Congress Blocks AI Regulation Ban: What It Means for Businesses and the Rise of State-Level AI Laws

By: De'Von Carter

In a dramatic turn of events earlier this month, Congress rejected a sweeping federal proposal that would have banned state-level regulation of artificial intelligence for ten years. The provision, tucked into the broader “One Big Beautiful Bill” tax and spending package, was seen by many as a direct attempt to shield Big Tech from the growing wave of state-led AI oversight. But in a rare bipartisan moment, the Senate voted 99–1 to strike the moratorium, preserving the rights of states to regulate AI within their borders.

As an attorney advising businesses on emerging technologies, I see this as a pivotal moment. The federal government’s failure to preempt state regulation means we’re entering a patchwork era of AI compliance, which is a continuation of what we have seen with data privacy laws.  For companies developing or deploying AI systems, this means more complexity, more risk, and more need for legal strategy.

What Was the AI Moratorium? Originally passed by the House, the moratorium would have prohibited states from regulating AI systems for a decade, with limited exceptions. The Senate version softened the language, offering federal infrastructure funding in exchange for a voluntary pause on AI regulation. But even that compromise was rejected after intense lobbying from civil rights groups, child safety advocates, and state lawmakers.

The tech industry had pushed hard for the ban, arguing that a fragmented regulatory landscape would stifle innovation. But critics warned that without state oversight, AI systems could operate unchecked, which  would raise concerns about bias, surveillance, and consumer harm.

What Happens Now? With the moratorium blocked, states retain full authority to regulate AI technologies. This means businesses must now track and comply with a growing list of state-specific laws, each with its own definitions, requirements, and enforcement mechanisms.

Here are some of the notable state-level AI laws that have already passed (as of July 2025):

California

• Proposed AI Accountability Act (pending finalization)

• Focus on transparency, bias audits, and consumer rights

Colorado

• Requires impact assessments for high-risk AI systems

• Mandates opt-out options for automated decision-making

Connecticut

• Emphasizes algorithmic fairness and public disclosures

• Applies to both public and private sector AI use

Illinois

• Biometric Information Privacy Act (BIPA) extended to cover AI facial recognition

• Strict consent and litigation risk

Texas

• Recently passed AI Disclosure Act

• Requires businesses to notify consumers when AI is used in decision-making

Virginia

• AI systems used in employment and housing must undergo bias testing

• Enforcement tied to consumer protection laws

Each of these laws reflects different priorities. Some focus on consumer transparency, others on algorithmic fairness, and still others on sector specific risks like employment or healthcare.

So, what should businesses do? If you're building or using AI tools, here’s what I recommend:

1. Map your AI systems so you know where and how AI is used in your operations.

2. Track state laws in order to stay ahead of new legislation in states where you operate.

3. Build compliance into design. Consider bias audits, opt-out mechanisms, and clear disclosures.

4. Consult legal counsel early. (Maybe a little self serving, but not really). AI regulation is evolving fast, so don’t wait until you're facing enforcement.

At Fourscore, we help innovative companies navigate complex legal landscapes. If your business is working with AI, now is the time to get proactive.

Picture on the top is by Louis Velazquez and is in the public domain.

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