Regulatory Oversight Blog
Make sure to visit Troutman Pepper Locke’ Regulatory Oversight blog to receive the most up-to-date information on regulatory actions and subscribe to our mailing list to receive a monthly digest.
Regulatory Oversight will provide in-depth analysis into regulatory actions by various state and federal authorities, including state attorneys general and other state administrative agencies, the Consumer Financial Protection Bureau (CFPB) and the Federal Trade Commission (FTC). Contributors to the blog will include attorneys with multiple specialties, including regulatory enforcement, litigation, and compliance.
Troutman Pepper Locke Spotlight
Troutman Pepper Locke Expands Government Contracts Practice with Partner Michael Barnicle
CHICAGO – Michael Barnicle has joined Troutman Pepper Locke as a partner and will lead the firm’s Government Contracts practice. His extensive experience and unique background in government contracting, national security, international trade, and cybersecurity matters will significantly expand the services the firm can provide to its government contractors.
State AGs Fill the AI Regulatory Void
By Clayton Friedman, Ashley L. Taylor, Jr., Gene Fishel, and Warren F. “Jay” Myers
Ashley Taylor, Clayton Friedman, Gene Fishel, and Jay Myers of Troutman Pepper Locke LLP discuss actions by state attorneys general under existing and AI-specific laws to address misuse and legal violations of AI.
Troutman Pepper Locke Tobacco + Nicotine Team to Attend the Next Generation Nicotine Delivery Conference
By Troutman Pepper Locke Tobacco Practice, Bryan Haynes, Agustin Rodriguez, and Michael Jordan
Bryan Haynes, Agustin Rodriguez and Michael Jordan of the Troutman Pepper Locke Tobacco + Nicotine team will attend the Next Generation Nicotine Delivery Conference in Miami, Florida next week.
Podcast Updates
State AGs Unite: New Privacy Task Force Signals Shift in Regulatory Power Dynamics
By Kim Phan, Stephen C. Piepgrass, and Chris Willis
In this crossover episode of The Consumer Finance Podcast and Regulatory Oversight, Chris Willis, Kim Phan, and Stephen Piepgrass provide insights on a new joint privacy task force among several state AGs, known as the Consortium of Privacy Regulators. The consortium recently outlined goals to share state resources and align enforcement priorities regarding consumer harm and privacy rights. In response to an anticipated shift of regulatory scrutiny from federal agencies to state leaders, this episode focuses on specific steps financial services companies should consider when dealing with consumer privacy, data, complaints, and inquiries to ensure compliance and mitigate potential investigations and enforcement actions.
From Cell Phones to Tractors: The Right to Repair Movement Drives On
By Stephen C. Piepgrass, Bradley Weber, and Christy Matelis
In this episode of Regulatory Oversight, Stephen Piepgrass is joined by colleagues Brad Weber and Christy Matelis from the firm’s Antitrust Practice Group to explore the evolving landscape of right-to-repair laws across the United States.
AI Legislation: The Statewide Spotlight
By Gene Fishel, Kim Phan, Stephen C. Piepgrass, and Chris Willis
Join us for a special crossover episode of The Consumer Finance Podcast and Regulatory Oversight, where Chris Willis, Kim Phan, and Gene Fishel delve into the evolving world of state AI legislation. As AI becomes a pivotal tool in the financial services industry, understanding the implications of new laws is crucial. This episode focuses on Colorado’s comprehensive AI law and its potential influence on other states, exploring key issues such as algorithmic discrimination, privacy, and cybersecurity. Gain insights into best practices for compliance and learn how state attorneys general are stepping up enforcement in the absence of federal action. Don’t miss this informative discussion bridging consumer finance and regulatory oversight.
Health Care and Life Sciences Updates
Connecticut AG Pursuing Companies for Allegedly Selling Unlawful Weight Loss Drugs
By Troutman Pepper Locke State Attorneys General Team and Jessica Birdsong
Connecticut Attorney General (AG) William Tong has taken legal action against two online distributors, Triggered Brand and Made In China, for allegedly selling research-grade GLP-1 weight loss drugs directly to Connecticut consumers without prescriptions or medical oversight. These drugs, marketed as research compounds, lack Food and Drug Administration (FDA) approval for human use. The lawsuit against Triggered Brand alleges violations of the Connecticut Unfair Trade Practices Act (CUTPA) and seeks civil penalties. Additionally, Tong has issued a civil investigative demand to Made In China to gather information regarding its marketing and sales practices.
Arizona AG Secures More Than $30M in Restitution After Obtaining Criminal Conviction in Health Care Fraud Scheme
By Troutman Pepper Locke State Attorneys General Team and Troy Homesley
On May 8, the Superior Court of Arizona in Maricopa County ordered a health care company to pay more than $30 million in restitution to the Arizona Health Care Cost Containment System (AHCCCS) due to the company’s alleged fraudulent billing practices. The underlying criminal convictions and the resulting restitution order reflect a broader trend among state attorneys general (AG), who are taking a more active role in prosecuting and pursuing various forms of health care fraud.
Connecticut Dentists Bite Off More Than They Can Chew; Settle False Claims Allegations for Nearly $500,000
By Troutman Pepper Locke State Attorneys General Team and Nick Gouverneur
On May 9, Connecticut Attorney General (AG) William Tong, in collaboration with the U.S. Attorney’s Office for the District of Connecticut, announced a $495,721 false claims settlement with Advanced Dental Center PC (Advanced Dental) and its owners, Tal Yossefi and Elad Yossefi. The settlement resolves allegations that the business violated both state and federal False Claims Act (FCA) statutes by receiving so-called “recruiting fees” for each Connecticut Medicaid patient referred to the business. No liability was admitted as part of the settlement.
Illinois and Minnesota AGs Join FTC’s Lawsuit Against Private Equity Firm
By Troutman Pepper Locke State Attorneys General Team and Jessica Birdsong
Illinois Attorney General (AG) Kwame Raoul and Minnesota AG Keith Ellison have joined the Federal Trade Commission (FTC) in a lawsuit to block the acquisition of Surmodics Inc. by GTCR BC Holdings LLC, two major manufacturers of critical medical device coatings. The regulators allege that the merger is anticompetitive, violating Section 7 of the Clayton Act and Section 5 of the FTC Act.
Other State AG Enforcement Updates
Legal Filing Services Provider Agrees to Pay $95,000 in Refunds to Resolve Colorado AG’s Allegations Regarding Deceptive Solicitations
By Troutman Pepper Locke State Attorneys General Team, Lane Page, and Namrata Kang
Compliance Services Colorado, Inc. (CSC) and Colorado Compliance Services, LLC (CCS) (collectively, the parties) recently entered into an Assurance of Discontinuance (AOD) with Colorado Attorney General (AG) Phil Weiser to resolve allegations that, beginning in August 2023, CSC sent deceptive solicitations to businesses in violation of the Colorado Consumer Protection Act.
New Jersey AG Platkin Reaches $450M PFAS Settlement With 3M
By Troutman Pepper Locke State Attorneys General Team and Ayana Brown
On May 13, New Jersey Attorney General (AG) Matthew Platkin announced a proposed $450 million settlement agreement with 3M regarding allegations that, among other issues, contamination of perfluoroalkyl and polyfluoroalkyl substances (PFAS) emanated from a site now owned by 3M. The settlement resolves these claims and New Jersey’s broader claims that the state and its agencies have or may have in the future regarding PFAS. The settlement agreement remains subject to court approval.
Price Transparency: Massachusetts Adopts New Consumer Protection Rules
By Troutman Pepper Locke State Attorneys General Team and Warren F. “Jay” Myers
The Massachusetts attorney general’s (AG) office has finalized new consumer protection regulations aimed at eliminating hidden “junk fees” and improving price transparency. Set to take effect on September 2, the regulations apply across a broad range of industries and are intended to curb alleged practices that obscure the actual cost of goods and services.
