Midterms result in split Congress, lingering questions on banking legislation

Congress will be divided for the next two years following November’s midterm elections in which Republicans won control of the House of Representatives and Democrats secured a Senate majority, with Democrat Sen. Raphael Warnock winning a runoff race in Georgia against Republican challenger Herschel Walker. 

Republicans did not achieve the “wave” election they had hoped for. The results were considered a surprise given that the party of the incumbent president often suffers major losses during the following midterm. Republicans had seized on sagging poll numbers for Democrat President Joe Biden, and they emphasized voters’ growing political and economic angst to try to upend unified Democratic control of Washington.

The fate of key banking-related legislation on cryptocurrencies, cannabis banking, overdrafts and the power of regulatory agencies will all be on the docket when the Congress assumes office in January. 

The regulatory landscape

The Congressional divide will require Biden to rely on executive orders and regulatory action to pass legislation, noted David Schultz, a professor of political science at Hamline University, St. Paul, Minn. Senate Democrats will be able to use their narrow majority to approve judicial nominees and appoint regulatory leaders, he said.

Still, Congressional Republicans promise to scrutinize the regulatory authority of the FDIC, Consumer Financial Protection Bureau and Securities and Exchange Commission over the next two years. North Dakota Bankers Association President/CEO Rick Clayburgh said the relatively aggressive approaches of the CFPB under Director Rohit Chopra and the FDIC under Acting Chair Martin Gruenberg open the agencies up to possible lawsuits for exceeding their statutory authority. 

Republicans, including House Financial Services Committee Chair Patrick McHenry of North Carolina, will try to limit the CFPB’s proposed 1071 legislation, which requires financial institutions to collect and report data on credit applications from minority-owned and small businesses. McHenry argued the current proposal would make small business lending more difficult. 

The future of the CFPB’s funding structure is already in jeopardy after a Texas appeals court ruled in October that the agency is unconstitutionally funded. The three-judge panel found that the funding structure violates the Constitution’s Appropriations Clause because it draws funding from the Federal Reserve rather than from Congress. The case will likely eventually be heard by the Supreme Court. Former American Bankers Association president and CEO Ed Yingling said in a recent podcast that the case would be on stronger ground today than three years ago because of the Supreme Court’s now-conservative majority. 

Congress will likely also consider expanding the Durbin amendment to include credit cards. Currently, the amendment requires issuers to offer at least two unaffiliated networks for processing debit card transactions. Though ABA Chair Dan Robb noted that the bill has not gathered a co-sponsor, he is concerned that the bill’s namesake, five-term Sen. Dick Durbin (D-Ill.), will try to include the legislation as part of a broader, must-pass bill.


To Noah Wilcox, past chair of the Independent Community Bankers of America, divided government will be good for the country. Wilcox, president of Minnesota-based Grand Rapids State Bank, thinks it will make legislation that is harmful to banking more challenging to pass. 

The ABA also expressed optimism. “With the nation facing economic headwinds and other challenges, banks of all sizes remain committed to working with lawmakers from both parties who share our interest in banking policies that support the economy, provide banks with the regulatory clarity they need and promote financial inclusion,” the ABA said in a written statement. “Divided government does not have to produce gridlock, and we stand ready to do our part to advance common-sense legislation that will allow banks to better serve their customers, clients and communities.”

Cannabis banking

November’s midterms only reinforced the uncertainty many bankers face in serving the cannabis industry — even in states where the drug is legal. Voters in Maryland and Missouri approved adult-use marijuana in statewide referendums, while North Dakota, South Dakota and Arkansas voters rejected similar proposals. 

Robb, CEO of Missouri-based Jonesburg State Bank, said the failure of Congress to pass the SAFE Banking Act still makes bankers wary of serving the industry. “Most bankers that I talk to do not feel comfortable banking marijuana businesses or banking marijuana-related businesses,” he noted. 

Banking trade groups expressed hope that the SAFE Banking Act would be considered during Congress’ lame-duck session, though it was unclear at press time whether they would. 

The bill would prohibit federal regulators from disciplining depository institutions that provide banking services to government-licensed cannabis-related businesses. The bill has passed the House seven times, most recently last summer as part of the 2023 National Defense Authorization Act. The SAFE Banking Act was dropped from the final version of the Senate bill. 

In a late November letter, the ICBA and 44 state banking agencies urged Congress to pass the SAFE Banking Act during the lame-duck session. “The Act would also alleviate the significant threat to public safety posed by cash intensive cannabis-related businesses effectively being shut out of the banking industry,” the groups stated. Iowa Bankers Association President and CEO John Sorensen called the chances of the bill passing during the lame duck “a bit of a longshot.”

