January 2026 OBA Legal Briefs

• GAO’s Green Book has been updated effective fiscal year 2026

• The Judicial Erosion of Federal Preemption: National Association of Industrial Bankers v. Weiser and the DIDMCA Opt-Out

• The OBBBA Auto Interest Provisions

GAO’s Green Book has been updated effective fiscal year 2026

By Pauli Loeffler

Standards for Internal Control in the Federal Government—known as the Green Book—sets the standards for an effective internal control system for federal agencies. The 2025 Green Book was effective beginning with fiscal year 2026.  The Chapter I spend the most time consulting is with regard to reclamations of Social Security benefits, Veterans benefits, and IRS refunds.

As we enter what I refer to as “Tax Season,” banks need to prepare for the inevitable fraudulent  tax refunds deposited by customers. I have covered this topic in five previous Legal Briefs which are available online once you register through My OBA Member Portal:

• May 2012: Tis the Season for Tax Refund Fraud
• January 2014: Handle tax refunds properly
• February 2016: Tis the (Tax Refund) Season (direct deposits)
• March 2016: Tis the (Tax Refund) Season – Part II (deceased payees, Oklahoma tax refund cards)
• February 2018: Tax Refund Checks

The updated Green Book can be downloaded in either PDF or digital format.

The Judicial Erosion of Federal Preemption: National Association of Industrial Bankers v. Weiser and the DIDMCA Opt-Out

by Scott Thompson

The law at the heart of this dispute is the Depository Institutions Deregulation and Monetary Control Act of 1980 (DIDMCA), a federal statute originally designed to stabilize the American banking system during a period of intense economic volatility and to ensure competitive parity between state-chartered and national banks. The recent litigation in National Association of Industrial Bankers v. Weiser represents the first significant appellate challenge to the modern understanding of interest rate exportation and the limits of state “opt-out” authority under Section 525 of DIDMCA.

Historical and Statutory Foundations of Federal Interest Rate Preemption

The American dual banking system allows financial institutions to choose between a federal charter, overseen by the Office of the Comptroller of the Currency (OCC), and a state charter, overseen by state regulators and the Federal Deposit Insurance Corporation (FDIC). This dual structure was designed to promote innovation and local responsiveness while maintaining a national standard for safety and soundness.

The National Bank Act of 1864, specifically Section 85, provides national banks with the authority to charge interest at the rate allowed by the laws of the state where the bank is located. The seminal 1978 Supreme Court decision in Marquette National Bank of Minneapolis v. First of Omaha Service Corp., 439 U.S. 299 (1978), clarified that Section 85 allows a national bank to “export” the interest rates of its home state to borrowers residing in other states, even if those rates exceed the usury caps of the borrower’s home state.

The Marquette decision created a profound competitive imbalance. While national banks could charge rates permitted by their home states nationwide, state-chartered banks remained largely bound by the usury ceilings of every state in which they conducted business. During the inflationary period of the late 1970s, many states maintained modest usury ceilings that made it economically infeasible for state-chartered institutions to lend to their own residents, as the cost of funds often exceeded the legally permissible interest rates. In response, Congress enacted DIDMCA in 1980 to provide state-chartered, FDIC-insured banks with the same rate-exportation authority as national banks. Section 521 of DIDMCA (codified at 12 U.S.C. § 1831d) granted state banks the right to charge interest at the greater of 1% above the federal discount rate or the rate allowed by the laws of the state where the bank is located.

However, the political compromise necessary to pass DIDMCA included a reservation of rights for the states. Section 525 of the Act permitted states to “opt out” of the federal preemption of their usury laws by enacting legislation that explicitly stated the state did not want the federal preemption to apply with respect to “loans made in such State”.

The Origin of the Dispute: Colorado House Bill 23-1229

The current litigation stems from Colorado’s enactment of House Bill 23-1229 (HB 23-1229) in June 2023. This legislation sought to exercise Colorado’s opt-out authority under Section 525 of DIDMCA to protect its residents from what state officials described as “predatory” lending practices associated with “rent-a-bank” schemes. In these arrangements, non-bank fintech firms partner with out-of-state, state-chartered banks (often located in Utah or Delaware) to offer credit products at interest rates that significantly exceed Colorado’s usury caps, which are generally set at 21% for consumer loans.