Illinois AG Raoul Reaches $12M Settlement With Alternative Energy Company
By Troutman Pepper Locke State Attorneys General Team and Kyara Rivera Rivera
On April 16, Illinois Attorney General Kwame Raoul announced a $12 million settlement through a consent decree with Direct Energy Services LLC (Direct Energy). Direct Energy is an alternative retail electric supplier (ARES) and an alternative retail gas supplier (ARGS). Companies like Direct Energy are certified by the Illinois Commerce Commission to sell electricity and gas to residential consumers. This settlement arises from Raoul’s allegations that Direct Energy misled consumers, causing them to pay substantially more for energy than they would have if they had remained with their default public utility company. Specifically, Raoul alleged that Direct Energy falsely promised lower rates, while actually charging energy rates more than 230% higher than the public utility.
Government Contracts
EO 14265: Navigating Defense Procurement Reforms
By Hilary Cairnie and Bonnie Gill
In keeping with President Donald Trump’s affinity for issuing executive orders (EO) — 139 in total, Nos. 14147–14285, between Jan. 20, 2025, and April 24, 2025 — he recently issued EO 14265, “Modernizing Defense Acquisitions and Spurring Innovation in the Defense Industrial Base.” In a nutshell, the Department of Defense (DoD) is directed to take aggressive steps to deregulate the procurement process and to exploit existing reform initiatives to achieve a more efficient and nimble procurement process. The order focuses on four major deregulatory priorities, the collective effect of which will, in theory, constitute a “comprehensive overhaul” of the current defense acquisition system.
Tobacco and Nicotine Updates
FDA and CBP Seize Nearly $34M Worth of Illegal E-Cigarettes in Joint Operation
By Bryan Haynes and Nick Ramos
In the first major enforcement action involving the importation of illegal tobacco products by the new administration, and on the heels of the appointment of the new acting director of the U.S. Food and Drug Administration (FDA) Center for Tobacco Products, FDA and U.S. Customs and Border Protection (CBP) seized illegal e-cigarettes valued at nearly $34 million. This operation underscores the ongoing efforts by federal agencies to combat the influx of unauthorized tobacco products into the U.S.
Federal Court Pumps the Brakes on Iowa Vape Directory
By Agustin Rodriguez and Nick Ramos
We previously wrote about this case last January, here and here, when Iowans for Alternatives to Smoking & Tobacco, Inc., Global Source Distribution, LLC, and others filed a complaint and motion for a preliminary injunction in federal district court against the Iowa Department of Revenue (the Department), challenging Iowa House File 2677 (HF 2677), a law imposing certification and directory requirements on vapor products sold in Iowa. On May 2, the court granted plaintiffs’ motion for preliminary injunction and enjoined the Department from implementing and enforcing HF 2677’s vapor product directory provisions. The court held that the Department could, however, continue to enforce the provisions of HF 2677 requiring nonresident vapor product manufacturers not registered to do business in the state as a foreign corporation or business entity to appoint and continually engage an agent for service of process. The parties have a status conference before the court scheduled for May 29.
Cannabis Regulatory Updates
A Path Forward for Colo. Pot Products After Failed Safety Test
By Jean Smith-Gonnell and Cole White
In the rapidly evolving landscape of Colorado’s cannabis industry, maintaining compliance with state regulation is not just a legal obligation but a critical component of business strategy. As cannabis products undergo rigorous testing, the potential of product contamination looms large, posing significant challenges for licensees.
Can Cryptocurrencies Solve Cannabis Business Banking Challenges?
By Jean Smith-Gonnell
Jean Smith-Gonnell, a leader of Troutman Pepper Locke’s Cannabis Industry practice, was quoted in the May 21, 2025 MJBizDaily article, “Can Cryptocurrencies Solve Cannabis Business Banking Challenges?”
Stephanie Kozol, Senior Government Relations Manager – State Attorneys General, also contributed to this newsletter.
Our Cannabis Practice provides advice on issues related to applicable federal and state law. Marijuana remains an illegal controlled substance under federal law.
On May 22, 2025, the House of Representatives passed H.R. 1, the budget reconciliation bill known as the One Big Beautiful Bill Act (the Tax Bill). The Tax Bill proposes amendments to the Internal Revenue Code (the Code) that could have significant consequences for both individuals and businesses. This alert summarizes certain key tax provisions of the Tax Bill for the investment funds industry and sponsors.
The Tax Bill has now moved to the Senate for consideration, where further modifications to the tax provisions discussed below may be made. We will continue to provide updates as the bill advances through the legislative process in Congress.
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No Carried Interest Provision. Even though in the months prior to the passage of the Tax Bill, there was suggestion that the bill may address the taxation of carried interests, the bill does not contain any provision relating to the taxation of carried interests.
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Troutman Take: This is good news for U.S. fund sponsors that benefit from the favorable tax treatment of income received pursuant to a carried interest. It remains to be seen whether the Senate would introduce changes relating to carried interests.
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Section 199A Would Be Expanded
Current law: Section 199A of the Code was enacted by the Tax Cuts and Jobs Act of 2017 (TCJA) to provide a tax rate reduction to non-corporate owners of pass-through entities, thereby serving as somewhat of a parallel reduction to the corporate tax rate enacted by the TCJA. The Section 199A 20% deduction applies through 2025, and is generally based on the non-corporate taxpayer’s allocable share of “qualified business income.” The non-corporate owner may deduct 20% of his or her (i) qualified trade or business income from pass-through entities plus (ii) the aggregate amount of qualified REIT dividends (generally any REIT dividend that is not a capital gain dividend or qualified dividend income, and subject to certain holding periods). The 20% deduction results in a federal effective tax rate of as low as 29.6%. This has been a significant benefit to certain investment funds, particularly those that own interests in REITs.
Tax Bill: The deduction would be increased to 23% and made permanent. Thus, the effective federal rate on income that is currently subject to a 37% rate could be reduced to an effective rate as low as 28.49%.
Section 199A’s application would be expanded to the portion of dividends representing net interest income paid by a “business development company” (BDC) taxable as a regulated investment company (RIC).
Qualified REIT dividends would continue to have the benefit of Section 199A deductions.
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Troutman Take: The Tax Bill would extend the Section 199A tax advantage that is currently provided to investors in REITs to investors in BDCs as well — and make such tax advantage permanent. Given that a BDC’s assets often consist of mainly debt instruments, a substantial portion of its distributions may be eligible for the deduction. The changes for BDCs may increase the attractiveness of BDCs as vehicles for credit funds. This change would give fund managers greater structuring alternatives to consider by creating greater parity between BDC and REIT structures in cases where the underlying asset portfolio could qualify for either, such as a portfolio of mortgage-backed securities.
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163(j) Limitation on Interest Deductions Would Be Temporarily Relaxed
Current law: Section 163(j), enacted by the TCJA, generally limits the deduction for business interest expense to 30% of a taxpayer’s “adjusted taxable income.” For tax years before 2022, “adjusted taxable income” was calculated similar to earnings before interest, taxes, depreciation, and amortization (EBITDA), but for tax years starting in 2022, is calculated similar to earnings before interest and taxes (EBIT).
Tax Bill: The definition of “adjusted taxable income” would once against be based on EBITDA (which is more favorable for taxpayers than EBIT under current law) for tax years 2025 to 2028.
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Troutman Take: Leveraged blockers would potentially have greater ability to deduct interest expense to reduce their taxable income.
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Increased Taxes, Including Withholding Obligations by Funds, on Certain U.S. Sourced Income Allocated to Foreign Taxpayers from Certain Countries
Current law: Foreign taxpayers with income that is effectively connected to a U.S. trade or business (ECI) generally are subject to regular U.S. tax rates on such income (currently 21% in the case of corporations and a maximum of 37% in the case of individuals). Foreign taxpayers with certain passive income that is not effectively connected to a U.S. trade or business (fixed, determinable, annual, or periodical income” or FDAP) are subject to tax at a flat rate of 30%, which rate is often reduced by a treaty between the U.S. and the relevant foreign country. FDAP income tax is collected by withholding. Interest income that qualifies as “portfolio interest” (generally, non-contingent interest received by certain unrelated investors not engaged in a lending business) is not subject to such withholding. Non-trade or business capital gains of foreign taxpayers are generally not subject to U.S. income tax. A foreign taxpayer’s gain or loss from the disposition of a U.S. real property interest is treated as effectively connected to a U.S. trade or business, and the payor of such income is generally required to withhold tax from the payment.
