Bankers, consumer activists unite against stablecoin rule

WASHINGTON — Bankers and consumer protection advocates joined in opposing a provision of the stablecoin law that would make it easier for Special Purpose Depository Institutions to expand nationwide. 

Part of the stablecoin law, the GENIUS Act, passed by Congress and signed by President Donald Trump in July would allow some crypto banks to bypass state rules and more easily expand nationally. That part of the law has faced pushback from groups representing state financial regulators, notably the Conference of State Bank Supervisors, and to some extent by banking trade groups. 

The rule, section 16(d) in the law, would allow uninsured chartered banks, notably state-chartered special purpose depository institutions, or SPDIs, to operate in states other than those where they are chartered without the approval of each host state’s banking regulator. 

It’s one of several provisions that banking groups have attacked in the stablecoin law and upcoming market structure negotiations. 

“While the signatories of this letter may have differing views on the merits and substance of the market structure proposals being considered, we agree that this flaw in the GENIUS Act must be addressed,” said the groups, which include bank lobbying groups such as the American Bankers Association, Independent Community Bankers of America, as well as consumer advocates, including Americans for Financial Reform and the National Consumer Law Center. 

The groups, which also include CSBS and the National Conference of State Legislatures, which have previously written to Congress on the provision, asked that lawmakers rescind the section. 

Congress will have another bite at the crypto apple when lawmakers resume work in Washington in September. While the GENIUS Act is now law, the Senate will pick up wider market structure legislation, which could amend the GENIUS Act. 

“Section 16(d) allows any state-chartered uninsured depository institution with a stablecoin subsidiary to perform traditional money transmission and custody activities nationwide through that subsidiary, thereby bypassing host state licensing and allowing substantially less state oversight,” the groups said in the letter, which is addressed to leading Senate Banking Committee lawmakers. “This unprecedented overriding of state law and supervision weakens vital consumer protections, creates opportunities for regulatory arbitrage, and undermines state sovereignty.”