Borrowers periodically ask whether commercial loan documents can be executed electronically. While electronic signatures are legally recognized, their use in commercial lending remains institution-specific. Many lenders continue to require traditional “wet-ink” signatures for certain core documents, particularly promissory notes and mortgages, based on enforcement, operational, and recording considerations.

As a general matter, electronic signatures are enforceable under the federal Electronic Signatures in Global and National Commerce Act (E-SIGN) and the Uniform Electronic Transactions Act (UETA), adopted in most states. A contract or signature may not be denied legal effect solely because it is in electronic form, provided the parties intend to sign electronically and proper records are retained.

A few documents of particular note:

• For ancillary loan documents, electronic execution can present limited legal risk if reliable authentication and record retention procedures are in place. Greater complexity arises with promissory notes. Because a note is typically a negotiable instrument governed by Article 3 of the UCC, enforcement traditionally depends on possession of the original wet-ink note. If the original cannot be produced, enforcement may require additional steps, such as a lost note affidavit.
• Electronic promissory notes (eNotes) are permitted but must qualify as “transferable records” under E-SIGN. In lieu of physical possession, the lender must demonstrate “control” of a single authoritative copy. This is typically accomplished through a secure electronic vault (eVault), which serves as a digital lockbox—maintaining the authoritative copy, preventing alteration, and tracking transfers of control. Lenders without compliant vaulting infrastructure may determine that wet-ink notes better align with their enforcement and secondary market practices.
• Mortgages and deeds of trust present additional considerations. These instruments must generally be notarized and recorded to perfect a lender’s lien. While many states now authorize remote online notarization (RON) and electronic notarization, the rules vary by jurisdiction. Compliance requires not only a valid electronic signature, but also adherence to state-specific notarial procedures, identity verification standards, and approved technology platforms. In addition, county recording offices differ in their acceptance of electronically executed and electronically notarized documents. Some permit full e-recording; others continue to require paper submissions.

In short, although electronic signatures are legally viable, their use in commercial lending involves more than simple execution mechanics. Lenders should evaluate enforceability, vaulting capabilities, notarization requirements, and local recording practices before modifying established closing procedures.

As borrowers continue to request greater efficiency in closings, lenders are weighing how and when electronic execution makes sense within their existing credit, enforcement, and operational frameworks. There is no one-size-fits-all approach. Careful evaluation of note control, vaulting systems, notarization compliance, and local recording practices is essential before changing documentation procedures. If you have questions about implementing electronic signatures in your commercial lending transactions—or would like to review your current practices—Winthrop & Weinstine’s financial services team would be pleased to assist.

Please see the March 26, 2026 update to this client alert here.

As of March 1, 2026, the Financial Crimes Enforcement Network (FinCEN) is enforcing its new “Residential Real Estate Rule,”[1] which requires certain professionals involved in real estate closings and settlements to submit reports to FinCEN regarding non-financed transfers of residential real estate to legal entities or trusts.[2]  While the Rule became effective December 1, 2025, reporting requirements were postponed to reduce business burden.[3]

The Residential Real Estate Rule expands the Department of Treasury’s efforts to increase transparency and combat and deter money laundering through the illicit use of residential real estate. Transfer of an ownership interest in real property must be reported if the following conditions apply:

1. The property is residential real estate;
2. The property is transferred without financing from a bank or similar financial institution;
3. The property is transferred to a reportable transferee entity or trust; and
4. The transfer is not covered by an exception.

What constitutes residential real estate?

Residential real estate includes real property containing a dwelling or unit designed for occupancy by one to four families—single-family homes, town houses, condominium units, etc.—or on which the transferee intends to build such a dwelling or unit.[4] Shares in a cooperative housing corporation also constitute residential real estate. A timeshare transfer may be subject to reporting if it meets both the definition of residential real estate and an ownership interest.[5]

What constitutes a non-financed transfer?

A non-financed transfer means that the property is transferred without financing (i) secured by the property, and (ii) from a financial institution subject to anti-money laundering program and suspicious activity reporting requirements.[6] There is no consideration or value threshold, so neither the value of the property nor the sale price are relevant to determining applicability of the reporting requirement. Therefore, all cash purchases, seller-financed transactions, and gift transfers are “non-financed” for purposes of the Rule. If there are multiple transferees, the transaction is reportable with respect to any transferee receiving ownership in the property via a non-financed transfer.

What constitutes a reportable transferee?

A reportable transferee is any purchaser of residential real property that is not an individual. So long as at least one of the transferees in a transaction is reportable, the transfer is reportable.

Corporations, limited liability companies, partnerships, estates, associations, and statutory trusts are examples of reportable transferee entities. However, the Rule excludes sixteen types of transferee entities from the reporting requirement—including governmental authorities, banks and credit unions, securities brokers and exchange or clearing agencies, insurance companies, state-licensed public utilities, and subsidiaries of excepted entities.

A reportable transferee trust includes any legal arrangement when an individual places assets under the control of a trustee for the benefit of one or more beneficiaries or for a specified purpose. Testamentary trusts are not a reportable transferee, as they fall within the exception for transfers occurring as a result of death.

What transfers are excepted from the Rule?

Transfers of residential real property do not need to be reported for (i) a grant, transfer or revocation of an easement, (ii) a transfer resulting from the death of an individual (i.e., pursuant to a will, trust, operation of law, or contractual provision), (iii) a transfer incident to divorce, (iv) a transfer made to a bankruptcy estate, (v) a transfer supervised by a court, (vi) a transfer for no consideration made by an individual (with or without their spouse, if applicable) to a trust of which that individual, their spouse or both are the settlors or grantors, (vi) a transfer to a qualified intermediary for purposes of a like-kind exchange pursuant to IRC Section 1031,[7] or (viii) a transfer for which there is no reporting person.