Foreign corporations that engage in a U.S. trade or business through a branch rather than a subsidiary are subject to an additional branch profits tax on their ECI.
Under Section 892, foreign governments are exempt from U.S. tax on certain of their investment income.
Tax Bill. New Section 899 would impose a retaliatory tax on persons that are residents of, or otherwise have sufficient nexus with, foreign countries that, in the view of the House of Representatives, unfairly target and impose discriminatory taxes on U.S. taxpayers doing business abroad. Increased tax rates would apply to certain types of income of persons that are residents of or otherwise have sufficient nexus with “discriminatory foreign countries” that impose “unfair foreign taxes.” Unfair foreign taxes would include (i) taxes that may be imposed under the undertaxed profits rules (UTPRs) of Pillar Two, (ii) digital services taxes (DSTs), (iii) diverted profits taxes (DPTs), and (iv) any tax, to the extent provided by the Secretary, that is an extraterritorial tax, discriminatory tax, or any other taxes enacted with public or stated purpose that it will be economically borne disproportionately by U.S. persons.[1]
An increased rate of 5% would apply for each year of the unfair tax, up to a 20% maximum increase. The increased taxes would be incremental additional taxes that would apply on top of tax rates that would otherwise apply. For example, if dividends would otherwise be subject to a 30% withholding tax, then Section 899, as proposed, could increase the rate to as high as 50%. If a tax treaty reduces the rate on dividends to 10%, then Section 899, as proposed, could increase the rate to as high as 30%.
The increased rates would apply to: (1) taxes on dividends, interest, royalties, rent, or other FDAP income (currently subject to 30% withholding, unless reduced by treaty), (2) income that is effectively connected with a U.S. trade or business (ECI) (but for individuals, ECI is limited to gains on the disposition of U.S. real property interests) and (3) FIRPTA withholding (currently 15%) on U.S. real property dispositions, (4) the branch profits tax, and (5) investment income of non-U.S. private foundations.
The Tax Bill would also modify the application of the base erosion and anti-abuse tax, or BEAT to corporations that are primarily owned by tax residents of discriminatory foreign countries.
In addition, the Tax Bill provides that the exemption from tax under Section 892 that applies to certain income of foreign governments (including their sovereign wealth funds) would no longer apply to foreign governments of discriminatory foreign countries.
Troutman Take:
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Based on a footnote in the Committee Report, it is expected that portfolio interest would continue to be exempt from withholding, as would liquidating distributions by corporations, and non-liquidating distributions by corporations with no current or accumulated E&P. As a result, U.S. investment funds may place an even greater focus on the use of leveraged foreign blockers in tax planning, as well as planning to qualify for other exemptions from withholding.
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Increased focus may develop on creating offshore investment structures that seek to avoid foreign investors from being considered to have nexus with discriminatory foreign country.
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Given that Section 899 increases the tax on ECI of foreign corporations (but only the ECI from the sale of U.S. real property interests by individuals) and the fact that the Section 899 tax increase would apply to the branch profits tax, there may be decreased use of foreign blockers that are engaged in a U.S. trade or business.
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U.S. investment funds that allocate ECI to foreign investors should start to consider the potential for increased taxes on their foreign investors, and tax planning strategies to minimize such increased taxes.
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Foreign governments that currently do not have to file income tax returns with respect to dividends received from, or gain on the sale of a U.S. real property holding company because it is not a “controlled commercial entity” should start to consider they may have return filing obligations.
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Dividend distributions and capital gain dividends on the sale of U.S. real property by REITs to foreign residents of discriminatory foreign countries would become subject to increased withholding, thus increasing the compliance and withholding burden on REITs.
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It is possible that one or more countries that have an existing “unfair foreign tax” may terminate such unfair foreign tax and stop being a “discriminatory foreign country,” thereby preventing the increased tax rate from apply to the U.S. income of their residents. U.S. investment funds with investors from discriminatory foreign countries should closely monitor how such countries deal with their unfair foreign taxes.
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There are many unanswered questions that funds may have to face relating to the practical application of Section 899, including the means to identify the persons with respect to which a fund must withhold.
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For the implications of Section 899 to lending in the U.S. by foreign lenders, please see our advisory: The Big Beautiful Bill and the Effects on Bank Lending Into the US.
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Increased Excise Taxes on Private University Endowments and Private Foundations
Current Law: A 1.40% excise tax is imposed on the net investment income of certain private colleges and universities.
Tax Bill: The existing 1.40% tax would be amended with a new tiered tax rate structure under which the tax rate applicable to a private college or university would be based on the institution’s “student-adjusted endowment.” The highest rate of 21% would apply to institutions with adjusted student endowments of greater than $2 million.
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Troutman Take: Application of a rate of 21% (mirroring the corporate tax rate) would have the same result as the institution’s income being considered UBTI.
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Increased Tax on Net Investment Income of Certain Private Foundations
Current Law: Private foundations that are exempt from tax are subject to a 1.39% excise tax on their net investment income.
Tax Bill: The tax bill would amend the existing tax with a new tiered system that maintains the current excise tax rate for private foundations with less than $50 million in total assets, but applies higher excise tax rates on private foundations reporting $50 million or more in total assets, with the highest rate of 10% applying to private foundations with $5 billion or more in assets. “Assets” that are taken into account are gross assets.
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Miscellaneous Itemized Deduction Limits
Current law: By way of background, taxpayers may take either a standard deduction or itemize their deductions to compute their federal taxable income. All itemized deductions other than those specifically listed in Section 67(b) of the Code are “miscellaneous itemized deductions” Miscellaneous itemized deductions include, among many other expenses, investment expenses, legal fees and management fees. Before 2018, miscellaneous itemized deductions were allowed, but only to the extent they exceeded two percent of a taxpayer’s adjusted gross income. The TCJA temporarily eliminated miscellaneous itemized deductions for tax years through 2025.
Tax Bill: The Tax Bill makes permanent the repeal of miscellaneous itemized deductions.
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Troutman Take: Investors in investor funds would permanently be disallowed from deducting management fees and other expenses. Tax planning to achieve an economic result similar to a deduction may be considered.
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For an initial analysis of key provision for the real industry, please see The One Big Beautiful Bill: Initial Analysis of Key Provisions for the Real Estate Industry.
[1] Currently, countries that have one or more of a UTPR, DST, or DPR include: Argentina, Australia, Austria, Belgium, Bulgaria, Canada, Colombia, Croatia, Cyprus, Czech Republic, Denmark, Finland, France, Germany, Greece, Hungary, India, Indonesia, Ireland, Israel, Italy, Kenya, Luxembourg, Nepal, Netherlands, New Zealand, Norway, Poland, Portugal, Romania, Rwanda, Slovenia, South Korea, Spain, Sweden, Thailand, Turkey, and UK.
This article was originally published on June 4, 2025 on Law360 and is republished here with permission.
This article is part of a monthly column that connects popular culture to hot-button labor and employment law issues. In this installment, we discuss how the performance review process in the hit television series “Severance” offers lessons about how to conduct employee evaluations and demonstrates a few mistakes to avoid.
Imagine walking into your performance review and being handed a lunch menu, just in case the meeting runs over four hours. That’s business as usual at Lumon Industries, the fictional biotechnology company at the heart of the Apple TV + series “Severance.”
While most of us don’t clock in with our at-work memories surgically divided from the memories of our personal lives, the show’s eerie depiction of performance reviews can hit close to home.
Effective performance reviews are crucial for professional development, productivity and risk management. But should performance evaluations in the real world look anything like the “Severance”-style review process, complete with “atonements and approbations”? Of course not.
Nevertheless, the show instructs us on how following best practices when conducting performance reviews can mitigate the risk of adverse litigation outcomes.
Split Brains and Shared Perspectives
“Severance” is a science fiction and psychological thriller created by Dan Erickson and produced by Ben Stiller.