Though both parties should theoretically be motivated to pass the SAFE Banking Act to attract middle-class voters, partisan gridlock continues to stand in the way, Hamline Professor Schultz noted. Senate Banking Committee Chair Sherrod Brown (D-Ohio) has said the Act is too limited and should include sentencing reforms, a stumbling block for some Republicans. 

Other bills seeking to legalize adult-use marijuana also remain unpassed. The Cannabis Administration and Opportunity Act would end the federal ban on cannabis by removing the drug from the Controlled Substances Act and recognize cannabis legalization by states. The bill was introduced by Senate Majority Leader Chuck Schumer (D-N.Y.), Senate Finance Committee Chair Ron Wyden (D-Ore.) and Sen. Cory Booker (D-N.J.) last summer.


The recent failures of several key crypto firms and its massive loss in value over the past 12 months call into question whether Congress will introduce new regulations.

The crypto market’s explosive growth over the last few years was followed by a turbulent 2022. The market lost half of its value in May and June alone as the economy weakened and a number of crypto firms failed. In early November, the large crypto trading platform FTX collapsed, leading to the bankruptcy of the crypto lending platform BlockFi. 

Even prior to the collapse, key regulatory bodies indicated that cryptocurrencies and stablecoins should face more regulatory scrutiny. The Financial Stability Oversight Council, which monitors risks to the U.S. financial system, said last year that crypto-assets could threaten the stability of the financial system, if regulators don’t enforce current regulations and aren’t granted more power over the space.

Lawmakers from both parties are interested in regulating the market. In a November interview during Financial Times’ Crypto and Digital Assets Summit, Sen. Cynthia Lummis (R-Wyo.) said FTX’s failure highlights the need for greater regulation in the industry. In June, Lummis and Sen. Kirsten Gillibrand (D-N.Y.) introduced The Responsible Financial Innovation Act, which would create a firm standard to determine whether digital assets are commodities or securities. The bill establishes an optional framework for banks and credit unions to issue payment stablecoins and create a special depository institution charter under state law and the National Bank Act to issue payment stablecoins. The bill remains in the Senate Finance Committee. 

Sen. Elizabeth Warren (D-Mass.), a member of the Committee on Banking, Housing and Urban Affairs, said crypto was following a similar trajectory “as subprime mortgages and credit-default swaps,” which are both cited as major contributing factors to the Great Recession. Warren said crypto platforms should be required to have similar cybersecurity standards as other financial companies.

“Regulators must enforce the law before more people get cheated, and Congress must plug the remaining holes in our regulatory structure — before the next crypto catastrophe takes down our economy,” she said. 

While regulators under the Biden administration have been wary of allowing banks to serve the crypto industry, Republicans have been more supportive of the idea. Retiring Banking and Urban Affairs Ranking Member Pat Toomey (R-Pa.) alleged in an August letter to Gruenberg that the FDIC could be “improperly taking action to deter banks from doing business with lawful cryptocurrency-related companies.”

Congressional action on a stablecoin — a cryptocurrency intended to have a relatively stable price through being pegged to a commodity, currency or by having its supply regulated by an algorithm — is also possible. A bill introduced last fall between Democrats and Republicans on the House Financial Services Committee would allow the Fed to license nonbank stablecoin issuers and introduce a two-year moratorium on algorithmic stablecoins. The fate of the bill remains unclear in the new Congress. 


Overdraft fees continue to be a major point of contention between opponents who say banks use them to take advantage of vulnerable customers, and the many consumers and financial services professionals who believe they are a valuable service.

The FDIC is especially scrutinizing current overdraft practices, said BankIn Minnesota President and CEO Jim Amundson. He expressed concern that the agency’s focus could create a “politically-motivated” regulatory environment. 


Regulators continued to place bank overdraft practices in the hot seat in 2022 as multiple bills limiting their use were introduced. A bill sponsored by Rep. Carolyn Maloney (D-N.Y) would amend the Truth in Lending Act and prohibit banks from charging customers multiple overdraft fees in a month and more than six in a year, regardless of whether a customer opts in. However, the fate of the legislation is in doubt after Maloney was defeated during a primary election in August. A separate bill introduced by Booker and Warren would ban overdraft fees on debit card transactions and ATM withdrawals, and limit overdraft fees for checks and recurring bill payments.

Despite those bills, industry experts say the odds of Congress passing overdraft legislation appear low for 2023. JMFA Executive Vice President of Compliance Review Cheryl Lawson said last fall that she doesn’t expect Congress to pass any overdraft legislation in 2023, adding that changes in overdraft policies are more likely to occur by presidential action.