Welcome to our first issue of Promissory Notes - our banking and finance e-newsletter - for 2025.

We developed this e-newsletter to address trending news and issues involving the banking industry. If you have questions or subjects you would like us to cover, please let us know.

WELCOME ARTHUR ANDERSON

We are very pleased to announce that Arthur E. Anderson has joined our Roanoke office as Counsel. Arthur has decades of experience and is widely considered one of Virginia’s preeminent municipal bond attorneys. At Spilman, he will continue to focus on municipal bonds while also providing invaluable mentorship and training to attorneys within this practice. In addition to his focus on bonds, he will also serve clients in the areas of local government law, public finance, and tax law, further strengthening Spilman’s capabilities in these important areas. We are very fortunate to have Arthur on our team. His counsel is immeasurable, and he will be a huge asset to our clients. Please join us in welcoming him!

SPILMAN SPONSORED EVENTS AND MEETINGS

We have a few events we would like to pass along for your information.

We are sponsoring the Secured Finance Network/TMA Carolinas Annual Social Event in Raleigh, North Carolina on April 10. Click here to learn more.

We will be attending the Western District of Virginia Bankruptcy Conference on May 30 at Roanoke College in Roanoke, Virginia. Click here to learn more.

Also on April 10, our own Alison Sacriponte will be presenting "Navigating Compliance" in Pittsburgh, Pennsylvania. No matter your industry, you are sure to face a wide array of regulations you must comply with, and not doing so can result in severe consequences, including fines and, in the worst case, going out of business entirely. Whether you are in the manufacturing, health care, financial services, or technology industry, we invite you to join Alison and a team of professionals from CR Advisory in a discussion of how to assess your compliance weaknesses and then to develop and implement a strategic plan to address them. Click here to learn more.

Thank you for reading.

Bryce J. Hunter - Member; Chair, Tax Credits Practice Group; Chair, Community Banking Group; Co-Chair, Banking and Finance Practice Group; and Editor of Promissory Notes

Joshua L. Jarrell - Member; Chair, Public & Project Finance Practice Group; Co-Chair, Banking and Finance Practice Group

By Arthur E. Anderson

The new administration and Congress are working towards an extension of the 2017 Tax Cuts and Jobs Act, the bulk of which expires at the end of 2025. In late February, the House passed a spending bill (H. Con. Res. 119-4) to enable the extension, provided that Congress also identifies $2 trillion in spending reductions. Cutting that much spending will be a challenge.  

Click here to read the entire article.

“Virginia’s pending bill would restrict fintech lending statewide."

Why this is important: Recent legislative developments in Virginia are aimed at closing gaps that allow new financial products to avoid traditional lending regulations, as financial services offerings continue to evolve.

A bill passed by both houses in Virginia’s General Assembly (Senate Bill 1252) aims to impose a 12 percent interest rate cap to prevent fintechs from evading usury limits, which cap the amount of interest lenders can charge on loans. The Virginia legislation seeks to deal with the significant increase of lending that involves banks partnering with fintechs to offer loans via the internet which may involve non-Virginia based banks and/or fintechs.

Virginia’s current usury limits impose a 12 percent per year interest rate maximum for loans, except as otherwise provided by law, including authorization of banks to impose interest and fees as agreed by the parties for installment loans and exempting loans for business purpose transactions of more than $5,000.

SB 1252

The bill expands the Commonwealth’s interest rate caps to cover two relatively new areas: adding anti-evasion measures to existing usury laws and covering comparatively newer financial products like earned wage access.

The “anti-evasion” provisions target banking-as-a-service and fintech-bank partnership programs where banks technically make the loans while the fintechs market and operationalize the loans. In most cases, the products are white-labeled under the fintech’s name. These anti-evasion measures seek to prevent parties from disguising transactions as asset purchases but functioning as loans.

The bill also targets earned wage access services by providing that any person who “receives a cash advance” that is based on income the person has earned but has not been paid is considered a loan if “repayment to the cash advance provider will be made by some automatic means” such as a preauthorized ACH debit.

Recently, the American Fintech Council (AFC) sent correspondence to Governor Youngkin urging him to veto Senate Bill 1252 to preserve competition in the state’s financial services market and warning of the legislation’s restrictive nature. In 2024, AFC members provided about $800 million in credit to some 235,000 Virginia residents, the letter said. The bill also raises concerns for AFC regarding the burden on Virginia’s Bureau of Financial Institutions to implement and enforce its requirements.

The AFC and other opponents stress that the uncertainty created by the bill and potential for an aggressive regulator to broadly interpret the anti-evasion provision may chill investment and innovation in Virginia while harming consumers by limiting their access to credit. Governor Glenn Youngkin is reviewing the legislation, but it remains unclear whether he will sign or veto the bill. --- Bryce J. Hunter

“Even the most advanced solution is useless if employees do not know how to use it effectively or waste time on manual processes.”

Why this is important: Banks struggle to translate their substantial investments in customer relationship management solutions into tangible value, organizational culture barriers—from data fragmentation to inefficient workflows—and continue to block significant ROI and limit customer experience improvements.

A growing challenge facing financial institutions is the disconnection between Customer Relationship Management (CRM) technology investments and actual business outcomes. Many banks utilize multiple CRM systems across different departments, creating data silos that negatively impact both customer and employee experiences. For example, long-time brokerage customers may need to re-enter all their information when opening a new savings account because the retail banking department's CRM doesn't recognize them as existing customers—frustrating clients and signaling the bank lacks a comprehensive view of their needs.