The show follows an employee named Mark S., who works for Lumon. Mark’s work is so classified that he has agreed to undergo a medical procedure literally severing his brain, meaning that he has no memory of his personal life when he is at work, and no memory of his workday when he is not at work.
Mark’s “innie,” or at-work persona, is supervised by Seth Milchick, Lumon’s perpetually smiling middle manager. In the scene at issue, Mr. Milchick is sitting for his monthly performance evaluation with Mr. Drummond, a Lumon executive.
The review hilariously focuses on Mr. Milchick’s propensity to use “too many big words,” that he attaches paper clips from back to front and his failed “kindness reforms,” culminating in a “calamitous ORTBO,” or an outdoor retreat and team building occurrence.
The performance review prizes form over function and instills fear and resentment, rather than providing instruction and motivation. It has the look and feel of a confession.
In real life, effective reviews should focus on the essential functions of the job and the employee’s performance of those functions over the entire review period. The review should also set expectations and empower employees to meet them.
What is the goal of a performance review? It is threefold: accountability, growth and trajectory.
To ensure accountability, ask whether the employee met their stated goals, such as reaching certain sales targets, successful project outcomes or administrative responsibilities. To foster an employee’s growth, reflect on which strengths they can build on and where they need support. Lastly, in relation to trajectory, consider what is next for the employee in the organization.
Performance reviews should not be once-a-year events where employees are not regularly given feedback in real time, nor should they be overly frequent.
In Lumon’s case, Mr. Milchick was expected to submit to performance reviews monthly, which is a bit much.
Further, they should not be two- to six-hour events, even if lunch is served. Instead, try a two-touchpoint structure: mid-year and end-of-year reviews, paired with regular informal check-ins, and keep them under an hour.
To avoid recency bias, where only the latest performance matters, encourage year-round goal tracking, self-evaluations and peer feedback. The process should be designed to capture trends, not one-off blips.
Not Just What You Did, But How You Did It
Splitting evaluations into two categories — what the employee accomplished and how they did it — can also be beneficial. An employee may be hitting all their goals, but if they are breaking glass and bulldozing colleagues to get there, that is a problem.
In other words, conduct matters, as do soft skills. Creating a culture where feedback includes both successes and areas for growth helps destigmatize development.
Even Mr. Drummond managed to include a positive attribution, stating that “despite his many and profound failings … a man of such vigor as Mr. Milchick makes for an excellent ballast on which the employees can anchor their days.” But that comment is too vague for Mr. Milchick to work off of.
Be clear as to what is going well and the areas where improvement is needed, with specific examples of each.
The Importance of Documentation
In “Severance,” Mr. Milchick is given a glossy, multipage confidential employee assessment file detailing his many failings. While that document certainly went overboard, performance reviews should be supported by clear and contemporaneous documentation.
From an employment perspective, relying solely on at-will employment status is insufficient, particularly when the employee falls within a protected category or when there is potential for a reverse discrimination claim. In such cases, the employer must be able to demonstrate a legitimate, nondiscriminatory business reason for the termination.
If the employee’s performance is the stated reason, it must be well-documented over time, not just in the period immediately preceding the termination, and it must be consistent. This type of documentation is essential to ensure legal compliance and to defend against potential claims.
Documentation is especially important if tensions rise during the evaluation meeting. While it is not advised to allow an evaluation to get heated, if the employee becomes argumentative, it is especially important to follow up the discussion with a summary email. This creates documentation of the discussion, which is not only valuable for legal reasons but also to ensure clarity.
A written summary, ideally in clear bullet points, gives an employee the chance to review expectations when they are calmer, reducing the likelihood of misunderstandings, regardless of whether they agree with the feedback.
Complaints From Co-Workers
In “Severance,” part of Mr. Milchick’s negative review appears to be influenced by an anonymous complaint, likely from his younger colleague, Miss Huang, who may have her own agenda. This scenario highlights a real-world challenge: how to handle peer feedback, especially when it comes in the form of a complaint.
While anonymity can help employees feel safe about coming forward, it should not be a substitute for due diligence. Managers need to look for patterns and themes, rather than act on one-off accusations. If multiple people share similar concerns, that consistency carries more weight.
Further, when negative feedback is delivered to an employee, it must be supported by clear and concrete examples. This helps ensure fairness and avoids turning performance reviews into a battleground for office politics.
Takeaways for Employers
So, what can human resources leaders and employment counsel learn from “Severance”?
First, clarity is critical. It is important to set measurable and realistic goals at the outset, so that everyone is on the same page as to the expectations.
Second, check in often. Formal reviews are important, but ongoing feedback builds trust.
Third, be sure to focus on the essential issues. Mr. Milchick’s review should have been centered on his deficiencies in managing his team, not on his inability to properly use a paper clip.
Fourth, document everything. This is important not just for legal protection, but to help managers recall employees’ performance beyond the last month.
Finally, balance metrics with meaning. Hard numbers matter, but so does how someone shows up — with curiosity, respect and collaboration.
And maybe skip the atonement tally and the preordered lunch.
On June 2, the Department of Justice, Antitrust Division, agreed to its first settlement of a merger challenged under the new administration, less than one week after the Federal Trade Commission (FTC) entered into its first such settlement. The consent decree will require the divestiture of three businesses and will allow Keysight Technologies, Inc. to complete its proposed $1.5 billion acquisition of Spirent Communications plc.
In February, Assistant Attorney General (AAG) Abigail Slater previewed that the new administration might “take a different approach than the prior Antitrust Division on settlements in merger cases where effective and robust structural remedies can be implemented without excessively burdening the Antitrust Division’s resources.” The Keysight/Spirent consent decree is consistent with that promised approach and a helpful development for companies interested in transactions involving largely complementary businesses.
The Merger
Keysight is a U.S. company, offering design, emulation, and testing solutions across a range of industries, including commercial communications; aerospace, defense, and government; and industrial electronics. Spirent is a UK company that offers automated test and assurance solutions for networks, cybersecurity, and satellite positioning. The parties are global providers of specialized equipment used to test various components of communications networks and measure and validate network performance.
Network equipment manufacturers, communications network operators, and cloud computing providers purchase and use this testing equipment to ensure their products and networks operate effectively and securely under normal conditions and withstand interruptions, cyberattacks, interference, and high user volume. Lab testing ensures that communications networks can support updated devices, comply with revised industry standards, and maintain data security as the cybersecurity landscape changes.
According to publicly available information, the parties notified the UK’s Competition and Markets Authority, which raised no objections to the transaction.
Theories of Harm
According to the complaint, the combined companies would dominate the U.S. markets for high-speed ethernet testing, network security testing, and radio frequency (RF) channel emulators. The parties combined account for 85% of the market for high-speed ethernet testing, greater than 60% of the market for network security testing, and more than 50% of the market for RF channel emulators. Allegedly, Keysight and Spirent are each other’s closest competitors in these markets and compete head-to-head to develop and sell the equipment.
Although cleared by the UK antitrust authority, the U.S. agency alleges that the proposed transaction would substantially lessen competition for three types of communications testing and measurement equipment: high-speed ethernet testing equipment, network security testing equipment, and RF channel emulators. The Antitrust Division contends that the reduced competition would likely result in higher prices, lower quality, and reduced innovation.
The Settlement
With only one exception, the prior administration did not accept divestiture or behavioral remedies in merger challenges and the agency was vocal about its view that divested assets are not likely to compete as robustly as the premerger firms. In 2023, however, under pressure from the court, the Division accepted its one and only merger settlement. That settlement also included a number of unusual requirements aimed at allowing the Division to monitor and police the effectiveness of the remedy.
The Keysight/Spirent consent decree will require the divestiture of Spirent’s high-speed ethernet testing business and network security testing business, and RF channel emulation business. According to AAG Slater, the settlement “secures enforceable commitments from the merging parties, provides transparency into the Antitrust Division’s efforts to resolve merger investigations, and gives the public an opportunity to comment as provided by statute.”
The willingness of the FTC and the Antitrust Division to consider structural or divestiture remedies is a meaningful shift in approach. The recent settlements do not signal that “anything goes,” but they do allow companies contemplating transactions of predominantly complementary businesses, the opportunity to achieve the benefits of such combinations. Companies will need to assess the extent of any overlaps, the number of meaningful competitors, the nature of the competition among all the competitors, and whether divestiture of one party’s overlapping business could be successful and substantially replace lost competition.
