Hensarling seeks assurance of CFPB compliance with limits on executive agencies

by Ballard Spahr LLP
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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.

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.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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