President Trump has signed a new executive order entitled “Presidential Executive Order on a Comprehensive Plan for Reorganizing the Executive Branch.”

Unlike the regulatory freeze memo issued on Inauguration Day by Reince Priebus, the President’s Chief of Staff, the so-called “two for one” executive order on reducing regulation and controlling costs, and the executive order to enforce compliance with the regulatory reform agenda, the new order, on its face, does appear to apply to independent regulatory agencies including the CFPB.

The new order directs the OMB Director “to propose a plan to reorganize governmental functions and eliminate unnecessary agencies (as defined in section 551(1) of title 5, United States Code), components of agencies, and agency programs.”  Section 551(1) defines “agency” as “each authority of the Government of the United States, whether or not it is within or subject to review by another agency,” with certain exceptions that do not include independent regulatory agencies.

The order provides that within 180 days, “the head of each agency shall submit to the [OMB] Director a proposed plan to reorganize the agency, if appropriate, in order to improve the efficiency, effectiveness, and accountability of that agency.”  It also requires the OMB Director to publish a notice in the Federal Register inviting suggestions from the public for improving the organization and functioning of the executive branch.

Within 180 days after the deadline for the submission of suggestions by the public, the OMB Director must submit a proposed plan to the President “to reorganize the executive branch in order to improve the efficiency, effectiveness, and accountability of agencies.”  The proposed plan must include, “as appropriate, recommendations to eliminate unnecessary agencies, components of agencies, and agency programs, and to merge functions” and “recommendations for any legislation or administrative measures necessary to achieve the proposed reorganization.”

Since the CFPB was created by the Dodd-Frank Act and much of its internal structure is dictated by Dodd-Frank, any proposal to eliminate or substantially restructure the CFPB could not be implemented by the President unilaterally but would require Congress to amend Dodd-Frank.

 

 

As part of his 100-day action plan, the President promised to institute a regulatory moratorium by requiring that for every new federal regulation, two existing regulations must be eliminated.  On January 30, 2017, the President signed an executive order that purported to accomplish this goal by requiring agencies to “identify” two rules to be revoked for every new rule they propose, and to find ways to offset costs of new rules.  Commentators have argued that this executive order is difficult to implement and fails to consider the benefits of new regulations.  On February 24, 2017, the President signed another executive order aimed at pressuring regulatory agencies to be less aggressive in promulgating new rules.

Under the President’s new order, the head of each agency must (1) designate an agency official as its Regulatory Reform Officer within 60 days, (2) establish a Regulatory Reform Task Force, and (3) measure its progress related to regulatory reform objectives.  Each Task Force must evaluate existing regulations and make recommendations to the agency head regarding their repeal, replacement, or modification, consistent with applicable law, and in doing so, must seek input from State, local, and tribal governments, small businesses, consumers, non-governmental organizations, and trade associations.  Regulations that are identified as being outdated, unnecessary, or ineffective will be prioritized for regulatory offset pursuant to the January 30, 2017 Executive Order.

The executive order provides a deadline of 90 days for each Task Force to prepare a report detailing its progress toward implementing regulatory reform initiatives and identifying regulations for repeal, replacement, or modification.  Given this tight timeline, agency Task Forces will likely rely upon submitted comments.  Thus, industry participants should seek counsel regarding which regulations might be particularly susceptible to attack and hasten to prepare advocacy letters regarding such regulations.

Much like his previous order regarding regulatory reform, this order should not literally apply to independent agencies like the CFPB.  It is unclear whether the CFPB will voluntarily comply with the requirements of this order.

Interim Guidance issued by the Office of Information and Regulatory Affairs (OIRA) to implement President Trump’s executive order entitled “Reducing Regulation and Controlling Regulatory Costs” confirms that the order does not apply to independent agencies.  The executive order, issued on January 30, includes the requirement for an agency that publicly proposes a new regulation for notice and comment to identify at least two existing regulations to be repealed.

The guidance states that the executive order’s so-called “2 for 1” requirement and related limit on incremental cost resulting from any new regulations only apply to agencies required to submit significant regulatory actions to OIRA for review before publication in the Federal Register pursuant to Executive Order 12866.  As discussed in a previous blog post, the OIRA review requirement does not apply to agencies defined as an “independent regulatory agency” by 44 U.S.C. Sec. 3502(5), which include the CFPB.

Nevertheless, the guidance states that “we encourage independent regulatory agencies to identify existing regulations that, if repealed or revised, would achieve cost savings that would fully offset the costs of new significant regulatory actions.”

The guidance therefore confirms that unless the Trump Administration takes the position that it does not have to wait for the PHH appeal to be resolved before it considers the CFPB to no longer be an independent regulatory agency, the executive order does not currently apply to the CFPB except on a voluntary basis.

President Trump has signed an executive order entitled “Reducing Regulation and Controlling Regulatory Costs.”

Like the regulatory freeze memo issued on Inauguration Day by Reince Priebus, the President’s Chief of Staff, the executive order appears to apply only to “an executive department or agency.” Since the D.C. Circuit’s PHH decision changing the CFPB’s structure from an independent to an executive agency has not yet taken effect, the Executive Order should not currently apply to the CFPB.

