certain conditions.

When the borrower satisfied the servicer’s specified conditions, the borrower requested a refund of certain prepaid PMI premiums. The servicer denied the request and the borrower brought a class action against the lender and servicer. The court held for the lender and servicer, concluding that PMI refunds are only required when the underlying PMI cancellation was based on a statutory trigger under the HPA.

For more information, contact Christopher R. Rahl.

Contact Christopher R. Rahl | 410-576-4222

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