How and when is a transfer reported?

The appropriate reporting individual for the transfer must submit a Real Estate Report, in the form provided by FinCEN, electronically through FinCEN’s free Bank Secrecy Act (BSA) E-Filing System at https://www.bsaefiling.fincen.gov. There is no fee for submitting a Real Estate Report directly through this system.[8] The Real Estate Report must be filed by the last day of the month following the month in which the date of closing occurred or thirty (30) calendar days after the date of closing, whichever is later.

What information must be reported?

The Real Estate Report must include information necessary to identify the reporting person, the residential real property being transferred, the transferor, the transferee entity or trust and its beneficial owners, certain individuals representing the transferee entity or trust (i.e., the signing individuals), any trustee that is an entity (if the transferee is a trust), total consideration paid for the property, and certain information about any payments made by the transferee entity or trust. Reported information will include, but is not limited to, full legal names and trade or “doing business as” names, physical street addresses, citizenship information, unique tax identification numbers (including social security numbers), and the amounts, sources and methods of payment for the transaction.

Who must report a transfer?

A Real Estate Report must be filed by the appropriate reporting individual, which is determined either by way of the “reporting cascade” set forth in the Rule or by way of a written designation agreement between the persons described in the cascading reporting order. If no person is performing the first function in the cascading order, the person performing the next function is the reporting individual, etc.:

1. The person listed as the closing or settlement agent on the closing or settlement statement;
2. The person that prepares the closing or settlement statement;
3. The person that files the deed or other transfer instrument with the recording office;
4. The person that underwrites an owner’s title insurance policy for the transferee;
5. The person that disburses the greatest amount of funds in connection with the transfer;
6. The person that provides an evaluation of the status of the title; or
7. The person that prepares the deed or other transfer instrument.

If none of the above functions are performed, the transfer is not reportable. Transferees, transferors and beneficial owners cannot file a Real Estate Report unless they engage in one of the above functions or are designated by agreement for purposes of the transaction at issue.

Bottom Line

The closing process for nearly all real property transfers will need to adjust to FinCEN’s Residential Real Estate Rule. Failure to comply, whether negligently or willfully, could expose reporting individuals to civil penalties, criminal fines, and/or imprisonment. Winthrop & Weinstine’s Real Estate attorneys are tracking the industry-wide effort to implement these new reporting requirements. For more information, feel free to reach out to our Real Estate team, or your regular Winthrop contact.

[1] Anti-Money Laundering Regulations for Residential Real Estate Transfers, 89 Fed. Reg. 70258 (Aug. 29, 2024), https://www.federalregister.gov/documents/2024/08/29/2024-19198/anti-money-laundering-regulations-for-residential-real-estate-transfers.

[2] Financial Crimes Enforcement Network, Residential Real Estate Rule, https://www.fincen.gov/rre (last visited Feb. 21, 2026).

[3] Press Release, Financial Crimes Enforcement Network, FinCEN Announces Postponement of Residential Real Estate Reporting Until March 1, 2026 (Sept. 30, 2025), https://www.fincen.gov/news/news-releases/fincen-announces-postponement-residential-real-estate-reporting-until-march-1.

[4] The reporting individual may reasonably rely on information provided by the transferee to determine its intent for the land, absent knowledge of facts that would reasonably call into question the reliability of the information provided to the reporting person. See FinCEN, Residential Real Estate Reporting Frequently Asked Questions, U.S. Dep’t of Treasury, https://www.fincen.gov/system/files/shared/RREFAQs.pdf (issued Feb. 13, 2026).

[5] Ownership interest means rights held in residential real estate property that are demonstrated via a deed or, in the case of a cooperative housing corporation, through stock, shares, membership, certificate, or other contractual agreement evidencing ownership. Transfer of an interest in an assignment contract would not be considered a transfer of residential real property Id.

[6] Reporting individuals should reach out to lending institutions if they are unsure on whether they are subject to these programs and requirements. Id.

[7] A transfer from a qualified intermediary to the person conducting a like-kind exchange remains reportable if the exchanger constitutes a transferee entity or trust. Id.

[8]  Id.

Will the Minnesota Legislature Pass Federal Tax Conformity?

Both the House and Senate Tax Committees have held hearings to discuss the impacts of recent federal tax changes. Minnesota tax policy does not automatically conform to federal tax law changes, thus the issue of whether Minnesota should pass a tax conformity bill was also a topic of discussion. While there are several different conformity provisions that the legislature could consider, the one that seems to be at the top of nearly everyone’s list is the pass-through entity (PTE) provision. This particular provision has strong bi-partisan support, costs the state nothing, and Department of Revenue Commissioner Paul Marquart has emphasized its importance. Still, in the heated political environment that exists, passage is not guaranteed. The House Tax Committee will hold a hearing on the PTE Bill, HF 3127, on Tuesday, March 3. Expect to hear more about this as session progresses.

As Expected, Guns Are a Key Topic

For months, Democrats have been touting their plan to bring numerous pieces of gun-related legislation forward in 2026. Earlier this week, Governor Tim Walz presented his administration’s package of fifteen proposed pieces of legislation to reduce gun violence, including a ban on high-capacity magazines and assault rifles, increased taxes on firearms, mental health supports, safe storage laws, and firearm insurance requirements, among other issues. Also, this week, multiple gun-related bills received hearings in the House, but none received the bi-partisan support needed to advance out of a tied House committee.