A Chapter 11 bankruptcy is often called “reorganization bankruptcy” and is typically used to preserve and maximize the going concern value of the debtor’s business. The life cycle of a Chapter 11 bankruptcy case can be conceptualized in five stages.
This article will discuss the first three stages, why it is important for stakeholders to understand these stages and how their rights and financial interests can be affected during the bankruptcy case. To access this article and read other insights from our Creditor’s Rights Toolkit, please click here.
On May 22, 2025, the House of Representatives passed H.R. 1, the budget reconciliation bill known as the One Big Beautiful Bill Act (the Tax Bill). The Tax Bill proposes amendments to the Internal Revenue Code (the Code) that could have significant consequences for both individuals and businesses. Below is a summary of the key changes under the Tax Bill that would impact the real estate industry and real estate funds.
The Tax Bill has now moved to the Senate for consideration, where further modifications to the tax provisions discussed below may be made. We will continue to provide updates as the bill advances through the legislative process in Congress.
I. Qualified Business Income Deduction (Code Section 199A)
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Current Law – Code Section 199A allows certain individuals, trusts, and estates to deduct 20% of their qualified business income from pass-through entities, as well as qualified REIT dividends (generally any REIT dividend that is not a capital gain dividend or qualified dividend income, subject to holding periods) and publicly traded partnership income. If a taxpayer’s income exceeds a certain threshold, the Code Section 199A deduction is subject to limitations based on W-2 wages and the unadjusted basis of qualified property, while income from specified service trades or businesses is generally disregarded. The Code Section 199A deduction is set to expire after 2025. The 20% deduction results in a federal effective tax rate of as low as 29.6%. This has been a significant benefit to certain real estate investment funds, particularly those that own interests in REITs.
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Tax Bill – The Tax Bill proposes to make the Code Section 199A deduction permanent and increase the deduction percentage from 20% to 23%, thereby resulting in a federal effective tax rate of as low as 28.49%. It also provides for more gradual mechanics for the phase-in of income threshold-based limitations. The Tax Bill expands Code Section 199A to allow a deduction for dividends from an “electing business development company” (i.e., a business development company under the Investment Company Act of 1940 that has elected to be treated as a regulated investment company under Code Section 851 (a RIC)).
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Troutman Take – The Tax Bill would offer permanent and uninterrupted tax reductions for investors holding real estate assets through pass-through and REIT fund structures. It also preserves the deduction for qualified REIT dividends while expanding the deduction to dividends from business developments companies that have elected to be taxed as RICs. This change would give fund managers and investors greater structuring flexibility by creating more parity between BDC and REIT structures in cases where the underlying asset portfolio could qualify for either, such as a portfolio of mortgage-backed securities.
II. Deduction for Qualified Production Property
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Current Law – Nonresidential real property is generally depreciated over a 39-year period.
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Tax Bill – The Tax Bill provides an elective deduction for 100% of the cost of “qualified production property” in the year such property is placed in service. Qualified production property generally includes nonresidential real property that is otherwise depreciable and meets the following criteria: (i) it is used by a taxpayer as an integral part of a “qualified production activity” (i.e., the manufacturing, production, or refining of any tangible personal property), (ii) it is placed in service in the United States, (iii) its original use commences with the taxpayer, (iv) construction begins between January 20, 2025, and December 31, 2028, and (v) it is placed in service by December 31, 2032. This deduction is also available to purchasers of qualified production property that begins construction within the specified dates where the property has not previously been used in a qualified production activity. Additionally, a taxpayer can avoid depreciation recapture if the qualified production property is held for at least 10 years.
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Troutman Take – The acceleration of cost recovery for industrial and manufacturing facilities marks a substantial shift from current law and is intended to encourage domestic manufacturing and production.
III. Bonus Depreciation
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Current Law – The Tax Cuts and Jobs Act increased the additional first-year depreciation deduction to 100% for certain qualified property placed in service by December 31, 2022, which rate is set to reduce by 20% per year thereafter, and fully phase out in 2027. For qualified property placed in service in 2025, the allowed first-year depreciation deduction is 40%.
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Tax Bill – The Tax Bill would eliminate the current phase-out and restore taxpayers’ ability to immediately expense 100% of the cost of certain qualified property placed in service between January 20, 2025, and December 31, 2029.
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Troutman Take – Extending bonus depreciation for certain real estate assets that are not otherwise eligible for expensing under the rules for “qualified production property” could provide a significant tax reduction for real estate developers.
IV. Increased Limitation for Expensing Certain Depreciable Assets
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Current Law – Code Section 179 allows taxpayers to elect to expense the cost of qualifying tangible personal property and certain qualified real property placed in service during the tax year, up to an annual inflation-adjusted dollar limit ($1.25 million for 2025), with such limit phasing out dollar-for-dollar as the total cost of qualifying property placed in service exceeds an inflation-adjusted threshold ($3.13 million for 2025). This deduction is further limited to the amount of taxable income from the active conduct of a trade or business.
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Tax Bill – The Tax Bill raises the maximum amount a taxpayer can expense under Section 179 to $2.5 million and increases the phaseout threshold to $4 million.
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Troutman Take – Increasing the limits on this deduction could lead to substantial tax benefits for real estate developers, potentially stimulating increased development activity in the sector.
V. Excess Business Losses Limitation Extended
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Current Law – The excess business loss limitation under Code Section 461(l) disallows noncorporate taxpayers from claiming “excess businesses losses” — aggregate deductions attributable to trades or businesses over the sum of aggregate gross income or gain from those trades or businesses, plus an annual threshold amount ($313,000 for single filers and $626,000 for joint filers in 2025, adjusted for inflation). Any disallowed excess business loss is treated as a net operating loss carryover to subsequent years, subject to any applicable limitations, and are not taken into account in determining the excess business loss in subsequent years. The excess business loss limitation is set to expire after 2028, meaning that, under current law, such losses would no longer be limited beyond that time.
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Tax Bill – The Tax Bill would make the excess loss limitation permanent. The Tax Bill also requires excess business losses after December 31, 2024 to be included in a taxpayer’s calculation of aggregate deductions attributable to a taxpayer’s trade or business in the following year.
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Troutman Take – The Tax Bill not only extends the excess business loss limitation beyond the anticipated 2028 sunset date but also significantly alters the timeline for investors to utilize losses related to real estate projects, potentially impacting investment decisions.
VI. New Round of Qualified Opportunity Zones
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Current Law – Qualified opportunity zones (QOZs) are designated low-income census tracts where investments may receive preferential tax treatment if made through a qualified opportunity fund (QOF) that invests at least 90% of its assets in qualified opportunity zone property. Taxpayers can defer eligible capital gains until December 31, 2026 by investing them in a QOF within 180 days of the gain’s recognition, with the potential for partial exclusion of the deferred gain if the investment is held for at least five (10% exclusion) or seven years (additional 5% exclusion) (the five and seven year holding periods has to be met prior to December 31, 2026, so this benefit has not been available for several years), and a full exclusion of post-investment appreciation if held for at least 10 years. QOZ designations are set to expire on December 31, 2028.
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Tax Bill – The Tax Bill introduces a new round of QOZ designations that would be in effect for investments made from 2027 through 2033 and provides that the first-round QOZ designations would expire on December 31, 2026 (rather than December 31, 2028). Gains invested on or after December 31, 2026, would generally be deferred until December 31, 2033, and the Tax Bill retains both (i) 10% exclusion for investments held for at least five years (before the December 31, 2033 date is reached) and (ii) the full exclusion of post-investment appreciation for investments held for at least 10 years, but removes the additional 5% exclusion for investments held for at least seven years. The QOZ program under the Tax Bill places a greater emphasis on rural areas, setting a minimum number of QOZs in each state that must be in rural areas, providing a 30% exclusion (in place of the 5-year 10% exclusion) for investments in QOFs heavily invested in rural areas, and reducing the substantial improvement threshold for existing property in rural QOZ. The Tax Bill proposes to broaden the reach of QOZ tax benefits by permitting ordinary income to be eligible for investment and deferral, capped at $10,000 per year. Both QOFs and ”qualified opportunity zone businesses” would be subject to enhanced reporting requirements under the Tax Bill.
