A push by the cryptocurrency industry to pass a monumental piece of federal legislation has run into a small, but loud, foe: an army of rural community banks.

Randy Dorn, who leads My Kind of Bank in the small northwest Minnesota town of Battle Lake, is among them and said the legislation as written will create unfair competition for banks like his.

He says he’s not anti-cryptocurrency but he is opposed to a bill that cruised through the House of Representatives — with Minnesota Republican Tom Emmer, the House majority whip, as one of its biggest supporters.

The bill, called the Clarity Act, sets guardrails for cryptocurrency companies. Both large and community banks say the bill does not put the same regulatory standards on crypto as it does traditional financial institutions.

Critics cite a loophole in current law that allows crypto companies to offer an interest-like reward that could entice people to move their money out of banks and into digital assets. They want senators to add language to the Clarity Act to repeal that loophole.

The legislation lands in the Senate as members return from recess this week, and will face some opposition because of the bankers’ campaign and an ethics provision some senators want because of President Donald Trump’s family ties to the industry.

Without a level regulatory playing field, small bankers see the cryptocurrency industry as an existential threat — to them and the small businesses and towns they support.

Dorn, speaking in August, had just finished a golf tournament fundraiser. “And 100% of those funds are staying locally,” he said.

Most cryptocurrency companies would not have that same local commitment, said Dorn, whose bank also has branches in Henning, Ottertail, Detroit Lakes and Evansville.

“(Larger banks) are tracking the amounts of deposits leaving their institutions and jumping into stablecoin, crypto, Coinbase, whatever,” Dorn said.

He worries he will need to do the same.

Legislation last year that set up the legal framework for the stablecoin (giving cryptocurrency a common value like dollar bills have) gave crypto companies leeway to establish systems for loyalty rewards, based on how much value someone holds in stablecoins or for how long. Banks believe that is akin to interest or yields, but without the added regulations that come with them.

“This isn’t anti-stablecoin,” said Bill LaVigne, the president and chief operating officer of the Bank of Elk River, which holds $720 million in assets and will soon have five locations with an addition in Andover, Minnesota. “(Our argument) is why don’t we do it right and protect the integrity of our banking system and country?”

The cryptocurrency industry already has more than $1 trillion in assets, and experts say it has the potential to generate more than $1 trillion in revenue for companies.

Banks believe that growth will come at their expense, and break the relationships that are necessary for community banks to survive.

Already, community banks — institutions with less than $10 billion in holdings — have faced consolidation and fiercer competition in the past decade. Big banks marketed online accounts and fintech companies that allow people to manage money without banks.

The crypto threat comes as the small banks have already seen their numbers in Minnesota drop from about 400 to 220 in 15 years.

Supporters of the act say community banks can weather the competition from crypto companies and, like fintech technology, they can integrate the currencies to their advantage. If community banks are too protectionist, they say, these smaller institutions could lose out on the upshot of the rapidly evolving sector.

“I look at it like when Blockbuster dug their heels into the sand and said, ‘Streaming is not going to be a thing,’ ” said Chase Larson, executive vice president and chief lending officer at St. Cloud Financial Credit Union. “If you look at the last few years, crypto continues to grow.”

Late last year, St. Cloud Financial Credit Union issued Cloud Dollar, the first credit-union-backed stablecoin in the U.S. Larson noted customer surveys revealed roughly 20% of credit union’s membership either already had or planned to purchase some digital assets.

Larson credits Emmer for championing crypto in Congress. Emmer did not respond to questions for this story.

Emmer has argued the regulatory uncertainty is driving innovation in the digital assets sector overseas. Even as the bill stalled in the Senate over the summer, the Republican has pushed for final passage.

“We’ve sent (the Clarity Act) a year ago with almost 100 Democratic votes,” Emmer told Fox News’ Sunday Morning Futures show on Aug. 30. “And it languishes in the Senate.”

Federal campaign records show Emmer-affiliated fundraising accounts have accepted big-dollar donations from crypto advocates, such as tech billionaire Marc Andreessen, New York-based tech entrepreneurs Cameron and Tyler Winkelvoss, and Brian Armstrong, the CEO of Coinbase.

So far laws have addressed specific aspects of cryptocurrency.

In Minnesota, for example, state-chartered banks and credit unions can provide what’s called cryptocurrency custody services. In other words, providing a vault for a crypto asset.

However, a state law banning crypto ATMs also went into effect this summer.

The federal GENIUS Act passed last year set regulations for issuing stablecoin, one form of cryptocurrency. That law included the reward language that the banks want undone in the Clarity Act.

The Clarity Act will set up a regulatory framework for a much wider group of cryptocurrencies, as well as exchanges, brokers, dealers and custodians.

Supporters say it creates a framework that will lend more credibility and trustworthiness to the industry and is needed to prevent foreign competitors from becoming major players in the U.S.

Alex Schoephoerster — a board member of MNblockchain, which is trying to champion and build the industry in the Twin Cities — said he knows the public has concerns about crypto, from possible fraud to ties with politicians such as Trump.

Yet crypto’s use continues to climb, particularly among young people. And Schoephoerster believes once the average consumer feels he or she can trust the industry’s regulatory environment, more will try it out.

In May, when the bill passed out of the U.S. Senate Banking Committee, Minnesota Sen. Tina Smith offered an amendment to put what her office called “ironclad restrictions” on stablecoin rewards. Committee chair Tim Scott, a South Carolina Republican, ruled the measure out of order.

“When you’re passing a regulation that could result in flight of deposits without any of the same consumer protections you have in a bank, I think that’s a big worry,” Smith said at a Semafor banking summit in Washington in June.

Some, though, believe big bank interests are pushing community banks to the forefront because they are a more sympathetic voice.

J.W. Verret, an associate law professor George Mason University in Virginia, said a Charles River report, commissioned by Coinbase, argues that small banks that adopt stablecoins are more likely to see an increase in deposits.

Large financial institutions are likely to lose more customers, he said.

Regardless, opposition from community banks has grabbed attention in Washington.

The bill didn’t get a vote on the Senate floor this summer. But Majority Leader John Thune, the South Dakota Republican, has set a procedural vote on the act for Tuesday.

At an August crypto industry conference in Jackson Hole, Wyoming, Arizona Sen. Ruben Gallego pointed out the yielded interest debate led to a “rift” among “four to five Republicans” before the congressional recess, stopping momentum for the Clarity Act.

Industry leaders see a limited time-frame for the GOP-controlled Congress to take action before the new Congress arrives in January. With a political shakeup possible, any future crypto bill could look vastly different.

Back in Battle Lake, Dorn said his bank wants to engage with crypto to make sure the product works for consumers.

“When those deposits leave our institution, we are not then investing them back into our communities,” said Dorn.

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