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Trump Administration issues regulatory freeze; application to CFPB uncertain

Posted in CFPB Rulemaking

On Inauguration Day, Reince Priebus, Assistant to the President and Chief of Staff, issued a “Memorandum for the Heads of Executive Departments and Agencies” with the subject line “Regulatory Freeze Pending Review” that directs the 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 memo also directs the recipients to immediately withdraw any regulations that have been sent to the OFR but not yet published in the Federal Register and to postpone the effective date of any published regulations that have not yet taken effect.

Since the memo does not identify by name the “executive department and agencies” to which it was sent, it cannot be determined with certainty whether the memo was sent to the CFPB.  A 2012 report by the Congressional Research Service discusses similar freeze memos that were issued by the Chiefs of Staff to Presidents Bill Clinton, George W. Bush, and Barrack Obama.  The report states that such memos “have generally exempted regulations issued by independent [agencies].”  That statement finds support in language that was included in the memo issued by Andrew Card, President Bush’s Chief of Staff.  Mr. Card’s memo stated: “[I]n the interest of sound regulatory practice and the avoidance of costly, burdensome, or unnecessary regulation, independent agencies are encouraged to participate voluntarily in this review.”

The inclusion of this language in Mr. Card’s memo suggests that the Bush Administration believed it did not have the authority to mandate a regulatory freeze by independent agencies and supports the conclusion that Mr. Priebus’ memo was not intended to apply to independent agencies.  That conclusion is also supported by the President’s inability to replace the leadership of an independent agency at will and the fact that most independent agencies are run by commissions whose members have staggered terms.  Since Mr. Preibus’ memo mandates a freeze until a regulation is reviewed and approved by a “department or agency head appointed or designated by the President after noon on January 20, 2017,” it appears intended to apply to an agency headed by a single individual.  In addition, assuming the absence of cause to replace an independent agency’s leadership, there could be a considerable delay until the new President could appoint new leadership.  (For example, Director Cordray’s term does not expire until July 2018.)  It seems doubtful that the memo was intended to result in such a lengthy freeze.

Given all of the above, whether the Trump Administration sent the memo to the CFPB likely depends on whether it considers the CFPB to no longer be an “independent agency” in light of the D.C. Circuit’s PHH decision.  In PHH, the D.C. Circuit ruled that that the CFPB’s single-director-removable-only-for-cause structure is unconstitutional and, to remedy the constitutional defect, 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.”  The court stated that as a result of this structural change, the CFPB is no longer an “independent agency” and instead “now will operate as an executive agency.”

The PHH decision has not become effective because issuance of the mandate was stayed until the D.C. Circuit rules on the CFPB’s petition for rehearing en banc.  If the petition is granted, D.C. Circuit rules provide that the panel’s judgment, but ordinarily not its opinion, will be vacated.  Thus, the Trump Administration might take the position based on the PHH decision that the CFPB is now an executive agency.  The Trump Administration’s position on the application of Mr. Priebus’ memo to the CFPB may be revealed by President Trump’s actions regarding Director Cordray’s tenure, more specifically whether he attempts to remove Director Cordray while the PHH appeal is pending and, if so, takes the position that he can remove Director Cordray without cause.  (Conflicting views have been expressed on the new President’s removal authority.)