State Budget Surplus Grows

On Friday, Minnesota Management and Budget (MMB) delivered the February Forecast, and it was unexpected, good news. MMB announced that the surplus in the current biennium (FY 26-27) has ballooned to $3.7 billion, an increase from the previous projection of $2.465 billion. The projected deficit in the FY 28-29 biennial planning estimates has increased from the previous deficit number of $2.96 billion to a positive balance of $377 million.

Budget Forecast Contains Uncertainty

While cautioning lawmakers on the structural imbalance in FY 28-29, the Forecast stated that “a slightly improved economic outlook drives a higher revenue forecast largely driven by more volatile sources of revenue…Shifting policies at the federal level and missing or incomplete data due to recent federal government shutdowns introduce significant uncertainty to the projections.” It remains to be seen how the impact of the immigration enforcement surge, the freezing of Medicaid funds, and fraud concerns will impact the state budget going forward.

Federal Government Freezes Minnesota Medicaid Funding

The federal government announced this week that it is temporarily withholding approximately $259 million in Medicaid funding to Minnesota, citing concerns about fraud prevention and oversight. Federal officials, including the Centers for Medicare & Medicaid Services, said the pause is intended to ensure the state strengthens safeguards against misuse of federal healthcare funds and has directed Minnesota to submit a corrective action plan within 60 days. Governor Tim Walz and Attorney General Keith Ellison strongly disputed the move, calling it politically motivated and emphasizing Minnesota’s record of prosecuting Medicaid fraud. The funding freeze could affect payments to healthcare providers serving low-income residents, though Medicaid coverage for beneficiaries is not expected to stop immediately. The dispute raises the possibility of legal action and could have broader implications for Minnesota’s healthcare system if the freeze continues or expands.

In a decision likely to influence how courts evaluate privilege claims involving generative AI, the U.S. District Court for the Southern District of New York recently held that a criminal defendant’s communications with a publicly available AI platform (i.e. ChatGPT, Claude, Gemini, and others) were not protected by either the attorney-client privilege or the work product doctrine. United States v. Heppner, No. 25-cr-00503-JSR, Doc. 27 (S.D.N.Y. Feb. 17, 2026). The court’s opinion addressed the novel question of whether communications with a generative AI platform in connection with a pending criminal matter are privileged — holding unequivocally that they are not protected by either the attorney-client privilege or the work product doctrine and were thereby discoverable through the legal process.

The Underlying Case

Following his indictment on securities and wire fraud charges and a grand jury subpoena, Bradley Heppner, without guidance or direction from his attorneys, asked the generative AI platform “Claude,” to outline potential defense strategies and anticipated arguments – generating approximately 31 written exchanges with the platform. At the time of his inquiries to Claude, Heppner knew he was a target of the investigation. Heppner’s legal counsel later attempted to assert privilege over the AI-generated materials, arguing that the documents were created for the purpose of speaking with counsel to obtain legal advice, and the documents were subsequently shared with his legal counsel. Heppner’s attorney, however, conceded that he did not direct Heppner to use Claude. In response, the government argued that the AI inquiries were not protected by either attorney-client privilege or the work product doctrine, and the Court ultimately agreed.

What is the Attorney-Client Privilege

It is a generally-accepted legal principle that confidential communications between an attorney and a client made for the purpose of obtaining or providing legal advice are privileged, and therefore do not need to be disclosed as part of a legal proceeding. This privilege, however, is usually narrowly construed. In Heppner, the court concluded that the AI outputs failed on multiple levels to meet the requirements of the Attorney-Client Privilege:

1. No Communication with an Attorney. At the most fundamental level, the AI outputs were communications between Heppner and Claude and not between Heppner and his counsel. Claude, a generative AI platform, is not a lawyer and doesn’t function or purport to be one. The Court emphasized that, absent an attorney-client relationship, discussions of legal issues between non-lawyers are not privileged. The Court also rejected Heppner’s arguments that Claude should be treated like other internet-based tools (such as cloud word processors leveraged by legal counsel), which can, if used properly, maintain attorney-client privilege. Ultimately, the Court found that privilege depends on a “trusting human relationship” with a licensed professional owing fiduciary duties, not merely on the use of certain software.
2.  No Reasonable Expectation of Confidentiality. Relying on the written privacy policy of Claude’s developer (Anthropic), which states that the company collects user inputs and outputs, may use that data to train the system, and reserves the right to disclose information to third parties, including governmental authorities, even absent a subpoena — the Court held that Heppner could not have had a reasonable expectation of confidentiality in his exchanges with Claude. The opinion also cited recent case law observing that users of publicly accessible AI platforms generally lack substantial privacy interests in such communications.
3. Not Made for the Purpose of Obtaining Legal Advice. Finally, the Court concluded that Heppner was not communicating with Claude “for the purpose of obtaining legal advice” within the meaning of privilege doctrine. Although Heppner’s legal counsel argued that Heppner used Claude in preparation for their conversations, the Court found that Heppner had acted on his own initiative and not at his legal counsel’s direction. The platform itself expressly disclaims providing legal advice and expressly advises to consult a qualified attorney, when prompted to provide such advice. Critically, the Court emphasized that non-privileged communications do not become privileged merely because they are later shared with counsel.