According to a Reuters report, the White House has confirmed that the new executive order does not apply to independent agencies.  However, as we have previously discussed, the Trump Administration could take the position that it does not have to wait for the PHH appeal to be resolved before it considers the CFPB to no longer be an independent agency.

The executive order includes the following requirements:

  • If an agency publicly proposes a new regulation for notice and comment, it must identify at least two existing regulations to be repealed.
  • For FY 2017, the total incremental cost of an agency’s new regulations, including repealed regulations, to be finalized this year shall be no greater than zero unless otherwise required by law or consistent with written advice provided by the Director of the OMB.  Any new incremental costs associated with new regulations shall be offset by the elimination of existing costs associated with at least two prior regulations.
  • During the Presidential budget process, the Director shall identify a total amount of incremental costs that will be allowed for each agency in issuing new regulations and repealing regulations for the next fiscal year.

Republican Congressman Jeb Hensarling, who chairs the House Financial Services Committee, has sent a letter to Director Cordray asking him to provide written assurance by October 26, 2016 that, as a result of the D.C. Circuit’s decision in PHH Corporation v. CFPB, the CFPB will comply with the limits on executive agencies set forth in various executive orders.

On November 1, 2016, from 12:00 pm to 1:00 pm ET, Ballard Spahr attorneys will conduct a webinar: The Landmark Opinion of the D.C. Circuit Court of Appeals in PHH v. CFPB.  Information about the webinar and a link to register is available here.

In its PHH decision, the D.C. Circuit ruled that the CFPB’s single-director-removable-only-for-cause structure is unconstitutional.  To remedy the constitutional defect, the court severed the removal-only-for-cause provision from the Dodd-Frank Act so that the President “now has the power to supervise and direct the Director of the CFPB, and may remove the Director at will at any time.”  As the court stated, the consequence of this structural change is that the CFPB is no longer an “independent agency” and instead “now will operate as an executive agency.”

As we have observed, pursuant to Executive Order 12866, executive agencies, unlike independent agencies, are subject to the regulatory review process of the Office of Information and Regulatory Affairs (OIRA) within the Office of Management and Budget.  Executive Order 12866 requires federal agencies, other than those defined as an “independent regulatory agency” by 44 U.S.C. Sec. 3502(5), to submit proposed and final regulations constituting a “significant regulatory action” to OIRA for review prior to publication in the Federal Register.  A key component of OIRA’s review is an evaluation of the agency’s analysis of a regulation’s anticipated costs and benefits and its determination that the regulation’s anticipated benefits justify its anticipated costs as well as the agency’s identification and assessment of feasible alternatives.

Congressman Hensarling’s letter cites to various executive orders that impose regulatory requirements on executive agencies.  In addition to Executive Order 12866, the letter cites to three other executive orders: (1) Executive Order 13563 which requires executive agencies, in connection with applying the requirements of Executive Order 12866, to “use the best available techniques to quantify anticipated present and future costs and benefits as accurately as possible,” (2) Executive Order 13132 which requires executive agencies to prepare a “federalism summary impact statement” for a rule that “has federalism implications, that imposes substantial direct compliance costs on State and local governments, and that is not required by statute,” and (3) Executive Order 13175 which requires executive agencies to consult with tribal officials before promulgating a rule with tribal implications.  (For purposes of Executive Order 13123, a rule with “federalism implications” is one that has “substantial direct effects on the States, on the relationship between the national government and the States, or on the distribution of power and responsibilities among the various levels of government.”)

In his letter, Mr. Hensarling asks Director Cordray to provide written assurance by October 26, 2016 “that the CFPB will comply in full with the requirements of Executive Orders 12866, 13563, 13132, and 13175 prior to issuing any future final rule, including rules governing arbitration agreements; payday, vehicle title, and installment loans; and debt collection.”  Assuming he responds to Mr. Hensarling, Director Cordray is likely to observe that the PHH decision is not yet effective, with the D.C. Circuit having issued an order directing the Clerk of the Court not to issue the mandate in the case until seven days after disposition of a timely petition for a rehearing or petition or petition for rehearing en banc and that, under circuit rules, the CFPB has 45 days to file a petition for a rehearing. Perhaps Director Cordray’s response will reveal whether the CFPB intends to seek a rehearing by the November 25 deadline (which we believe is very likely).

In response to Mr. Hensarling’s letter, Americans for Financial Reform issued a statement taking issue with the immediate application of the executive orders to the CFPB.  However, rather than noting the court’s withholding of the mandate, AFR stated that the CFPB is not subject to the executive orders because they “specifically exclude any agency defined as an “independent regulatory agency” by 44 U.S.C. 3502(5), which lists the CFPB by name.  PHH v. CFPB did nothing to change that statutory definition.”  In our view, notwithstanding that the CFPB is currently defined as “independent regulatory agency,” if the D.C. Circuit’s decision takes effect, the CFPB should no longer be considered an “independent regulatory agency” for purposes of the executive orders.