Financial services companies that hoped for immediate regulatory relief when the Trump Administration assumed control may have to wait a bit longer, because the newly announced freeze on federal regulations does not appear to apply across the board. “Independent regulatory agencies,” such as the Consumer Financial Protection Bureau (“CFPB”), the Federal Reserve Board, the Office of the Comptroller of the Currency (“OCC”), the Federal Deposit Insurance Corporation (“FDIC”), and the Securities and Exchange Commission (“SEC”) may be excluded from that moratorium.
Immediately after the Trump Administration took office on January 20, 2017, the White House issued a memorandum to all executive departments and agency heads ordering a freeze on regulatory actions. The memorandum echoes Trump’s campaign pledge to “issue a temporary moratorium on new agency regulations that are not compelled by Congress or public safety.” Agencies are prohibited from sending any new regulation to the Office of the Federal Register (“OFR”) until a Trump-appointed agency head reviews and approves the regulation. Regulations already submitted to the OFR but not yet published in the Federal Register must be withdrawn, and regulations already published in Federal Register but not yet in effect must have their effective date postponed for 60 days. “Guidance documents,” or agency policies and interpretations of statutory or regulatory issues, also are subject to the regulatory freeze. The only exceptions the memorandum identifies are regulations subject to statutory or judicial deadlines, and regulations that “affect critical health, safety, financial, or national security matters,” as determined by the Office of Management and Budget (“OMB”) Director.
Although the memorandum appears sweeping in scope, banks and other financial service providers are not necessarily relieved from new regulations, as the regulatory freeze does not appear to apply to independent agencies. The memorandum defines “regulation” as “regulatory action” under Executive Order 12866, which is “any substantive action by an agency (normally published in the Federal Register) that promulgates or is expected to lead to the promulgation of a final rule or regulation, including notices of inquiry, advances notices of proposed rulemaking, and notices of proposed rulemaking.” Executive Order 12866 expressly exempts “those considered to be independent regulatory agencies” from its definition of “agency.” The term “independent regulatory agency” is defined pursuant to 44 U.S.C. § 3502(5) to include the CFPB, the Federal Reserve Board, the OCC, the FDIC, and the SEC.
However, the CFPB and other independent agencies remain subject to the Paperwork Reduction Act of 1980, which provides that an agency must not conduct information collection activities without the prior approval of the OMB Director. This means that while the OMB may not be able to prevent an independent agency from issuing a new rule, it can stop the agency from requiring the public to submit filings to comply with the rule.
It is too soon to tell if any particular “independent regulatory agency” believes that it is exempt from the freeze or, even if it is, it nevertheless will honor the memorandum’s spirit. According to an interview with CFPB Director Richard Cordray reported today by the Wall Street Journal, Director Cordray said that CFPB lawyers are “still digesting” the applicability of the freeze on independent agencies such as the CFPB. The question is not theoretical.
The CFPB’s regulations that have been published but are not yet effective include the Rule on Prepaid Accounts under the Electronic Fund Transfer Act and Truth in Lending Act (“TILA”) (published Nov. 22, 2016 and effective Oct. 1, 2017), and the Amendments to the 2013 Mortgage Servicing Rules under the Real Estate Settlement Procedures Act and TILA (published Oct. 19, 2016 and effective Oct. 19, 2017). Additionally, the CFPB has issued proposed rules prohibiting mandatory arbitration and addressing payday loans, and in the Fall of 2016, the CFPB also identified debt collection and business lending as part of its rulemaking agenda. While there may be other political forces at play that influence the CFPB’s actions with respect to its regulatory initiatives and guidance, the applicability of the “freeze” memorandum could well chill its future direction.