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Troutman Take – The extension of the QOZ program is welcome news for real estate funds and investors seeking tax-efficient investment strategies. The extension of QOF investment deferral to include both ordinary income and capital gains broadens the range of potential investors in QOFs. However, the cap on ordinary income proposed by the Tax Bill may significantly diminish this advantage, as QOFs commonly require investments that exceed $10,000. The Tax Bill does not extend the deferral of gain for investments in a QOF before January 1, 2027. Consequently, any gains deferred under this existing QOZ program would be recognized as income on December 31, 2026. The early termination of existing QOZ designations eliminates a potential tax strategy that might have allowed a QOF operating in an existing QOZ (which under currently law would have been in effect until December 31, 2028) to issue deferral-eligible investments after December 31, 2026. Instead, QOFs operating in an existing QOZ could only issue qualifying investments post-December 31, 2026 if such QOZ receives a second-round designation pursuant to the Tax Bill. Moving forward, QOFs and “qualified opportunity zone businesses” should be aware of the enhanced reporting requirements under the Tax Bill plan for any resulting administrative costs.
VII. Low-Income Housing Credit
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Current Law – The low-income housing credit, under Code Section 42, provides a tax credit to owners of qualified low-income residential rental buildings, calculated as the applicable percentage of the building’s qualified basis over a 10-year credit period. Generally, to qualify for the credit, a project must have received a credit allocation from the state. Such allocations are limited by the “state housing credit ceiling,” which is based on a state’s population and other factors. This state housing credit ceiling was increased by 12.5% in 2018 through 2021. The applicable percentage is prescribed by Treasury such that the present value of the credits claimed over the credit period is equal to at least 70% of the buildings qualified basis, or 30% if the project is financed with certain tax-exempt bonds (referred to as 9% credits and 4% credits, respectively). Currently, if 50% of more of the aggregate basis of the building and land is financed with tax-exempt bonds, the 4% credit is allowable with respect to the entire eligible basis of the project, regardless of whether such project received a state allocation. Finally, areas designated as “difficult development areas” benefit from a 30% increase in the otherwise applicable eligible basis.
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Tax Bill – For 9% credits, the Tax Bill extends the 12.5% increase in the state housing credit ceiling for 2026 through 2029, which would increase the amount of available credits. For 4% credits, the Tax Bill lowers the bond financing threshold, for projects without a state allocation, from 50% to 25% if the bonds are issued between 2026 and 2029. Finally, the Tax Bill expands the definition of “difficult development areas” to include certain Indian areas and rural areas between 2026 and 2029.
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Troutman Take – By increasing the number of available credits, offering greater flexibility for projects financed with tax-exempt bonds, and providing enhanced credits in new areas, the Tax Bill is poised to stimulate investment in low-income housing projects, making such projects more appealing to developers.
VIII. Revisions to REIT Asset Test
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Current Law – Under Code Section 856, no more than 20% of the value of the assets of a REIT may consist of securities of one or more taxable REIT subsidiaries.
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Tax Bill – The Tax Bill increases the value of securities of taxable REIT subsidiaries that a REIT can own from 20% to 25%.
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Troutman Take – This change to the asset test would provide more flexibility to REITs with structures that include taxable REIT subsidiaries with significant value. In particular, the expansion would make it easier for REITs with foreign assets and operations (which are often housed in entities taxed as corporations for U.S. federal income tax purposes) to comply with the REIT rules.
IX. Increased Taxes, Including Withholding Obligations by Real Estate Funds, on Income Allocated to Foreign Investors From Certain Countries
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Current Law – Foreign taxpayers with income that is effectively connected to a U.S. trade or business (ECI) generally are subject to regular U.S. tax rates on such income (currently 21% for corporations and a maximum of 37% for individuals). Foreign taxpayers with certain passive income that is not effectively connected to a U.S. trade or business (“fixed, determinable, annual or periodical income” or FDAP) are subject to tax at a flat rate of 30%, which rate is often reduced by a treaty between the U.S. and the relevant foreign country. FDAP income tax is collected by withholding. Interest income that qualifies as “portfolio interest” (generally, non-contingent interest received by certain unrelated investors not engaged in a lending business) is not subject to such withholding. Non-trade or business capital gains of foreign taxpayers are generally not subject to U.S. income tax. A foreign taxpayer’s gain or loss from the disposition of a U.S. real property interest is treated as effectively connected to a U.S. trade or business, and the payor of such income is generally required to withhold tax from the payment.
Foreign corporations that engage in a U.S. trade or business through a branch rather than a subsidiary are subject to an additional branch profits tax on their ECI.
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Tax Bill – New Section 899 would impose a retaliatory tax on persons that are residents of or otherwise have sufficient nexus with foreign countries that, in the view of the House of Representatives, unfairly target and impose discriminatory taxes on U.S. taxpayers doing business abroad. Increased tax rates would apply to certain types of income of persons that are residents of or otherwise have sufficient nexus with “discriminatory foreign countries” that impose “unfair foreign taxes.” Unfair foreign taxes would include (i) taxes that may be imposed under the undertaxed profits rules (UTPRs) of Pillar Two, (ii) digital services taxes (DSTs), (iii) diverted profits taxes (DPTs), and (iv) any tax, to the extent provided by the Secretary, that is an extraterritorial tax, discriminatory tax, or any other taxes enacted with public or stated purpose that it will be economically borne disproportionately by U.S. persons.[1]
An increased rate of 5% would apply for each year of the unfair tax, up to a 20% maximum increase. The increased taxes would be incremental additional taxes that would apply on top of tax rates that would otherwise apply. For example, if dividends would otherwise be subject to a 30% withholding tax, then Section 899 could increase the rate to as high as 50%. If a tax treaty reduces the rate on dividends to 10%, then Section 899, as proposed, could increase the rate to as high as 30%.
The increased rates would apply to: (1) taxes on dividends, interest, royalties, rent, or other FDAP income (currently subject to 30% withholding, unless reduced by treaty), (2) income that is effectively connected with a U.S. trade or business (ECI) (but for individuals, ECI is limited to gains on the disposition of U.S. real property interests) and (3) FIRPTA withholding (currently 15%) on U.S. real property dispositions, (4) the branch profits tax, and (5) investment income of non-U.S. private foundations.
The Tax Bill would also modify the application of the base erosion and anti-abuse tax, or BEAT to corporations that are primarily owned by tax residents of discriminatory foreign countries.
In addition, the Tax Bill provides that the exemption from tax under Section 892 that applies to certain income of foreign governments (including their sovereign wealth funds) would no longer apply to foreign governments of discriminatory foreign countries.
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Troutman Take:
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Based on a footnote in the Committee Report, portfolio interest would continue to be exempt from withholding, as would liquidating distributions by corporations, or non-liquidating distributions by corporations with no current or accumulated E&P. As a result, U.S. real estate funds may place an even greater focus on the use of leveraged blockers in tax planning.
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Dividend distributions and capital gain dividends on the sale of U.S. real property by REITs to foreign residents of discriminatory foreign countries would become subject to increased withholding, thus increasing the compliance and withholding burden on REITs.
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U.S. investment funds that allocate ECI to foreign investors and REITs with foreign shareholders should start to consider the potential for increased taxes on their foreign investors, and tax planning strategies to minimize such increased taxes.
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Foreign governments (including sovereign wealth funds) that currently do not have to file income tax returns with respect to dividends received from, or gain on the sale of a U.S. real property holding company because it is not a “controlled commercial entity” will have return filing obligations. Dividend distributions and capital gain dividends on the sale of U.S. real property by REITs to foreign residents of discriminatory foreign countries would become subject to increased withholding, thus increasing the compliance and withholding burden on REITs.
