Banking Associations Urge Treasury to Enforce GENIUS Act Interest Prohibition

The American Bankers Association and state bankers associations from all 50 states urged the U.S. Department of the Treasury to prevent loopholes in the GENIUS Act’s ban on interest payments on stablecoins by adopting a broad interpretation of the term "interest."

In their comment letter responding to Treasury’s Advance Notice of Proposed Rulemaking, the associations voiced support for the GENIUS Act's framework to regulate payment stablecoins, but urged Treasury to ensure its rules uphold Congress’s intent to ban all forms of interest or yield. They pointed out that some digital asset platforms are offering high-yield rewards and promotional payouts while claiming the prohibition applies only to issuers. The associations called on Treasury to close this loophole, citing lawmakers’ confirmation that the ban was meant to cover all yield payments on payment stablecoins.

In their letter, the associations outlined three regulatory actions to ensure the prohibition is effective:

• Define "Interest or Yield" Broadly. Treat "any economic benefit provided to a stablecoin holder"—regardless of its form or marketing—as prohibited interest.
• Prevent Evasion Through Affiliates or Partners. Prohibit indirect yield payments made by entities acting on behalf of or in coordination with a stablecoin issuer.
• Avoid a Narrow Interpretation of "Solely." Do not allow issuers to evade the ban by adding minor conditions to yield programs; any benefit tied to holding a stablecoin should "trigger the prohibition."

The associations warned that allowing yield on stablecoins would hurt community banks by pulling away deposits. They cited research showing that if stablecoins paid yields at the federal funds rate, banks could lose about 25% of deposits and $1.5 trillion in lending capacity.