Work Product Doctrine

The Court next addressed whether the AI outputs were protected as attorney work product. Under governing precedent, work product protection applies to materials prepared by or at the direction of counsel in anticipation of litigation. The doctrine exists to protect lawyers’ mental processes and strategic development. The Court’s ruling on the AI output was again clear; AI outputs do not qualify under the Work Product Doctrine.

Although Heppner’s inquiries to Claude may have been prepared in anticipation of litigation, they were not prepared “by or at the behest of counsel.” Heppner’s counsel confirmed that he did not direct Heppner to conduct Claude searches, and the outputs did not reflect counsel’s strategy at the time they were created. While a prior Federal court decision has suggested that, on occasion, the work product protection may extend more broadly to materials generated by non-lawyers, the Court in Heppner held that extending such protection in this case would undermine the Doctrine’s purpose of preserving a zone of privacy for lawyers’ mental impressions. Because Heppner acted independently when creating the AI outputs and because they did not disclose legal counsel’s strategy, they were not afforded protection under the Work Product Doctrine.

Key Takeaways

The Court’s decision in Heppner provides several practical lessons:

1. Communications with Public AI Platforms Are High Risk. Courts may treat exchanges with publicly available generative AI tools as communications with third parties, particularly where provider policies permit data retention, training use, or discretionary disclosure.
2. Direction of Counsel Matters. Materials generated independently by a client, even if intended to aid in future discussions with counsel, may fall outside both privilege and work product protection unless they are prepared at counsel’s direction.
3. Later Sharing Does Not Cure Defects. Non-privileged communications do not “acquire” privilege simply because they are later shared with legal counsel.
4. Vendor Terms Are Legally Significant. Privacy policies and terms of service may play a decisive role in determining whether a reasonable expectation of confidentiality exists.

Conclusion

In Heppner, the Court framed generative AI as a “new frontier” but emphasized that established privilege principles still govern; AI’s novelty, per the Court’s ruling, does not expand the scope of attorney-client privilege or work product protection. Organizations and individuals should carefully evaluate how generative AI tools are used in connection with litigation, investigations, or anticipated disputes, and ensure that privilege-sensitive activities occur under counsel’s supervision and within controlled environments.

If you have questions about the Court’s decision in Heppner or how this ruling may affect your organization’s AI governance, litigation strategy, or internal protocols, please feel free to reach out to any member of Winthrop’s Business & Commercial Litigation team.

First on the Legislative Agenda: Memorial for Speaker Emerita Melissa Hortman

The Minnesota Legislature returned to St. Paul on Tuesday to begin the 2026 Legislative Session. Official actions were very limited as both the House and Senate only met for about 15 minutes. Following that official action, they gathered together in the House Chamber to remember Speaker Emerita Melissa Hortman, her husband Mark, and their dog Gilbert, who were slain in an attack last June. The Governor and members of the House and Senate, Democrat and Republican, shared memories and words of wisdom from Melissa. Following the touching ceremony, legislators, staff, and members of the public mingled at a reception featuring homemade cakes and bread, favorites of Melissa and Mark.

Legislature (and Politics) are Back!

By Wednesday morning, committees were meeting, lobbyists and interested members of the public were filling halls and meeting with legislators, and politics were back in full force. After only two days of hearings, there are already several instances of legislators’ comments getting a little spicy. Usually this happens when legislators are discussing a bill but then reference a hot political topic. Without a doubt, both parties are guilty of this transgression. However, perhaps the testiest event so far occurred when a Republican in the House Public Safety Committee brought up a bill that would impose harsher penalties on felonies involving firearms. Democrats used the opportunity to try to amend the bill to include a prohibition on assault weapons. The Chair ruled the amendment out of order (this is a procedure used commonly on the floor, but not in committee), committee members questioned the ruling and rather than continue to discuss, the Chair quickly adjourned the hearing.

DFL Session Priorities

Senate Majority Leader Erin Murphy, House DFL Caucus Leader Zack Stephenson, and other DFLers have made it clear that their 2026 priorities focus on responding to federal immigration enforcement in the state, strengthening public safety, and addressing concerns around guns, fraud, and community security. Murphy and Stephenson have both indicated that DFLers will advance legislation aimed at regulating the conduct of federal immigration agents operating in Minnesota and increasing accountability for law enforcement activities, reflecting heightened tensions after recent federal actions in the state. They have also emphasized efforts to tackle issues such as gun violence, program fraud oversight, and support for infrastructure and bonding needs amid a challenging budget outlook. In their comments, they have underscored the need for effective, bipartisan solutions in a tightly divided Legislature while advocating for policies they believe will protect Minnesotans’ rights, safety, and economic stability.

Republican Session Priorities

Senate Minority Leader Mark Johnson, House Speaker Lisa Demuth, and House Floor Leader Harry Niska have outlined a Republican agenda focused on fiscal accountability, public safety, and affordability. They have emphasized combating fraud in state programs, including support for stronger oversight mechanisms such as an independent inspector general, and criticized what they have characterized as insufficient accountability in prior spending. They have also highlighted priorities such as reducing taxes and health care costs, easing regulatory burdens on businesses, strengthening school safety, and addressing crime. While signaling a willingness to work across the aisle in a closely divided Legislature, they have framed the session as an opportunity to refocus state government on transparency, responsible budgeting, and policies aimed at helping working Minnesotans.