HB 23-1229 amended the Colorado Uniform Consumer Credit Code (UCCC) to declare that for consumer credit transactions, Colorado’s interest rate and fee limitations apply regardless of the lender’s location if the borrower is a Colorado resident. The state argued that such loans are “made in” Colorado because the borrower is located there when the credit is obtained.

The banking industry, represented by the National Association of Industrial Bankers (NAIB), the American Financial Services Association (AFSA), and the American Fintech Council (AFC), viewed the Colorado law as a direct threat to the dual banking system. They argued that if the law were allowed to take effect, it would force state-chartered banks to either cease lending to Colorado residents or invest in prohibitively expensive compliance infrastructures to track the precise geographic location of every borrower—a burden not shared by their national bank competitors.

District Court Proceedings and Injunction

In March 2024, the trade associations filed suit in the U.S. District Court for the District of Colorado, seeking a declaratory judgment that HB 23-1229 was preempted by federal law to the extent it attempted to regulate out-of-state banks. They subsequently moved for a preliminary injunction to prevent the law from taking effect on July 1, 2024.

The plaintiffs presented a statutory construction argument focused on the meaning of “made in such State” under Section 525. They contended that a loan is “made” by the lender at the location where the bank performs its essential, non-ministerial functions. Drawing on historical FDIC opinion letters, the industry identified three critical functions that define where a loan is “made”:

1. The decision to extend credit (loan approval).
2. The communication of that approval to the borrower.
3. The disbursal of loan proceeds.

The industry argued that because these functions occur at the bank’s offices outside Colorado, the loans are not “made in” Colorado, and thus the state’s opt-out authority does not reach them. They further argued that Colorado’s interpretation violated the Supremacy Clause by attempting to expand the limited opt-out right granted by Congress.

On June 18, 2024, Judge Daniel D. Domenico granted the preliminary injunction. Judge Domenico adopted the industry’s lender-centric interpretation, reasoning that in “plain parlance,” it is the lender who makes a loan. He observed that while a borrower might “obtain” or “receive” a loan, no one thinks of themselves as “making” a loan when they borrow money or use a credit card.   The court found that the plaintiffs were likely to succeed on the merits because federal law, rather than state law, must define where a loan is “made” for the purposes of a federal statute. Furthermore, Judge Domenico determined that the industry would suffer irreparable harm if the law were not enjoined, citing the permanent loss of customers, damage to business goodwill, and the necessity of withdrawing certain credit products from the Colorado market. The balance of equities favored the plaintiffs because the law would unfairly disadvantage state-chartered banks while having no impact on national banks, who could continue to charge higher rates to Colorado consumers.

The injunction temporarily halted the enforcement of Colorado’s interest rate and fee limitations for out-of-state banks, allowing lenders to continue existing practices while legal challenges proceeded. This decision created immediate uncertainty for both borrowers and financial institutions operating in Colorado, as the ultimate resolution of the case would determine whether state-level protections or federal banking standards would prevail.

The Tenth Circuit Reversal

The State of Colorado appealed the preliminary injunction to the United States Court of Appeals for the Tenth Circuit, arguing that the district court had misconstrued the statutory language and improperly balanced the public interest. The appeal became a focal point for national banking policy, attracting amicus briefs from across the country.

On November 10, 2025, a divided panel of the Tenth Circuit issued its decision in National Association of Industrial Bankers v. Weiser. In a 2-1 ruling, the majority reversed the district court’s injunction, holding that a loan is “made in” an opt-out state if either the lender or the borrower is located there.  Writing for the majority, Judge Gregory Phillips rejected the district court’s “plain parlance” focus on the lender as the sole actor. Instead, the majority conducted a meticulous grammatical analysis of Section 525. The court characterized the phrase “loans made in such State” as a “participial adjective phrase” where “made” describes the completed state of the loan—that is, an “executed” loan. Because a loan is a bilateral contract that requires at least two parties for execution, the majority concluded that the loan is “made” where the parties enter the agreement.

The majority further argued that Congress’s primary intent in providing an opt-out was to allow states to reclaim their historic control over usury and consumer protection laws. By opting out, a state reasserts its sovereign right to regulate the terms of credit offered to its citizens, regardless of the lender’s location. The court concluded that the district court’s lender-centric view “robbed the state of one of its oldest police powers”.

