Banks and state attorneys general challenge CLARITY Act before vote

Eight banking associations and 17 state attorneys general challenged parts of the CLARITY Act

In a procedural vote held on September 15, eight banking associations and 17 state attorneys general challenged parts of the CLARITY Act. This vote requires 60 votes in favor of the Senate to pass.

The eight banking groups want lawmakers to tighten restrictions on rewards for stablecoin holders. The groups warned that interest-like incentives could draw deposits from banks and reduce loan issuance.

Seventeen state attorneys general said the bill could weaken states 'ability to hold accountable for cryptocurrency fraud.

A September 15 vote will open debate on the bill rather than approve its final passage.

Banking industry calls for changes to stablecoin incentive terms to protect the deposit base

On September 14, eight banking associations wrote to Senate Majority Leader John Thune and Minority Leader Chuck Schumer, requesting that the CLARITY Act be revised before the Senate considers whether to advance it.

While these associations support the establishment of lasting regulatory rules for digital assets, they believe that the current provisions may allow cryptocurrency companies to provide stablecoin rewards similar to interest on bank deposits. Their requests focused mainly on Section 10404, which deals with payments and incentives related to payment stablecoins.

The bank letter adds to the contentious points in Senate negotiations as lawmakers try to gather the 60 votes needed to move the bill forward. At the same time, a coalition led by New York Attorney General Letitia James warned that federal priority provisions could limit states 'securities enforcement powers and make it more difficult to pursue cryptocurrency fraud.

The Banking Association points out that bank deposits are a source of loans to families, farmers, small businesses and local communities. They believe that stablecoins that offer similar interest incentives on deposits may encourage customers to move money away from regulated banks.

"Deposits are the foundation of the banking system," the groups said, arguing that deposit losses could "hinder the ability of deposit-taking institutions to provide credit to their customers."

Although section 10404 prohibits certain interest and income payments, the association said its wording may leave room to allow rewards to be calculated based on a customer's stablecoin holdings. In particular, they opposed the word "solely" in subsection (c)(1)(A), arguing that the limit might not cover some incentives tied to user balances.

These groups are asking Congress to delete "solely" and revise references to "payment of stablecoin balances" and "interest-bearing bank deposits." Their proposal is aimed at reward plans similar to deposit interest, even if providers attach other payment conditions.

Seeking testing standards based on economic impact, the association also called for a "substantially similar" standard for stablecoin incentives. Such a test would allow regulators to review whether rewards operate like bank interest, rather than relying solely on the name or structure chosen by the provider.

Another request concerns section 10404(3)(B), which the banking group wants Congress to remove. They said the clause could allow companies to calculate rewards based on stablecoin balances, asset holding time or a customer's tenure on the platform.

The latest Republican proposal would give the Treasury Secretary the power to implement an 18-month "circuit breaker mechanism" if a payment stablecoin causes a large outflow of deposits from community banks. According to the revised Senate proposal, the 635-page draft includes 126 changes proposed by Democratic negotiators.

However, banking groups are asking lawmakers to pass the bill itself to prevent interest-like incentives, rather than relying solely on temporary Treasury intervention after deposit losses occur.

State attorneys general asks to retain enforcement powers

While banks are focused on deposits and loans, state officials oppose provisions that divide powers between federal and state regulators.

James led a bipartisan coalition, including 17 state attorneys general, to urge the Senate to reject the current bill. The group said legislation could allow the Securities and Exchange Commission to override some state securities regulations, including registration requirements used to oversee businesses that sell investment products to local residents.

"As it stands, the Clarity Act will fuel the arrogance of scammers and potentially deprive us of our power to protect our state's investors and their wallets," James said.

According to the coalition, the power to grant the SEC pre-empt state registration powers could create uncertainty and affect cases that state officials may bring against cryptocurrency companies. This concern applies directly to U.S. investors, as state securities agencies and attorneys general often investigate local complaints, pursue compensation, and enforce state consumer protection laws.

Officials also asked Congress to retain state registration systems and existing federal-state law enforcement partnerships. Their position is not entirely opposed to federal cryptocurrency rules; rather, the coalition believes that national frameworks should not remove tools that states already use to combat fraud.

As previously reported, the revised bill would allow state attorneys general to enforce conflict of interest restrictions for public officials. James and other officials said the supplement did not address their separate concerns about securities registration and fraud enforcement.

Cryptocurrency losses support states 'concerns about fraud

State attorneys general linked their warnings to the amount Americans lost in cryptocurrency-related scams. According to data cited by the alliance, complaints filed with the FBI in 2025 involved $11.4 billion in cryptocurrency losses, a 22% increase from the previous year.

Such complaints may include multiple types of crimes, and a single complaint does not establish that a violation occurred. Still, the coalition used FBI data to argue that states need to retain their powers as long as digital asset fraud continues to affect U.S. residents.

State regulators can hold accountable for conduct based on the facts and laws of each jurisdiction, and under local securities laws, consumer protection laws, and fraud laws. State attorneys general are concerned that vague priority clauses could lead defendants to challenge state cases on the grounds that federal law replaces local powers.

James filed a similar objection in July, when she asked lawmakers to strengthen provisions on money laundering, ethics and investor protection, while retaining the state's enforcement powers. Monday's alliance included officials from California, Illinois, Arizona, Kansas, Ohio and Wisconsin.

Membership of both parties gives this opposition a different character than partisan negotiations in the Senate. The state attorney general is not focusing on who controls the final text, Democrats or Republicans, but defines the controversy around the powers his office retains after the bill is passed.

CLARITY bill faces a 60-vote procedural test

The Senate is scheduled to hold a preliminary procedural vote on September 15. The move will determine whether senators begin debating the legislation; it will not enact the CLARITY Act or send it to the president for signature.

Republicans have 53 seats in the Senate, which means that if all Republicans support the motion, supporters need to get at least seven votes from the Democratic Caucus. As of September 14, no Democratic leader had declared enough support to meet that threshold.

Lawmakers negotiated government ethics, stablecoin rewards, financial crime rules and protections for unmanaged software developers. The latest draft also addresses the role of the Securities and Exchange Commission (SEC) and the Commodity Futures Trading Commission (CFTC) in overseeing digital asset and cryptocurrency intermediaries.

The House passed its version of the CLARITY Act by a vote of 294 - 134 in July 2025, while the Senate Banking Committee advanced its proposal by a vote of 15 - 9 in May 2026. Due to differences on several parts of the bill, senators did not hold a full vote before adjourning in August.

Previous reports on scheduled procedural votes pointed out that Senate Majority Leader Thuan filed a cloture motion on August 8. Treasury Secretary Scott Bessent urged senators to approve the market structure measure, and Galaxy Digital lowered its estimated odds of passage in 2026 from about 75% in May to about 10% in September.