From Patchwork to Policy: The Federal Government’s New Approach to AI Regulation

Artificial Intelligence has been quite the hot topic lately, and in my last blog, I explained how emerging state laws could be a sign for what’s to come at the federal level. Well, that time has come and the wheels have gone into motion for establishing a federal framework.  On December 11, President Trump signed the Ensuring a National Policy Framework for Artificial Intelligence Executive Order (“EO”). The ultimate goal of the EO is to direct the federal government to establish a national standard that allows U.S. AI companies to “be free to innovate without cumbersome regulation.”  
The EO gives three reasons that “excessive” state regulation in AI hinders innovation, burdens business, and hinders U.S. global competitiveness:

1.    State-by-State regulation, by definition, creates a patchwork of 50 different regulatory regimes that makes compliance more challenging, particularly for start-ups.
2.    State laws are increasingly responsible for requiring entities to embed ideological bias within models.
3.    State laws sometimes impermissibly regulate beyond State borders, impinging on interstate commerce.

The EO sets forth a policy to guide the national framework ensuring that “children are protected, censorship is prevented, copyrights are respected, and communities are safeguarded.”  The EO sets certain actions to be taken by the administration until the expected national standard is established:

AI Litigation Task Force
Within 30 days of the EO, the Attorney General must set up a task force to legally challenge state AI laws that conflict with the federal policy. These challenges may include claims that those laws unconstitutionally affect interstate commerce, are preempted by existing federal regulations, or are otherwise unlawful.

Evaluation of State AI Laws
Within 90 days of the EO, the Commerce Secretary must publish an evaluation of existing state AI laws to identify those considered “onerous” or conflicting with the national policy.

Restriction of State Funding
Within 90 days, the Secretary of Commerce must issue guidance making states with identified onerous AI laws ineligible for Broadband Equity Access and Deployment (“BEAD”) funds, as allowed by law, and explain how fragmented state AI rules could undermine broadband deployment, AI growth, and universal connectivity. Additionally, agencies must review discretionary grants and may condition funding on states not enacting conflicting AI laws, or on states with such laws agreeing not to enforce them while receiving federal funds.

Federal AI Reporting and Disclosure Standard
The FCC must initiate a proceeding within 90 days of the EO to consider adopting a federal AI reporting and disclosure standard that would override conflicting state laws, in consultation with the Special Advisor for AI and Crypto.

Preemption of State Laws Mandating Deceptive Conduct in AI Models
Within 90 days, the FTC must issue a policy statement explaining how the FTC Act’s ban on unfair or deceptive practices applies to AI. The statement must clarify when state laws that require AI systems to alter truthful outputs are preempted because they mandate deceptive conduct.

Legislation
The Special Advisor for AI and Crypto and the Assistant to the President for Science and Technology will propose legislation for a uniform federal AI policy that preempts state laws conflicting with the national approach. However, some areas, such as child safety protections, state AI procurement, and infrastructure issues, are specified as not to be preempted by that proposed federal law.

The EO marks a significant shift toward a centralized federal approach to AI regulation, indicating that the era of patchy, state-by-state AI oversight may be coming to an end. While the framework is still in development, the Administration has clearly indicated its intent to prioritize innovation, uniformity, and encourage Congress to pass legislation establishing federal preemption where state laws are seen as obstructive.

For credit unions, this evolving landscape presents both opportunity and responsibility. A more consistent national AI standard could reduce compliance complexity and support broader adoption of AI-driven tools across lending, fraud prevention, and member engagement. At the same time, credit unions must remain attentive to federal expectations around transparency, accuracy, and consumer protection, ensuring that AI systems are governed responsibly and aligned with existing financial and fair lending requirements as the federal framework continues to take shape and evolve.