Judge Veronica Rossman authored a vigorous dissent, arguing that the majority had fundamentally misinterpreted the statutory text and context. Judge Rossman maintained that throughout Title 12 of the U.S. Code, “made” and “make” consistently refer to the specific regulatory activities performed by a bank. She criticized the majority for failing to identify any other provision in federal banking law where a borrower’s conduct is used to define where a loan is “made”.

The dissent warned that the majority’s “dual location” theory would:

• Destroy Parity: It undermines the competitive equality Congress intended to create between state and national banks, as national banks remain free to export rates while state banks are restricted.
• Invite Regulatory Fragmentation: It subjects state banks to a “multitude of varying interest rates” based on the borrower’s movement, creating the very “unworkable morass” the industry warned against.
• Harm Consumers: By making it economically infeasible for state banks to lend to higher-risk Colorado residents, the decision effectively grants national banks a monopoly over that market segment.
• Arguments of the Financial Industry to the Tenth Circuit

The financial industry associations, supported by a coalition of national trade groups, presented several sophisticated arguments to the Tenth Circuit to justify maintaining the preliminary injunction. These arguments focused on the operational impossibility of the state’s position and the disruption of long-standing federal banking principles.

The American Bankers Association (ABA) argued that if a loan is “made” in the borrower’s state, modern interstate banking would be thrown into confusion. They characterized the resulting regulatory environment as an “unworkable morass”. In a digital era where loans are solicited via the internet and transactions occur instantaneously via mobile devices, the physical location of the borrower at the moment of “execution” can be highly fluid.   Specific operational challenges highlighted by the industry included:

• Traveling Borrowers: If a Colorado resident travels to a non-opt-out state like Kansas and uses a credit card or requests an online loan advance, the bank would need to determine if the loan was “made” in Colorado (based on residency) or Kansas (based on physical presence).
• Point-of-Sale Confusion: For store-brand credit cards, the “making” of a loan occurs with every purchase. A consumer might live in Colorado but shop in Nebraska, creating uncertainty as to which state’s usury caps apply to that specific balance increase.
• Compliance Costs: Banks could be forced to develop real-time geolocation systems to authorize transactions based on shifting usury caps, a technical requirement that is not currently part of the national banking infrastructure.

A critical linguistic argument presented by the industry compared Section 525 of DIDMCA with Section 529 of the National Housing Act, which was enacted only three months earlier. Section 529 allowed states to countermand preemption for loans that were either “made or executed in” the state.   The industry argued that Congress’s decision to use only the word “made” in Section 525, while omitting the bilateral term “executed,” was a deliberate choice to limit the opt-out to the location of the lender’s activities. They contended that the Tenth Circuit majority’s decision essentially read the word “executed” into Section 525, thereby overstepping the judicial role and violating the principle that Congress knows how to be explicit when it intends to include both parties’ locations in a jurisdictional trigger.

The industry emphasized that the majority’s ruling creates a “race to the federal charter”. Because national banks are entirely unaffected by state opt-outs, state-chartered banks now face a structural disadvantage. If a state bank’s primary business model involves interstate lending at rates exceeding 21% APR, the most rational business response is to convert to a national bank charter to regain rate-exportation rights. This could lead to an exodus from the state banking system, weakening state regulators and concentrating financial power in the federal government, the exact opposite of the “dual banking” balance Congress sought to protect.

An amicus brief was filed also on behalf of all 50 state bankers associations and the District of Columbia. This unified front of state bankers argued that Colorado’s law disrupts “comity among the states”. They emphasized that state banks are vital to local innovation and that each state has a sovereign interest in regulating its own domestic institutions. By allowing Colorado to dictate the interest rates of banks chartered in Utah or South Dakota, the decision effectively allows one state to interfere with the regulatory policies and economic health of another state’s banking system.

Conclusion and Future Procedural Outlook

The litigation in National Association of Industrial Bankers v. Weiser represents a potentially defining moment in American banking law. For the first time, a federal appellate court has endorsed a reading of DIDMCA that allows states to project their usury laws across their borders to out-of-state state banks. This interpretation, if it stands, effectively creates a two-tiered system of financial regulation where national banks retain the right to ignore local usury caps, while state banks, the very institutions Congress sought to protect from discrimination in 1980, are left vulnerable to them.

