The ABA, ICBA, and 76 state banking groups warn Senate leaders that yield loopholes in the CLARITY Act's Section 404 could trigger deposit flight from community banks.
The American Bankers Association (ABA), the Independent Community Bankers of America (ICBA), and 76 state banking associations sent a joint letter to Senate Majority Leader John Thune and Minority Leader Charles Schumer on July 13, calling for changes to stablecoin yield provisions in the CLARITY Act. The letter targets Section 404, which sets the rules for what rewards payment stablecoin issuers can offer users.
Section 404 bans both direct and indirect interest and yield on payment stablecoins but allows activity-based and transaction-based rewards. The banking groups argue that distinction leaves room for arrangements that function like yield in practice without technically violating the prohibition.
The Problem With Section 404
"Significant questions remain regarding whether the current language in Section 404 provides sufficient clarity and certainty to achieve that objective," the associations wrote. They called for stricter prohibitions and the removal of language that could be used to justify rewards tied to stablecoin balances or the length of time a user holds the asset.
The groups warned that without clearer limits, stablecoin issuers could structure rewards programs that encourage customers to hold stablecoins rather than keep money in bank accounts. They argued this could reduce the deposit base community banks rely on to fund local lending.
Community bank deposits, the letter states, directly support mortgage lending, small-business financing, and agricultural credit. A shift of those deposits into stablecoins driven by yield-like incentives could restrict credit access in communities that depend on relationship-based banking.
"Removing this provision aligns with our shared objective to not incentivize the idle holding of payment stablecoins for extended periods of time," the associations wrote.
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Other Fights Still Unresolved
The yield question is one of several unresolved disputes surrounding the CLARITY Act. A separate debate concerns ethics provisions that would restrict how presidents, vice presidents, members of Congress, and other federal officials profit from digital assets while in office. The Trump White House has urged the Senate to advance the bill, but the ethics language remains contested.
The Federal Law Enforcement Officers Association (FLEOA) expressed support for the House version of the bill on July 13, while recommending changes to preserve federal law enforcement authority over Anti-Money Laundering, sanctions enforcement, and investigations into decentralized networks.
The CLARITY Act is on the Senate calendar awaiting a floor vote. If the Senate passes the bill, the House would still need to approve a final version before it reaches the president.
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