Senator Keith Kelley voices concerns over the federal law that could harm regional lending institutions.
Keith Kelley, a Republican senator representing Alabama’s 12th district, has issued a warning about the potential negative effects of the federal legislation on stablecoins, the GENIUS Act, two months after it was enacted under President Donald Trump’s administration.
In an op-ed published on September 10 in 1819 News, Kelley highlighted a regulatory loophole in the GENIUS Act that, if exploited, could “destroy” the economy of rural areas such as those in Alabama, according to the senator.
For Kelley, the legislation would allow “cryptocurrency platforms to distribute financial rewards,” creating incentives for citizens to withdraw funds or close their accounts at the state’s small community banks.
“Unlike large lending institutions, community banks rely on local deposits to fund their loans,” Kelley said. “If those deposits decrease, their ability to provide financing to individuals, families, and small businesses will be significantly limited.”
The lawmaker added:
“For our regional communities in particular, where margins are tight and seasonal cash flow is critical, the loss of a reliable lending partner could be devastating.”
GENIUS Act: implementation timeline
Although it was signed on July 18, the GENIUS Act will not take effect immediately. The law requires the U.S. Treasury and the Federal Reserve to finalize regulations related to the bill—a process the Treasury began in August by requesting public comments focused on detecting illicit activity.
Supporters of the GENIUS Act have argued that the legislation will “foster innovation” in the United States by establishing regulatory clarity for stablecoin issuers. However, others have warned of potential problems with the law, in addition to concerns about stablecoin issuers indirectly paying yields.
The regulatory loophole
The loophole referred to by the Alabama senator appears to stem from a provision stating:
“No authorized payment stablecoin issuer or foreign payment stablecoin issuer shall pay to the holder of any payment stablecoin any form of interest or yield (whether in cash, tokens, or other consideration) solely in connection with the holding, use, or retention of such payment stablecoin.”
However, the bill’s text does not explicitly prohibit stablecoin issuers from using cryptocurrency exchanges or affiliates to offer yields, potentially circumventing the law.
“Allowing these crypto companies to operate like banks—offering rewards or yield-generating products—without requiring them to play by the same rules is not innovation,” Kelley stated. “It’s regulatory arbitrage, and it’s putting American families’ livelihoods and our local economies at risk.”
In August, the Bank Policy Institute echoed similar concerns about the GENIUS Act, arguing that the law could potentially trigger $6.6 trillion in deposit outflows from traditional banks, disrupting the flow of credit to the communities that depend on it.