Mark your Calendar: February Forecast released next week

Mark your calendar.  Minnesota Management and Budget (MMB) will release the February Forecast at 12:30 on Friday, February 27.  Minnesota’s budget forecast is the official economic and revenue projection that sets the financial framework for the state’s budget process. In practical terms, the February forecast drives committee budget targets, shapes negotiations between the House, Senate, and governor, and signals whether lawmakers will be debating new spending, tax cuts, or budget reductions. The last MMB forecast, released on December 4, 2025, estimated that the state will have a $2.465 billion surplus for the current FY 26-27 biennium but projected a deficit of $2.96 billion in the FY 28–29 biennium.

Effective March 1, 2026, owners and operators of residential rental properties in Minneapolis will be prohibited from using certain “algorithmic devices” to set rents or determine occupancy levels. The new ordinance targets the use of software that relies on non-public competitor data to recommend rental pricing or vacancy strategies.

Here are the top three things Minneapolis residential landlords need to know:

1. What qualifies as a prohibited “algorithmic device?”

The Minneapolis Code of Ordinances defines an “algorithmic device” as any device “that uses one or more algorithms to perform calculations of non-public competitor data concerning local or statewide rents or occupancy levels” to advise a residential property owner or operator as to vacancy rates and rent trends. As drafted, the ordinance appears to apply to residential dwelling units and does not extend to commercial leasing operations.

Importantly, the definition does not include:

• Sources that publish or aggregate existing rental data without providing recommendations as to rents or occupancy levels; and
• Products used to establish rent or income limits in accordance with affordable housing programs.

Landlords should carefully evaluate whether their pricing software merely aggregates public data or, instead, analyzes non-public competitor information to generate rent and occupancy recommendations.

2. The ban applies only to non-public competitor data.

The ordinance does not prohibit all algorithmic pricing tools. Rather, it prohibits the use of algorithmic devices that analyze or calculate “non-public competitor data.”

The ordinance defines non-public competitor data as information “that is not available to the general public,” including rent prices, occupancy rates, lease start and end dates, and similar data—regardless of whether the information is anonymized or specific to the Minneapolis market.

3. Tenants have a private right of action.

The ordinance grants residential tenants a private right of action against landlords who violate the ban on algorithmic devices. If a violation is established, tenants may recover compensatory damages as well as reasonable attorneys’ fees and costs.

While individual claims may be limited in value, a landlord’s exposure could increase significantly if multiple tenants bring claims. The prospect of attorneys’ fees and costs also increases litigation risk and potential exposure.

Bottom Line

Minneapolis residential landlords should conduct a prompt review of the tools and vendors they use to monitor occupancy levels and set rental pricing. If those tools rely on non-public competitor data to generate pricing or vacancy recommendations, adjustments may be necessary before March 1, 2026. Failure to ensure compliance could expose landlords to private litigation and significant aggregate liability.

Winthrop & Weinstine’s Real Estate and Commercial Litigation attorneys routinely advise landlords across Minnesota on the increasingly complex regulatory landscape governing residential and commercial leasing. For more information, feel free to connect with Peter, Elle, or your regular Winthrop contact.

Session Set to Begin

The Minnesota Legislature reconvenes on Tuesday, February 17, for the 2026 legislative session, but expect the first day to only include ceremonial activities along with a day of remembrance for Speaker Emerita Melissa Hortman. Because the legislature already has passed a two-year budget, the legislature isn’t required to pass any bills in 2026, though hope for passage of a bonding bill is high. While most expect few bills to make it to the Governor’s desk for a signature, some legislation will pass. Following is a calendar of key dates for the upcoming session:

• February 17 – First day of session
• Late February – Release of the February Forecast
• March 27 – First committee deadline
• March 28-Apri 6 – Legislative break
• April 17 – Final committee deadline
• May 18 – End of legislative session

Security Changes in St. Paul

Likely the biggest change at the state Capitol this year will be the implementation of security measures before entering the building. While all the details are still not fully known, it appears that metal detectors will be placed at three building entrances, and those will be the only entrances that can be utilized by the public, including legislators and staff. Individuals who have a valid permit to carry will be allowed to bring their gun into the Capitol, however guns will not be allowed by anyone who wishes to enter the Senate viewing gallery.

New security measures will also be in place in the Senate building. All visitors were already required to check in with security to visit members of the House of Representatives in their offices.

Governor’s Proposal Starts Capital Investment Process

The 2026 capital investment (bonding) process was kicked off on January 15 when Minnesota Management and Budget released Governor Tim Walz’s bonding recommendations. The plan totaled $907 million with $700 million in general obligation bonds and $207 million from other sources such as appropriation bonds, general fund cash, trunk highway bonds/cash, and user-financed bonds. The Governor’s recommendations impact the following areas:

• Asset preservation and maintenance of existing infrastructure
• Water and wastewater systems
• Transportation projects
• Public safety and corrections facilities
• Housing and economic development
• Other local and state projects such as regional parks and environmental improvements.

The House and Senate Capital Investment Committees will begin their own deliberations by reviewing the Governor’s plan before they begin to build their own bonding bills. Because the Minnesota Constitution requires a bonding bill to pass with a three-fifths majority in both the House and Senate, bipartisan support is essential for passage.

Good News-Bad News on the State Budget

An update on Minnesota’s budget situation is the proverbial tale of good news-bad news.  First the good news: the 2026 legislature convenes with a FY 26-27 biennial budget in place and a projected general fund surplus of $2.465 billion. This good news was bolstered on February 10 by strong January revenue collections reported by Minnesota Management and Budget. Net general fund revenues in January were $513 million (roughly 16.7 %) above the previous forecast, and fiscal-year-to-date receipts totaled approximately $19.4 billion (about 3.1 % above forecast). With this short-term infusion of revenue and the projected surplus in FY 26-27, the Legislature will not feel pressure to pass a supplemental budget to fix a short-term budget hole.