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Foreign pension funds that are eligible for the exception form U.S. federal income tax on sales of U.S. real property interests that is available to certain “qualified foreign pension funds (QFPFs) and certain of their wholly owned subsidiaries may start to place a greater reliance on this and other exceptions to U.S. income taxation.
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It is possible that one or more countries that have an “unfair foreign tax” may terminate such unfair foreign tax and stop being a “discriminatory foreign country,” thereby preventing the increased tax rate from applying to the U.S. income of their residents. U.S. investment funds with investors from discriminatory foreign countries should closely monitor how such countries deal with their unfair taxes.
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Increased focus may develop on creating investment structures that allow foreign investors to not be considered as having nexus with discriminatory foreign country.
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For the implications of Section 899 to lending in the U.S. by foreign lenders, please see our advisory: “The Big Beautiful Bill and the Effects on Bank Lending Into the US.”
For an initial analysis of key provision for investment funds and sponsors, please see our advisory: “The One Big Beautiful Bill: Initial Analysis of Key Provisions for Investment Funds and Sponsors.”
[1] Currently, countries with one or more of a UTPR, DST or DPR include: Argentina, Australia, Austria, Belgium, Bulgaria, Canada, Colombia, Croatia, Cyprus, Czech Republic, Denmark, Finland, France, Germany, Greece, Hungary, India, Indonesia, Ireland, Israel, Italy, Kenya, Luxembourg, Nepal, Netherlands, New Zealand, Norway, Poland, Portugal, Romania, Rwanda, Slovenia, South Korea, Spain, Sweden, Thailand, Turkey, and UK.
Published in Law360 on June 3, 2025. © Copyright 2025, Portfolio Media, Inc., publisher of Law360. Reprinted here with permission.
On April 16, the Consumer Financial Protection Bureau released a memo to staff outlining its new supervision and enforcement priorities for 2025. These priorities appear to be intended to reverse some of the more prominent areas of emphasis of the bureau under its most recent previous leadership and are consistent with the general emphasis on deregulation that has been a feature of many initiatives of the new presidential administration.
This memo must also be read in conjunction with the CFPB’s most recent reduction in force, or RIF, notice sent to staff.
While the RIF is currently the subject of active litigation between the bureau and the union representing the employees in National Treasury Employees Union v. Vought in the U.S. Court of Appeals for the District of Columbia Circuit, it sends a very different message to the industries under the CFPB’s supervisory authority because the priorities memo would seem to require a level of staffing far in excess of the bureau’s most recent RIF effort.
This raises the question: What do the memo and the RIF signify for the financial services industry, and what are some practical takeaways for industry participants?
The New CFPB Supervision and Enforcement Priorities Memo
First, let’s examine the memo to staff outlining the new supervision and enforcement priorities. In the memo, CFPB Chief Legal Officer Mark Paoletta outlined the CFPB’s new supervision and enforcement priorities emphasizing the protection of consumers, particularly service members, their families and veterans.
The memo reflects the bureau’s intention to focus its resources on addressing tangible harms and “pressing threats” to consumers, shifting away from enforcement and supervision tasks that can be effectively managed by state authorities. Consequently, the memo states that “all prior enforcement and supervision priority documents are hereby rescinded.”
To mitigate the rising costs associated with supervisory exams, which contribute to increased business expenses and consumer prices, the memo reflects the bureau’s plan to reduce the number of supervisory exams by 50%.
This reduction will emphasize conciliation, correction and remediation of harms identified through consumer complaints. The memo notes that the bureau seeks to foster collaborative efforts with supervised entities to resolve issues, ensuring measurable benefits for consumers.
A significant shift in focus, as reflected in the memo, will return the bureau’s attention to depository institutions rather than nondepository entities. In 2012, one year after the CFPB’s inception, the bureau’s supervision was predominantly concentrated on banks and depository institutions, comprising 70% of its activities, per the memo.
However, this focus has since shifted, with over 60% of examinations now targeting nonbanks, according to the memo. The bureau aims to restore the 2012 proportions, concentrating on the largest banks and depository institutions.
The memo also reflects the bureau’s prioritization of addressing actual fraud against consumers, focusing on cases with identifiable victims and measurable damages.
Key areas of priority include mortgages, which receive the highest attention, as well as data furnishing violations under the Fair Credit Reporting Act, consumer contracts and debts under the Fair Debt Collection Practices Act, fraudulent overcharges and fees, and inadequate controls leading to consumer information loss.
Efforts to redress tangible harm, as outlined in the memo, will focus on returning money directly to consumers rather than imposing penalties to fill the bureau’s penalty fund. Special attention will be given to service members, their families and veterans, ensuring they receive necessary support and redress.
With respect to federalism, the memo reflects the bureau’s intention to deprioritize participation in multistate examinations unless required by statute, and to minimize duplicative enforcement where state regulators are already engaged.
Coordination with other federal agencies will be enhanced to eliminate duplicative supervision and synchronize exam timing with other federal regulators.
The memo indicates that the bureau will not pursue supervision under novel legal theories, focusing instead on areas clearly within its statutory authority. In terms of fair lending enforcement, the bureau will avoid what it calls “unconstitutional racial classification or discrimination,” including forgoing redlining cases and other fair lending supervision or enforcement cases based solely on statistical analysis, and will pursue only cases of proven intentional racial discrimination with identified victims.
Finally, certain other areas will be deprioritized, as reflected in the memo, including loans for “justice involved” individuals, medical debt, peer-to-peer platforms and lending, student loans, remittances, consumer data, and digital payments.
The memo states that the bureau’s primary consumer enforcement tools will remain its disclosure statutes, avoiding attempts to create price controls.
What This Means for the Financial Services Industry
At first glance, the CFPB’s new priorities reflect a significant shift in focus, emphasizing collaboration with supervised entities, reducing regulatory burdens and targeting tangible consumer harms.
While the prior administration focused on novel legal theories and financial products, as well as the nonbanks that issued them, the new administration is calling for a deeper focus on traditional banks and financial institutions.
Additionally, the prior administration focused on working with state banking regulators and state attorneys general to amplify the CFPB’s enforcement actions; this administration is explicitly noting a different approach to working with other federal regulators and the states.
Practically speaking, there is much for institutions to take away from these changes. First, with an absolute reduction in the number of examinations, a refocus on banks rather than nonbanks and increased federal examination coordination, banks can expect a potentially significant reduction in examinations, and nonbanks even more so.
Second, while institutions directly harming consumers likely won’t see any change in focus, other institutions can likely breathe a sigh of relief that more intangible consumer harms — such as long hold or wait times for customers with their loan servicers or the potential for harm because of alleged unfair, deceptive or abusive acts or practices, known as UDAAP — will not be a CFPB focus.
Third, the industry can expect a tangible shift away from UDAAP enforcement filling gaps between specific and defined statutory prohibitions, particularly regarding the “unfair” and “abusive” prongs.
Finally, with regard to fair lending, we will see a shift away from investigations and enforcement of cases where there is no identified intent to discriminate, only a “disparate impact” on protected class consumers.
These practical impacts must also be considered within the broader regulatory context. While this memo reflects the CFPB’s supervision and enforcement priorities, it does not mean the CFPB is the only enforcer on the beat.
Although the CFPB is taking a different approach to regulation than the prior administration, many states are unlikely to share this changed view. We have already seen several states, notably California and New York, propose legislation to expand their authority further into UDAAP and privacy issues.
If nature abhors a vacuum, regulation does too, and state banking regulators and state attorneys general appear more than willing to step in to fill any perceived regulatory void left by the CFPB’s changes in focus.
The CFPB’s Reduction in Force
Just one day after issuing the supervision and enforcement priorities memo, the CFPB announced a wide-scale reduction in force, affecting 1,483 of its 1,690 employees, representing a reduction of nearly 90%. The cuts would reduce the Supervision Division from 437 examiners and administrative staff to a total of 50.
Similarly, the Enforcement Division would be reduced from 198 attorneys and staff to a total of 50.
As noted above, the CFPB employees’ union filed suit against the bureau in National Treasury Employees Union v. Vought, alleging several claims, including failures to follow required RIF protocols and illegally rendering the bureau unable to perform its statutorily mandated duties.