The case remains in a state of high uncertainty. On December 9, 2025, the plaintiff trade groups filed a petition for rehearing en banc, asking the full Tenth Circuit to review the panel’s decision. They argue that the panel’s majority created a circuit split and incorrectly applied a presumption against preemption in a case involving express federal statutory language. The ABA, on its own behalf, and those of the fifty state bankers associations and the District of Columbia, has filed an amicus brief supporting the en banc rehearing. Both the FDIC and the OCC have also filed amicus briefs urging rehearing. In both briefs, the regulators argue that the Tenth Circuit’s decision was erroneous and undermines the competitive equality DIDMCA was passed to address and threatens the integrity of the dual banking system.

Until the Tenth Circuit acts on this petition, the district court’s injunction remains in effect, and Colorado is still barred from enforcing its usury caps against the plaintiffs’ members.   If the Tenth Circuit denies the rehearing or affirms the panel’s decision, the industry will almost certainly seek review by the Supreme Court of the United States. For now, only Iowa, Colorado and Puerto Rico have opted out pursuant to Section 525. Yet, the outcome of this case could increase that number drastically. Thus, unless and until the issue is resolved in favor of the banks, the proverbial sword of Damocles represented by the “unworkable morass” of geographic tracking and regulatory fragmentation remains a hanging threat for state-chartered banks nationwide.

The OBBBA Auto Interest Provisions

by Scott Thompson

The “One Big Beautiful Bill Act” (OBBBA), signed into law on July 4, 2025, has introduced the return of the auto loan interest deduction. While this provision—modeled to stimulate domestic auto manufacturing—offers a benefit to consumers, it places a substantial new compliance burden on financial institutions.

For lenders, this is not merely a tax change; it is an operational challenge. Section 6050AA of the Internal Revenue Code now requires banks, credit unions, and auto finance companies to track, verify, and report detailed auto loan data in a manner similar to mortgage interest reporting. Below is a discussion about the deduction, the specific obligations for lenders, and the transitional guidance provided by the IRS for the 2025 tax year.

I. The Deduction Explained

To properly report on these loans, lenders must first understand what qualifies. Unlike the mortgage interest deduction, which is relatively broad, the auto interest deduction is narrowly targeted.

A. The “Qualified” Loan

Under Section 70203 of the Act, a taxpayer may deduct interest paid on a “qualified passenger vehicle loan.” To qualify, the loan must meet all of the following criteria:

• Origination Date: The loan must have originated after December 31, 2024.
• Secured Debt: The loan must be secured by the vehicle (unsecured personal loans used to buy a car do not qualify).
• Original Use: The loan must be for the purchase of a new Used car loans are strictly excluded.
• Personal Use: The vehicle must be for personal use. Vehicles used for commercial purposes (which may already qualify for business expense deductions) are excluded from this specific benefit.

B. The “Applicable” Vehicle

The collateral itself must meet strict “America First” manufacturing standards. An eligible vehicle must:

• Have its final assembly occur in the United States.
• Have a Gross Vehicle Weight Rating (GVWR) of less than 14,000 pounds.
• Be a passenger vehicle (car, SUV, minivan, pickup truck, or motorcycle).

The “final assembly” requirement is the most operationally complex variable. It may require lenders to integrate VIN-decoding capabilities into their tax reporting software to verify the plant of manufacture.

C. Borrower Eligibility limits

The deduction is capped at $10,000 per year in interest. Furthermore, it is means-tested. The benefit phases out for borrowers with a Modified Adjusted Gross Income (MAGI) between:

• $100,000 – $150,000 for single filers.
• $200,000 – $250,000 for joint filers.

Note, this is an “above-the-line” deduction, meaning borrowers do not need to itemize to claim it.

II. Lender Obligations and Reporting Requirements

The OBBBA adds Section 6050AA to the Internal Revenue Code, creating a reporting regime that mirrors the Form 1098 reporting for mortgage interest.

A.     Who Must Report?

Any person who, in the course of a trade or business, receives $600 or more of interest on a qualified passenger vehicle loan from an individual during a calendar year.