Now the bad news.  Looking beyond the current biennium, Minnesota Management and Budget projects a growing structural budget gap in the FY 28-29 biennium of $2.96 billion. This structural budget gap is driven largely by higher health care costs and slower economic growth, thereby increasing expenditures faster than projected revenues.

This good news-bad news budget picture will be updated at the end of February by the latest budget and economic forecast, and these numbers will then be used to finalize any supplemental budget. The question remains whether the Legislature and the Governor will attempt to take steps to limit the structural deficit in FY 28-29.

Retirements and Musical Chairs will have an Impact

At least 37 legislators have already announced that they plan to retire or run for a different position following this legislative session. This level of turnover will have implications for how the 2026 legislative session plays out. Consider that not one, but three members of the House Republican Caucus are vying to be the party’s gubernatorial candidate. This will impact how that caucus approaches decisions and, with Speaker Lisa Demuth as one of those candidates, will certainly impact negotiations with the current Governor as well.

Many of those retiring are long-time members of the House and Senate, and history shows that those who are retiring can be a less predictable than they were in the past. Some feel a sense of freedom to step away from the party line. Others may be willing to negotiate more in order to pass that last piece of legislation that they hope will be their legacy.

Earlier this week, the Northern District of Illinois upheld a prohibition on the collection of debit and credit card interchange fees for sales taxes, excise taxes and gratuities if the merchant informs the acquiring bank of the amount of these taxes and gratuities. The Illinois Interchange Fee Prohibition Act (IFPA) is scheduled to be effective July 1, 2026. The Court struck down the portion of the IFPA that makes it unlawful for “[a]n entity, other than the merchant” involved in a transaction to “distribute, exchange, transfer, disseminate, or use” the associated data “except to facilitate or process the electronic payment transaction or as required by law” (“Data Usage Limitation”).

Under the IFPA, the interchange fee restrictions require merchants to transmit the tax and gratuity information as part of the transaction; provided however, that the merchant has up to 180 days to submit the relevant documentation, which in turn triggers a 30-day window in which the card issuer must credit the merchant for the excess interchange fees. As there does not currently appear to be an automated process to complete the information submission, card issuers should expect merchants to manually submit information under the IFPA. Card issuers and payment card networks are subject to a civil penalty of $1,000 per electronic payment transaction under the IFPA if they have received the tax and tip documentation and do not credit the merchant within the 30-day window.

On August 15, 2024, numerous banking associations filed a complaint against the Illinois Attorney General challenging the enactment of the IFPA and sought a declaratory judgment that the IFPA is preempted by federal laws, unconstitutional, and invalid as applied to any participant in the payment system. Further, the associations sought to permanently enjoin the state from taking any investigatory or enforcement actions under the IFPA.

In December 2024, the Court granted a preliminary injunction to nationally chartered banks and federal savings associations and, in February 2025, expanded the injunction to out-of-state banks. The Court found that the National Bank Act and the Home Owners’ Loan Act likely preempted the IFPA’s application to national banks and federal savings associations, while the Riegle–Neal Interstate Banking and Branching Efficiency Act likely preempted the IFPA’s application to out-of-state State-chartered banks. Credit unions, Illinois-based banks and credit card companies were not covered by preliminary injunction.

In denying the permanent injunction for the interchange fee restriction, the Court relied upon the fact that the payment card networks, not the financial institutions, set the interchange fee amount and merchants must transmit the information about what portion of the transaction is gratuities and taxes. Acknowledging the complicated compliance challenges of the IFPA, including the onerous manual processing, the Court focused on whether federal law preempts the IFPA noting that the thrust of federal regulations is not to protect fees centrally established by a third-party company. The Court stated, however, that “This is a close call.”

In issuing the permanent injunction for the Data Usage Limitation, the Court found that the IFPA directly constrains the powers under federal law that gives banks broad power to process data. The Court stated, “The federal power to use data is express, and it permits the processing and use of data whether or not it comes from particular transactions. Unlike the prior provision, the scope of the conflict is not a close call.” The Court also concluded that the Data Usage Limitation is also preempted with respect to out-of-state State-chartered banks and federal credit unions.

As it stands, the interchange fee restrictions will apply to card issuers whose cardholders who use their cards or cardholder data for purchases in the state of Illinois. As the July 1^st compliance date nears, debit and credit card issuers will need to prepare for compliance by (i) tracking Illinois state and local taxes; (ii) creating procedures to receive and review merchant documentation regarding the amount of the taxes; (iii) informing merchants to which address to mail the documentation; (iv) creating procedures to pay merchants refunds within 30 days of receipt of the documentation; (v) training employees on the new procedures; and (vi) revising accounting practices for this trailing activity. Card issuers will also need to work with their payment networks to determine the process to include any previously issued merchant refunds in the chargeback process. We expect a manual process for card issuers until merchant acquirers can update the point of sale terminals in the state of Illinois to bifurcate taxes and gratuities from the purchase amount. Reach out to Winthrop if you need assistance in creating these compliance procedures.

This is a devastating ruling for the payment card industry; an industry that is still waiting for the merchant promised discounts after the Regulation II’s regulation of debit card interchange. The plaintiffs bank associations issued the following a joint statement in response to the Court’s ruling:

We are deeply disappointed by today’s ruling, and given the July 1 implementation date of the Illinois Interchange Fee Prohibition Act, we will appeal this decision. As the co-plaintiffs demonstrated and the OCC agreed, IFPA is clearly and fully preempted by federal law. The decision not to protect the payment system from this misguided state law is a serious error that will unleash chaos and confusion on Illinois consumers and businesses. We cannot let that stand.