Following several contentious court hearings, the RIF was ultimately stayed pending a hearing on appeal, which took place on May 16. A final decision in that appeal has not yet been rendered.
While the supervision and enforcement memo outlined clear priorities for this administration, the subsequent RIF has rendered many of those priorities uncertain.
For instance, it is unclear how the CFPB could achieve its stated goal of a 50% reduction in examinations with a staff reduced by nearly 90%.
Additionally, since the bureau is statutorily mandated to examine nonbanks (as opposed to large banks, which they may examine), it is difficult to envision how their priority goals of focusing examinations on banks, rather than nonbanks, could be met.
It is possible that the CFPB plans to engage in some level of new hiring after this RIF, if it occurs, so fulfilling the bureau’s priorities is not impossible, but it seems very challenging.
Conclusion
It is difficult to predict exactly what the future holds for the CFPB today. If the RIF ultimately proceeds, the financial services industry can reasonably expect significantly less activity from the CFPB, regardless of its stated priorities.
This scenario presents both challenges and opportunities for the industry. Fewer examinations and less enforcement would be welcomed by many in the industry.
However, without changes to the underlying federal consumer financial protection laws and regulations, the threat of state enforcement or private litigation remains significant.
With such a substantial reduction in staff, the industry should also expect limited CFPB capacity to change many of the rules the industry found problematic or to support industry product innovation efforts, among other issues.
The functional disappearance of the CFPB is indeed a double-edged sword. If, however, the RIF does not proceed as planned, or the CFPB hires a substantially new staff, the supervision and enforcement memo provides a clear window into the CFPB’s priorities, at least until there is a new, fully confirmed director. As with everything else, we take it day by day as new facts emerge.
Read more at: https://www.law360.com/articles/2343514/cfpb-industry-impact-uncertain-amid-priority-shift-staff-cuts?copied=1
Will Gaus, chief knowledge management and innovation officer of Troutman Pepper Locke, and Jason Lichter, principal at Troutman eMerge, were quoted in the June 3, 2025 Legaltech News article, “Agentic AI 101: Decoding the Latest AI Buzzword for Legal Professionals.”
“The most succinct definition I’ve seen for agentic AI is an artificial intelligence system that can accomplish a specific goal with limited supervision,” said Jason Lichter, principal at Troutman Pepper Locke’s e-discovery subsidiary Troutman eMerge.
AI agents “can make decisions about what to do next, use various tools that we give them together, things like information, and then iterate on its work until it achieves its desired outcome,” added Will Gaus, Troutman Pepper Locke’s chief knowledge and information officer.
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“If you’re building an effective agentic AI system or solution, the paralegals and attorneys should have no idea what’s happening behind the scenes,” Gaus said. “The best, the most innovative products seem almost too simple and too easy to use.”
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“I think that we have to be mindful, especially given the token costs and other charges and the economics of using these models and multi-agent orchestration, that we don’t have to boil the ocean of agents and orchestration in every instance,” Lichter said.
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“You can ask generative AI, any model, the same question 10 times, and you’re going to get potentially 10 different answers that could potentially be all correct,” Gaus said. “When you extend the model to things like multiple agents with multiple sets of tools and access to all sorts of different types of data sources, it’s tougher to declare ‘yes, this is an effective tool.'”
Still, Lichter noted that the agentic AI also offered the potential for individual users to create workflows adapted to their own preferences and working styles.
“There is the potential for enterprise scale systems and deployments you need to put in all of that upfront legwork and have all the requisite experts involved [for], but for kind of smaller scale agentic AI solutions, there is that DIY element that in certain circumstances may be suitable or may be appropriate.”
On May 31, 2025, the Office of the United States Trade Representative (USTR) issued a Federal Register notice extending specific product exclusions from Section 301 tariffs on Chinese imports. This extension affects 164 previously reinstated exclusions, and 14 exclusions related to solar manufacturing equipment, now valid through August 31, 2025.
The USTR’s decision builds on a series of prior actions stemming from the statutory four-year review of Section 301 tariffs on Chinese-origin goods. Initially imposed in 2018 and 2019 under the Trade Act of 1974 in response to China’s unfair trade practices related to technology transfer, intellectual property, and innovation, the tariffs covered four separate tranches of goods. Over time, the USTR established exclusion processes to provide temporary relief for certain products, including machinery, medical supplies, electronics, and industrial components. Many of these exclusions expired but were subsequently reinstated or extended based on economic necessity, supply chain disruption, and input from U.S. stakeholders. The current extension reflects USTR’s ongoing effort to balance enforcement of trade policy objectives with minimizing domestic economic harm, particularly in sectors reliant on specific components that remain difficult to source outside of China.
Key Details
The extended exclusions are organized under two distinct subheadings of the Harmonized Tariff Schedule of the United States (HTSUS)
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Annex A pertains to exclusions under heading 9903.88.69 and U.S. notes 22(vvv)(i)-(iv) to subchapter II of chapter 99 of the HTSUS. These exclusions encompass 164 products previously extended in May 2024, covering a range of items such as industrial components, medical devices, and machinery parts. The extension applies to goods entered for consumption, or withdrawn from warehouse for consumption, on or after 12:01 a.m. EDT on June 1, 2025, and before 11:59 p.m. EDT on August 31, 2025.
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Annex B addresses exclusions under heading 9903.88.70 and U.S. note 20(www) to subchapter III of chapter 99 of the HTSUS. This includes 14 product exclusions granted in September 2024, specifically related to solar manufacturing equipment (e.g., wafer slicers, cell interconnection machinery, module laminators). The extension applies to goods entered for consumption, or withdrawn from warehouse for consumption, on or after 12:01 a.m. EDT on June 1, 2025, and before 11:59 p.m. EDT on August 31, 2025.
Implications for Importers
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Importers should review the updated HTSUS provisions to determine if their products qualify for the extended exclusions.
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U.S. Customs and Border Protection will issue instructions on entry guidance and implementation of these exclusions.
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The USTR may consider further extensions or modifications as appropriate.
The USTR’s decision to extend exclusions under Section 301 provides short-term relief for importers relying on affected Chinese-origin goods. However, the extension is limited in duration, set to expire on August 31, 2025. Companies should proactively review their supply chains, confirm whether their products are covered under the updated HTSUS notes, and prepare for potential re-imposition of tariffs after the new expiration date.
This alert is intended as a guide only and is not a substitute for specific legal or tax advice. Things are rapidly changing by the day and hour, and our Tariff Task Force will do its best to provide timely and relevant updates as things progress. Please don’t hesitate to reach out to us with questions.
Troutman Pepper Locke’s Cannabis Practice helps clients throughout their business cycle enter or expand into the cannabis space. Our team combines the resources of attorneys in areas such as licensing and taxation, regulatory compliance, corporate and transactional, intellectual property, and real estate, among others, to provide comprehensive services.
Our Cannabis Practice provides advice on issues related to applicable federal and state law. Cannabis remains an illegal controlled substance under federal law.
Cannabis Regulatory Updates
Colorado Cracks Down on Hemp Misrepresentation
By
On May 14, Colorado Attorney General (AG) Phil Weiser announced that the state reached a settlement with MC Global Holdings, LLC, its associated companies, and owners (collectively MC) to resolve allegations that MC’s business practices violated the Colorado Consumer Protection Act (CCPA).
A Path Forward for Colo. Pot Products After Failed Safety Test
By
Published in Law360 on May 23, 2025. © Copyright 2025, Portfolio Media, Inc., publisher of Law360. Reprinted here with permission.
In the rapidly evolving landscape of Colorado’s cannabis industry, maintaining compliance with state regulation is not just a legal obligation but a critical component of business strategy. As cannabis products undergo rigorous testing, the potential of product contamination looms large, posing significant challenges for licensees.
Can Cryptocurrencies Solve Cannabis Business Banking Challenges?
By Jean Smith-Gonnell
Jean Smith-Gonnell, a leader of Troutman Pepper Locke’s Cannabis Industry practice, was quoted in the May 21, 2025 MJBizDaily article, “Can Cryptocurrencies Solve Cannabis Business Banking Challenges?”