The authors identify three critical culture shifts necessary for banks to maximize their CRM investments: defragmenting customer data, automating key workflows, and training employees to effectively use AI. By choosing a single CRM platform, unifying data with a digital layer, and encouraging cross-department collaboration, banks can eliminate fragmentation that prevents a 360-degree customer view. Meanwhile, automating repetitive tasks like centrally logging customer activity, scoring leads, pre-filling documents, and proactively flagging customer milestones allows employees to focus on strengthening relationships rather than administrative work.

The final shift involves embracing an AI-forward culture where employees understand how and when to use AI tools. "Gen AI, predictive analytics and recommendation engines are assets worth incorporating into your employees' daily workflows," note the authors, recommending a "perpetual onboarding" approach that regularly checks employees' knowledge and use of AI capabilities.

With the federal government’s recent rate cut likely triggering increased competition for loans and credit cards, banks that successfully implement these culture shifts will gain a competitive edge in winning and retaining customers. The authors emphasize that organizations able to harness the full potential of their CRM systems will be best positioned to thrive in an increasingly competitive financial landscape. --- Hikmat N. Al-Chami

“In comments to the National Science Foundation, ABA noted banks are a model for how other industries can explore AI-enabled use cases in a fruitful and sustainable manner.”

Why this is important: As artificial intelligence (AI) continues to reshape industries, the banking sector is taking a proactive stance in shaping its regulatory future. On March 14, 2025, the American Bankers Association (ABA) put forth four high-level policy recommendations in response to the Trump administration's call for an AI "action plan” via executive order to advance the development of AI technologies in the U.S. while maintaining American dominance in the field. The ABA recommendations use banking as a model to balance innovation with responsible practices, potentially setting a precedent for AI regulation across sectors.

The first recommendation underscores the need for comprehensive federal legislation, proposing that Congress should establish an AI risk management framework with robust preemptions of state requirements. This approach would prevent a patchwork of conflicting state regulations that could create duplicative or inconsistent obligations for banks operating across state lines. Second, the ABA recommends a regulatory approach that sets clear objectives while allowing financial institutions the flexibility to implement effective risk management techniques using “common sense and best practices”. This approach recognizes the rapid evolution of AI technology and the need for adaptable compliance strategies. Notably, the ABA calls for regulatory agencies to be transparent about their own use of AI. Third, the ABA recommends focusing on modernizing guidance for model risk management that financial institutions use to manage the risks associated with relying on models for decision-making. These models include a wide range of tools, from simple spreadsheets to complex AI algorithms, for things like credit scoring, fraud detection, and risk assessment. The ABA suggests that the Federal Reserve, the Office of the Comptroller of the Currency, and the FDIC should update applicable guidelines, subject to a public notice and comment period, with an emphasis on practical outcomes rather than the technical aspects of AI models such as the specific code of large language models. Finally, the ABA recommends encouraging the adoption of voluntary strategies to manage AI-related risk, such as creating a standardized disclosure template (model cards) shared for validation exercises that would not require the sharing of confidential commercial information.

Throughout their recommendations, the ABA positions the banking industry as a potential leader in responsible AI innovation arguing that the sector's existing regulatory framework, with its emphasis on compliance and specialized supervision, has created an environment of trust and responsible innovation that could serve as a model for other industries.

These recommendations highlight the delicate balance between fostering innovation and maintaining robust risk management practices – a balance that will be crucial as AI continues to transform the financial services landscape. --- Joshua L. Jarrell  

“64% of respondents intend to increase their spending on third-party software.”

Why this is important: As banks face mounting challenges, including credit risk exposure, security threats, technology disruptions, and interest rate volatility, their technology infrastructure investments reflect growing concern about financial stability following the failure of eight banks since 2023. This comes amid significant shifts in the regulatory landscape, with agencies like the CFPB facing potential restructuring.

A comprehensive industry analysis conducted by FT Longitude in collaboration with data and AI leader SAS reveals that 83 percent of financial institutions have increased their compliance technology budgets this year, with artificial intelligence and machine learning solutions receiving the largest share of new investment. This shift comes as regulatory bodies implement more stringent oversight following several high-profile compliance failures that resulted in over $19.3 billion in fines across the banking sector last year.

The banking industry's technology transformation arrives at a crucial moment when institutions are seeking more integrated risk management approaches. The survey identifies notable growth in both risk technology capabilities and risk modeling (up 15 percent and 16 percent, respectively, since 2021) as the presidential administration moves to restructure the regulatory framework. With the Consumer Financial Protection Bureau potentially facing dismantling, former CFPB Director Rohit Chopra has cautioned that eliminating regulatory agencies "does nothing to protect citizens, and only creates the conditions for another financial crisis," underscoring banks' need for robust internal controls amid uncertain external oversight.

While AI shows tremendous promise in risk management, its adoption remains less widespread than anticipated despite the significant investments in foundational risk technologies. Many institutions continue to struggle with asset liability management systems regardless of size or region, highlighting the critical importance of strong data governance frameworks and management practices.

Stu Bradley, Senior Vice President of Risk, Fraud and Compliance Solutions at SAS, explains that financial firms require an AI-based platform to assess risks throughout their entire balance sheet because risks now affect financial institutions more than ever before, which also enables better stress testing. Financial institutions that adopt integrated systems will experience functional benefits throughout their operations while improving their strategic decision-making capabilities.

Financial institutions that establish complete risk technology systems will likely stand stronger against future economic disturbances in the face of mounting market volatility and changing regulations. As industry specialists point out, financial institutions that adopt AI-powered risk evaluation systems and improve data sharing across departments while constructing unified management structures will strengthen regulatory adherence and secure major advantages in maintaining customer relationships and operational effectiveness in unpredictable periods. --- Hikmat N. Al-Chami