In light of this outcome, we renew our call for state lawmakers to repeal this flawed law before it can do any more harm to the Illinois economy. The fight over IFPA and any similar proposal will continue.

Illinois is the first state to enact interchange fee restrictions. Unfortunately, this order may open up the flood gates for other states to enact similar legislation. Winthrop will monitor for copycat laws. Winthrop will monitor the case on appeal to the Seventh Circuit.

On January 22, 2026, the Federal Deposit Insurance Corporation (FDIC) issued a final rule to amend the signage requirements at 12 CFR 328.4 and 328.5 to provide insured depository institutions with greater flexibility in the display of FDIC signage on digital deposit-taking channels and ATMs and like devices. Compliance is required by April 17, 2027.

Background

On December 20, 2023, the FDIC adopted a final rule entitled “FDIC Official Signs and Advertising Requirements, False Advertising, Misrepresentation of Insured Status, and Misuse of the FDIC’s Name or Logo.” The final rule established FDIC signage requirements across banking channels and required full compliance by January 1, 2025. On October 17, 2024, the FDIC delayed the compliance date for the amendments to part 328 subpart A from January 1, 2025 to May 1, 2025. The FDIC further delayed the compliance date until January 1, 2027 for the amendments in Sections 328.4 and 328.5, which include the requirements for displaying the digital sign in digital and ATM channels. The delayed compliance date was intended to allow the FDIC time to develop proposed changes to the regulation to address implementation concerns and potential sources of confusion. However, the delay did not apply to the other amendments made by the final rule to on-premise signage, which went into effect on May 1, 2025.

In August 2025, the FDIC published a notice of proposed rulemaking related to 12 CFR 328.4 and 328.5 and the requirements regarding the (1) FDIC official digital sign design; (2) display of signage on digital deposit-taking channels; and (3) display of signage on ATMs and like devices. The comment period ended on October 20, 2025. Upon consideration of the public comments, implementation costs, ongoing compliance costs, benefits to consumers, and effect on small banks, the FDIC issued the final rule as described in greater detail below.

FDIC Official Digital Sign on Websites and Digital Banking Applications

This section applies to signage for digital deposit-taking channels, including insured bank’s websites and web-based or mobile applications, that offer the ability to make deposits electronically and provide access to deposits. The final rule:

• Gives banks some flexibility in the color, font, and text size that institutions may use when displaying the FDIC official digital sign.
• Requires display of the digital sign on a bank’s homepage, login page, and first page of the deposit account opening process.
• Narrows the requirement to display non-deposit signage only to pages primarily dedicated to advertising or providing information about, or access to, non-deposit products.
• Permits the one-time notification for bank customers related to third-party non-deposit products to automatically disappear after three seconds.
• Provides examples of the FDIC official digital sign and non-deposit signage placement that would satisfy the “clear, continuous, and conspicuous” standard as follows:

1. 1. The homepage of a bank’s website that continuously displays the FDIC official digital sign near the top of the page and adjacent to the bank’s name;
   2. The login page for bank’s mobile application that displays the FDIC official digital sign immediately adjacent to the username and password fields;
   3. The deposit account opening page for bank’s web-based application that displays the FDIC official digital sign near the top or center of the page; and
   4. With respect to non-deposit signage, a page on bank’s website promoting, for example, annuities available for purchase, with non- deposit signage appearing towards the bottom of the page in a manner that distinguishes the text of the non-deposit signage from the smallest text on the page using, for example, bold or larger text, or surrounding the signage with a text box.

FDIC Signage on ATMs and Like Devices

This section applies to signage for bank’s deposit-taking ATMs and other remote electronic facilities (referred to as “like devices). The final rule:

• Narrows the requirement for the display of the digital sign and non-deposit signage to apply only to the initial screen and initial non-deposit transaction screen, respectively.
• Clarifies that the sign does not have to display on a screen saver or an advertisement for products, services, or events.
• Allows the following devices to display the physical FDIC official sign rather than the FDIC official digital sign for : (1) ATMs and like devices placed into service after April 1, 2027 that do not permit an insured depository institution’s customer to transact with a non-deposit product and (2) ATMs and like devices placed into service on or before April 1, 2027.
• For ATMs and like devices that both receive deposits and permit the bank’s customer to transact with one or more non-deposit products, the ATM or device must display signage on the first page or screen displayed upon initiating a transaction with a non-deposit product indicating that the non-deposit products: are not insured by the FDIC; are not deposits; and may lose value.

If you have questions about implementing the FDIC signage requirements and related policies, reach out to the financial services attorneys at Winthrop & Weinstine, P.A.

On January 9, 2026, the U.S. Department of Treasury issued a Geographic Targeting Order and FinCEN Alert to enhance financial activity reporting and combat fraud in Minnesota.

Geographic Targeting Order

The Geographic Targeting Order (Order) requires banks (as defined in 31 CFR 1010.100(d)) and money transmitters with locations in Hennepin and Ramsey Counties to file to report additional information with FinCEN when they originate transactions in the amount of $3,000 or more to beneficiaries/recipients that are located outside of the United States. In addition to reporting all information required to be retained under 31 CFR 1020.410(a)(1) and (2), the bank is required to report the following information (regardless of whether the information is provided with the payment order):

1. The name and employer identification number of the bank;
2. The account number of the originator;
3. The name of the beneficiary;
4. The address of the beneficiary;
5. The date of birth of the beneficiary;
6. A phone number of the beneficiary;
7. An email address of the beneficiary;
8. The account number of the beneficiary;
9. Whether the source of funds for the transfer includes payments that are from any federal, state, or local government contract or benefit program; and
10. If the answer to question (9) is yes, whether those payments are from government agencies to entities in which the originator has any ownership interest.

