February 1, 2017

CFPB Rulemaking in the Trump Administration

4 min

The Trump Administration has taken two actions regarding agency rulemaking. The first, in a document titled "Memorandum for the Heads of Executive Departments and Agencies" (the "regulatory freeze"), the Administration directed recipients to "send no regulation to the Office of the Federal Register (OFR) until a department or agency head appointed or designated by the president after noon on January 20, 2017 reviews and approves the regulation." The memorandum also directs recipients to withdraw "regulations that have been sent to the OFR but not published in the Federal Register."

For published regulations, the Administration directs agencies to delayed he effective date for 60 days from the date of the memorandum. The memorandum defines "regulation" as rulemaking activity usually published in the Federal Register, as well as "any agency statement of general applicability and future effect 'that sets forth a policy on a statutory, regulatory, or technical issue or an interpretation of a statutory or regulatory issue.'"

The second action is an Executive Order titled "Reducing Regulation and Controlling Regulatory Costs" (not yet published in the Federal Register). Important features of the order include:

  • A requirement that an agency identify two existing rules to be repealed for every new regulation it adopts.
  • The establishment of a Regulatory Budgeting process starting in Fiscal Year 2018, to be run by OMB; and
  • A requirement that for Fiscal Year 2017 "the total incremental cost of all new regulations, including repealed regulations, to be finalized this year shall be no greater than zero." Two exceptions are provided to this requirement:
    • If a rule is required by law; or
    • If OMB informs the agency in writing that it may proceed with a rule.

While it remains unclear whether the regulatory freeze applies to independent agencies, such as the CFPB, SEC, Federal Reserve, OCC, FDIC, and NCUA, it has been reported that the Administration has clarified that its order reducing regulation "will not apply to independent regulatory agencies such as the Securities and Exchange Commission." It is worth noting that the regulatory freeze memorandum uses the language "executive departments and agencies," similar to the language setting the scope of the Order ("executive department or agency").

According to an interview with Director Cordray, the CFPB is still considering the effect of the regulatory freeze memorandum. Another independent agency, the NCUA, is reported to have taken the position that the memorandum does not apply to the agency (and, in any event, the NCUA Board has a Trump-appointed member able to approve regulations), but states that the agency will attempt to "comply with the spirit of the memo."

Regarding the CFPB, the application of the regulatory freeze memorandum may also hinge on whether the Bureau remains an independent agency. A recent D.C. Circuit opinion, PHH Corp. v. CFPB, discussed here, could call the Bureau's status into question by severing the "for-cause" removal provision from the Dodd-Frank Act. The CFPB is currently seeking a rehearing of that decision before the D.C. Circuit.

The CFPB has several major rules pending that could be affected by the freeze, including amendments to the Bureau's "Know Before You Owe" (or, "TRID") rules, a proposed rule on small-dollar loans (i.e., payday loans), and a proposed rule restricting class action waivers in arbitration agreements, among others. The Bureau is also conducting ongoing work to develop a proposed rule covering debt collection and many other initiatives.

Also, on January 31, 2017, more than a week after the regulatory freeze memorandum was released, the CFPB released a Small Entity Compliance Guide for the Prepaid Rule (many of the provisions of which become effective on October 1, 2017). The Bureau has periodically issued bulletins and other informal guidance and summaries, such as the Small Entity Compliance Guides, making the specific application of the regulatory freeze memorandum uncertain (should the Bureau follow it generally).

In an interview with the Wall Street Journal, Director Cordray highlighted the importance of the CFPB's status as an independent agency (stating that such independence is " important" and "worth fighting for"), the positive effect of rulemaking for industry participants (since rules can clarify obligations and requirements in ways that reduce costly uncertainty), and the ongoing focus on enforcement activity.

The interconnection of the PHH case, Director Cordray's position, the CFPB's independent agency status, and the agency's rulemaking efforts provides a great deal of uncertainty with regard to pending rulemaking. To be sure, however, the CFPB's enforcement activities have not slowed down. The Bureau has filed seven enforcement actions since the inauguration.