B.     Data Collection Requirements

Lenders are now required to collect and report the following data points for every eligible loan:

• Borrower PII: Name, address, and TIN (Taxpayer Identification Number).
• Financials: The total amount of interest received during the calendar year.
• Loan Details: The outstanding principal as of the beginning of the calendar year and the loan origination date.
• Collateral Specifics: The Year, Make, Model, and Vehicle Identification Number (VIN).

The New Form: 1098-VLI (Draft)

The IRS has released a draft of the new reporting form, Form 1098-VLI (Vehicle Loan Interest Statement). This form will eventually become the standard annual filing, similar to the Mortgage Interest Form 1098.

Key Fields on Form 1098-VLI:

• Box 1: Interest Received (must be $600+ to trigger mandatory filing).
• Box 2: Outstanding Principal (Jan 1).
• Box 3: Loan Origination Date.
• Box 4: Vehicle VIN (Critical for IRS validation of US assembly).
• Box 5: Checkbox for “Refinanced Loan” (if applicable).

III: Transitional Guidance for Tax Year 2025

Recognizing the difficulty of implementing new systems mid-year, the Treasury and IRS issued Notice 2025-57, providing transitional relief for the 2025 tax year.

A.     The “No-File” Relief for 2025

For interest received in calendar year 2025:

• IRS Filing Waived: Lenders are NOT required to file an information return (Form 1098-VLI) with the IRS. In fact, currently, the draft form explicitly states it should not be filed as it remains a draft.
• Borrower Statement Required: Lenders MUST still provide a written statement to the borrower.

B.     Permissible Borrower Statements (2025 Only)

Under Notice 2025-57, lenders do not need to generate a formal tax form for the borrower this year. Compliance is satisfied if the lender provides the total interest amount via:

• A dedicated year-end statement.
• The regular monthly billing statement for December 2025 (if it shows YTD interest).
• A secure message in the borrower’s online banking portal.

The statement must be furnished to the borrower by January 31, 2026, so if you haven’t done it by the time this article publishes, you only have a short window of time left.

IV. Draft Guidance & Resources

Below are the descriptions and standard locations for the relevant documents.

1. IRS Notice 2025-57 (Transitional Relief)

• Content: Details the waiver of filing with the IRS for 2025 and lists acceptable methods for notifying borrowers of their interest paid.
• Access: Available in the Internal Revenue Bulletin (IRB) or via the “Newsroom” section of IRS.gov.
• https://www.irs.gov/pub/irs-drop/n-25-57.pdf

Draft Form 1098-VLI (Vehicle Loan Interest)

• Content: The proposed standardized form for use beginning in Tax Year 2026.
• Access: This form is hosted on the IRS “Draft Tax Forms” repository. Visit gov/DraftForms and search “1098-VLI”.
• https://www.irs.gov/pub/irs-dft/f1098vli–dft.pdf

V: Operational Action Plan for Lenders

To ensure compliance for the 2025 transitional year and full readiness for 2026, lenders should consider the following steps:

A. Data Segmentation

Your core banking system likely codes loans by “Consumer” or “Commercial.” However, the OBBBA deduction specifically excludes vehicles not for personal use. You may need to ensure that loans coded as “consumer” but secured by vehicles used for “rideshare” or “delivery” (if identifiable) are flagged, though the burden of “personal use” certification largely falls on the taxpayer.

B. VIN Verification Integration

Presumably, the IRS will cross-reference the VINs reported on Form 1098-VLI against the NHTSA (National Highway Traffic Safety Administration) database to verify US final assembly.  Accordingly, your servicing platform will likely need to retain the full 17-digit VIN and ensure that it is exportable to your tax reporting software. Banks with a significant number of covered loans may want to consider using an API to batch-check VINs for “US Assembly” status to preemptively field borrower questions, even if you are not strictly required to police the assembly requirement yourself (you are only required to report the VIN).

C. Customer Communication (Jan 2026)

Borrowers may be expecting a tax form because they have heard about the deduction through the media or social media without understanding the specifics of this transitional year. Since you will likely not send a formal 1098-VLI this year, you may want to send a cover letter or email explaining that no formal tax form is necessary to claim the deduction for 2025 and that whatever permissible borrower statement you chose to send shows the interest paid in 2025 which may be used to figure the deduction if the borrower is eligible.

D. Vendor Management

While not necessary for the 2025 tax year, it may be worthwhile to confirm with your core processor in advance that they will support Form 1098-VLI production for the 2026 tax year.