The Order may require the bank to modify procedures and collect additional information from the customer for any affected transactions. The reporting will also require the bank to review the account to determine the source of funds for the transaction or inquire for any customers that deposit cash to fund such transactions. The Order indicated that the bank can rely upon information provided by the customer, absent knowledge of facts that would reasonably call into question the reliability of the information provided. The Order covers affected transactions between February 12, 2026, and August 10, 2026, and requires bank reporting by the end of the next month after the transaction date. The Order directs bank to retain records of all reports filed and any related compliance records until August 10, 2031, and make such records available upon request to FinCEN or any other appropriate law enforcement or regulatory agency, in accordance with applicable law. This means that the regulatory or law enforcement agency must comply with existing laws to obtain access to such banking records.

The Right to Financial Privacy Act (RFPA), 12 U.S.C. 3401 et seq., establishes specific procedures that federal government authorities must follow to obtain information from a financial institution about a customer’s financial records. For purposes of RFPA, a customer is defined as any individual (or representative of that individual) or a partnership of five or fewer individuals who utilized or is utilizing any service of a financial institution, or for whom a financial institution is acting or has acted as a fiduciary, in relation to an account maintained in the customer’s name. Therefore, restrictions in the RFPA do not apply to the financial records of corporations or partnerships with six or more partners. The RFPA requires the federal government authorities to obtain administrative summons or subpoenas, notify the customers and provide the customer the opportunity to object.

Banks should follow their standard operating procedures for releasing information to law enforcement or government agencies. For example, banks are not required to voluntarily share requested information with members of state or federal legislatures that seek information without providing a legislative or congressional subpoena or a warrant. Information shared with such persons or agencies who do not act in a supervisory capacity over the bank will not be treated as confidential supervisory information and will be subject to disclosure in any information requests. Banks should also consider their privacy policies before sharing any customer information.

FinCEN Alert

The FinCEN Alert has broader implications for all Minnesota-based banks and is not limited to Hennepin and Ramsey Counties as the above-mentioned targeting order. The alert was issued to “to urge financial institutions to identify and report fraud associated with Federal child nutrition programs, particularly past and ongoing suspicious activity potentially related to fraudsters in Minnesota.” FinCEN and federal law enforcement agencies have identified the red flag indicators to help banks detect, prevent, and report potential suspicious activity related to fraudsters targeting the Federal child nutrition programs in Minnesota. The alert suggests that banks should consider whether in connection with historical activity and prevailing business practices, the customer exhibits any of the following red flags for suspicious activity report (SAR) filings:

• A customer is a company or NPO serving as a sponsor for a government benefit program that suddenly receives and disburses a significant number of reimbursements in a short timeframe inconsistent with the customer profile of other similar entities.
• A customer is a recently established company or NPO enrolled in a government benefit program that is suddenly receiving a significant amount of Federal payments soon after starting its operations.
• A customer is a recently established company or NPO enrolled in a government benefit program receiving payments to their accounts that are inconsistent with their customer profile.
• A customer is a company or NPO enrolled in a government benefit program but is unable to verify its status to the financial institution or its customer profile is not commensurate with other similar entities.
• A customer is a company or NPO enrolled in a government benefit program that is receiving a significant amount of reimbursements despite limited operations.
• A customer is a recently established company or NPO enrolled in a government benefit program with a limited online presence.
• A customer is a company or NPO enrolled in a government benefit program that has minimal to no operating costs other than payments for “consulting fees” and nondescriptive, repetitive invoices (i.e. food supplies).
• A customer that is a company or NPO enrolled in a government benefit program makes a significant amount of cash withdrawals.
• A customer with previous fraud convictions is an employee of a company or NPO enrolled in a government benefit program.
• A customer is an employee of a company or NPO enrolled in a government benefit program that is frequently purchasing or redeeming cashier’s checks for no clear purpose.
• A customer that is a company or NPO, enrolled in a government benefit program, or the customer’s employee, engages in behavior suggesting efforts to evade the Currency Transaction Report (CTR) reporting requirement (e.g., alters or cancels a transaction when advised a CTR would be filed or engages in structuring with multiple cash transactions for under $10,000), as well as avoiding recordkeeping requirements.
• A customer is a company or NPO enrolled in a government benefit program meant for U.S. citizens and lawful permanent residents that is sending a significant amount of wire transfers to individuals and companies located in foreign jurisdictions.
• A customer is a company or NPO enrolled in a government benefit program that is sending payments abroad for residential and commercial real estate, vehicles, aircraft, airline tickets, and designer clothing.

The alert further encourages banks to file such SARs as soon as possible regardless of threshold and to reference the Alert in SAR field 2 (Filing Institution Note to FinCEN) and the narrative by including the key term “FIN-2026-MNFRAUD” and select SAR field 34(z) (Fraud – Other) and include the term “Federal Child Nutrition Programs” in the text box. The additional red flags may require changes to compliance policies and related trainings on red flags.

If you have questions about the Geographic Targeting Order and FinCEN Alert or are facing requests from law enforcement or agency actions, reach out to the financial services attorneys at Winthrop & Weinstine, P.A.