What Trump’s regulatory moratorium means for CFPB payday rule

does freeze memo apply to payday ruleOn January 20, the Trump Administration issued a memo directing the recipients to freeze the review and final publication of pending regulations. The memo states, “send no regulation to the Office of the Federal Register (the “OFR”) until a department or agency head appointed by the President after noon on January 20, 2017, reviews and approves the regulation.” The memo clarifies that these instructions extend to “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, advance notices of proposed rulemaking, and notices of proposed rulemaking.”

Since the memo does not specify which “executive departments and agencies” received the memo, it is unclear whether the CFPB was among recipients of the directive. Further, there has been speculation about whether the memo would apply to the CFPB and pending regulations such as arbitration, debt collection and payday rulemaking.

Earlier this week, the National Law Review speculated that, “[t]he regulatory freeze does not directly affect the primary regulators that oversee the structure finance industry” such as the CFPB. The article goes on to suggest that the freeze should not apply to “the Payday Loan and Deposit Advance Product Rule, deemed in the ‘proposed rule stage’ by the CFPB.”

We agree. Here’s why:

The Dodd-Frank Act structured the CFPB as an independent agency. This means that the President cannot fire the agency’s director for political reasons or “without cause.” Congress designed the CFPB in a manner similar to the US Federal Reserve System and the Federal Trade Commission, two other independent agencies that are expected to carry out their missions and serve the public interest free from political influence.

The Bureau’s independent agency structure supports the notion that the CFPB is generally free from Presidential influence and political pressure. As such, the Trump Administration likely lacks the authority to mandate that the CFPB, or any other independent agency, adhere to its regulatory freeze directive.

A 2012 report by the Congressional Research Service offers additional support. The report analyzed similar freeze memos issued by previous administrations and concluded that such “presidential moratoria have generally exempted regulations issued by independent [agencies].”

Of course, there is a strong possibility that the Trump Administration considers the CFPB an executive agency that serves at the will of the President. Last October, the DC Circuit declared the CFPB’s structure unconstitutional. The court remedied the constitutional defect by severing the “removal-only-for-cause” provision from the Dodd-Frank Act. As a result, 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.” Further, the court declared that the CFPB is no longer an “independent agency” and instead will “operate as an executive agency.”

The court’s decision, however, is not yet in effect. The mandate was stayed until the DC Circuit determines whether it will grant the CFPB’s petition for rehearing en banc. If the DC Circuit grants the petition for rehearing, then the judgment, but not necessarily the opinion, will be vacated.

The Trump Administration may take the position that although the court’s mandate is not effective, the court’s opinion is currently the law of the land. If that claim were true, then the memo could apply to the Bureau, thereby pausing CFPB rulemaking activity until President Trump appoints a new CFPB Director. Absent removal for cause or a surprise resignation or firing, Director Cordray is on track to hold the position until his term expires in July 2018. We find it highly unlikely that the memo intends for such a prolonged rulemaking moratorium.

Given the complexity of the payday rule, the abundance of comments that the Bureau must review and consider, and the fact that the Bureau’s Fall 2016 Agenda does not provide an estimated date for a final rule, we estimate that a final payday rule is still months away.

In all likelihood, it is doubtful that the memo will have significant bearing on when a final payday rule is issued. But that does not mean that there won’t be other developments that transpire in the meantime to delay or derail CFPB regulation. After all, the political and regulatory landscape can change overnight.

Tags: Arbitration, Auto Title Loans, CFPB, CFPB Director, CFPB Rulemaking, Payday Loans, Trump Administration

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