76 banking groups point out the blind spot of the Clarity Act on returns

Seventy-six banking groups, led by the American Bankers Association and the Independent Community Bankers of America, urged the Senate on Monday (July 13) to amend the Clarity Act before its vote. They point to a “loophole” in section 404 that would allow platforms to pay, in the name of reward, returns equivalent to bank interest on stablecoins.

An unexpected banking coalition knocks on the door of the Senate

A paradox first needs to be underlined: these groups are not calling for the withdrawal of the Clarity Act. They defend, in their letter of July 13, “responsible innovation” and a regulated digital assets market.

Their targets are neither stablecoins nor their principle, but the reward mechanics. However, this mechanism touches the heart of the banking profession, because deposits finance real estate loans, agricultural finance and support for small businesses.

The GENIUS Act, already enacted, prohibits issuers of payment stablecoins from paying interest or yield for mere holding. Section 404 of the Clarity Act under consideration in the Senate extends the rule to service providers and their subsidiaries. It prohibits payments that are “economically or functionally equivalent” to bank interest.

The banks, however, see this as a back door: a platform could add a minimal condition (transaction, loyalty) to a reward indexed to the balance, and then claim an “activity” logic. The program would resemble passive yield, without bearing the label.

Removing this provision is consistent with our shared goal of not incentivizing passive holding of payment stablecoins for extended periods of time..

The Senate faces five technical modifications

The coalition calls for five specific adjustments to Section 404all centered on the notion of “reward”. She first wants to remove the word “solely”, to prevent platforms from circumventing the ban by adding a secondary condition.

It then proposes to remove references to “stablecoin balance” and “interest-bearing bank deposit”, to adopt a “substantially similar” test in place of “equivalent”, and to delete the subsection which allows rewards calculated according to balance, duration or seniority.

This last deletion weighs the most. Interest is classically calculated on the principal and time. Reproducing these variables makes it possible to produce a return which is disguised as points, tokens or loyalty advantages.

Banking Committee Chairman Tim Scott and Majority Leader John Thune are leading coordination for a targeted vote on July 20, before the summer recess. The Senate has eight legislative days before the August 7 recess to decide.

Ethics and the weight of Wall Street renew the pressure

The debate goes beyond technique. Elizabeth Warren, Democratic senator, recalled on July 13 that without ethical safeguards, the Clarity Act would facilitate Donald Trump’s profits from his crypto activities.

Miles Jennings, legal director of a16z crypto, countered that the text precisely creates new safeguards. Jamie Dimon, boss of JPMorgan, for his part ruled that the law could let platforms offer deposit-type returns without corresponding banking supervision.

In short, the Clarity Act now faces two fronts. On the one hand, the banks are demanding to close a technical loophole in section 404 before August 7. On the other hand, Democrats condition their vote on ethics rules, while Wall Street weighs in for revisions.

Without the support of nine opposition senators, the text remains blocked. The July window is the last real chance for US crypto regulation before the midterm elections.