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President Trump issues executive order on core principles for regulating the financial system

Posted in CFPB General, CFPB Rulemaking

On February 3, 2017, the President issued an Executive Order titled “Core Principles for Regulating the United States Financial System.”  The Executive Order is a high-level policy statement consisting of a series of Core Principles that are designed to inform the manner in which the Administration regulates the financial system.

On March 6, 2017, Ballard Spahr will hold a webinar: “Leveling the Playing Field: CFPB Regulations and Guidance Targeted for Review by Treasury under President Trump’s February 3 Executive Order.”  In the webinar, we will identify CFPB regulations, guidance and policies which may run afoul of the core principles.  Click here to register.

The Executive Order was addressed during a press briefing held on the day it was issued.  During the press briefing, the White House Press Secretary explained that the Executive Order establishes “guideline principles that set[] the table for a regulatory system that mitigates risk, encourages growth, and more importantly, protects consumers.”  The Press Secretary asserted that the Dodd-Frank Act, which he said is “hindering our markets, reducing the availability of credit, and crippling our economy’s ability to grow and create jobs,” did not “address the causes of the financial crisis” or adequately address the risk posed by institutions that are “too big to fail.”

The Executive Order seeks to address these concerns by establishing seven “Core Principles,” which are the goals that will guide the Administration’s approach to financial services regulation.  Although none of them expressly mention the CFPB or consumer financial protection, four of the core principles implicate the regulation of consumer financial services:

  • Empower Americans to make independent financial decisions and informed choices in the marketplace, save for retirement, and build individual wealth;
  • Foster economic growth and vibrant financial markets through more rigorous regulatory impact analysis that addresses systemic risk and market failures, such as moral hazard and information asymmetry;
  • Make regulation efficient, effective, and appropriately tailored; and
  • Restore public accountability within Federal financial regulatory agencies and rationalize the Federal financial regulatory framework.

For example, the principle requiring a more rigorous regulatory impact analysis apparently foreshadows an emphasis by the Administration on the cost of regulation and its potential adverse economic effects.  While the final principle speaks for itself, additional context is evident from a remark that the Press Secretary made during his press briefing.  Specifically, the Press Secretary asserted that the Dodd-Frank Act “imposed hundreds of new regulations on financial institutions while establishing [an] unaccountable and unconstitutional new agency that does not adequately protect consumers.”

The CFPB and its advocates would vigorously contest the assertion that the Bureau has not adequately protected consumers, and some already have done so in response to the issuance of the Executive Order.  For example, in a press release condemning the Executive Order, Illinois Attorney General Lisa Madigan stated that “[t]he CFPB has a tremendous record of uncovering and ending unfair financial practices that undermine Americans’ financial security.”  Attorney General Madigan further stated that”[m]any predatory and unlawful financial practices that targeted consumers were at the heart of the country’s economic collapse.”

In addition to specifying a series of Core Principles, the Executive Order directs the Secretary of the Treasury to consult with the heads of the member agencies of the Financial Stability Oversight Council (FSOC) and report to the President “on the extent to which existing laws, treaties, regulations, guidance, reporting and recordkeeping requirements, and other Government policies promote the Core Principles and what actions have been taken, and are currently being taken, to promote and support the Core Principles.”  (The Director of the CFPB is one of the voting members of the FSOC.)  The Executive Order further requires that the report “identify any laws, treaties, regulations, guidance, reporting and recordkeeping requirements, and other Government policies that inhibit Federal regulation of the United States financial system in a manner consistent with the Core Principles.”  The report must be submitted within 120 days of the date of the Executive Order, which contemplates that additional reports will be submitted “periodically thereafter.”

In response to a question regarding whether the Administration planned on working with Congress to repeal provisions of the Dodd Frank Act, the Press Secretary responded that “I think we’re going to continue not just to act through administrative action, but through working with Congress and figuring out a legislative fix.”  During the press briefing, a member of the press also asked whether the Administration intended “to keep Richard Cordray as the head of” the CFPB.  The Press Secretary responded that, “I don’t have a staff announcement on the CFPB right now, but we’ll see where we go.”