Biden Administration regulatory freeze will impact CFPB final rules

Ballard Spahr LLP

On January 20, President Biden’s Chief of Staff Ronald Klain issued a memorandum to the heads of executive departments and agencies setting forth the terms of a regulatory freeze.

The memorandum requires the following subject to limited exceptions:

  • No rules can be issued or proposed until a department or agency head appointed by President Biden has reviewed and approved the rule.
  • A rule that has been sent to the Federal Register but not yet published must be immediately withdrawn from the Office of the Federal Register and approved by a department or agency head appointed by President Biden.
  • For a rule that has been issued or published in the Federal Register but has not yet become effective, a department or agency head should consider postponing the rule’s effective date for 60 days from January 20 for the purpose of reviewing any questions of fact, law, and policy raised by the rule.  During this 60-day period, where appropriate and consistent with applicable law, consideration should be given to opening a 30-day comment period and petitions for reconsideration should be considered. In addition, where appropriate and consistent with applicable law and where necessary for review of questions of fact, law, and policy, consideration should be given to further delaying the rule beyond the 60-day period.  After the 60-day delay in effective date:
    • No further action is needed for a rule that raises no substantial questions of fact, law, or policy.
    • For a rule that does raise a substantial question of fact, law, or policy, the agency should notify the OMB Director and take further action in consultation with the OMB Director.

CFPB rules.  Since Mr. Klain’s memorandum is directed to “heads of executive departments and agencies,” it appears the memorandum is not intended to apply to heads of independent agencies.  While the CFPB was created as an independent agency with a Director only removable by the President “for cause,”  it now functions as an executive agency as a result of the U.S. Supreme Court’s Seila Law decision making the CFPB Director removable by the President at will.  Accordingly, several CFPB rules are impacted by Mr. Klain’s memorandum as follows:

  • Because the following rules have been published in the Federal Register but not yet taken effect, Acting Director Oejio must consider whether to postpone the effective dates until March 22, 2021 in order to engage in a review of any questions of fact, law, and policy raised by the rules:
  • Because the following rules have not yet been published in the Federal Register, they must be immediately withdrawn from the Office of the Federal Register and reviewed and approved by Acting Director Oejio (or Director Chopra once confirmed and sworn in):
    • The final rule implementing the exemption in the Economic Growth, Regulatory Relief, and Consumer Protection Act from the requirement to maintain an escrow account in connection with a higher-priced mortgage loan (HPML) for insured depository institutions and insured credit unions (insured creditors) that meet certain conditions was issued on January 19, 2021.  (The rule was expected to be published in the Federal Register in February 2021.)
    • The final rule on the role of supervisory guidance was issued on January 19, 2021.  (We will soon be publishing a separate blog post on the final rule.)

OCC rules.  Mr. Klain’s memorandum does not appear intended to apply directly to the OCC since it is considered to be an independent agency.  However, independent agencies could choose to comply voluntarily with the memorandum.  Because the rules below have not yet been published in the Federal Register, the OCC may choose to withdraw them from the Office of the Federal Register for review and approval by an Acting Comptroller of the Currency appointed by President Biden (or a new Comptroller named by President Biden).  (Acting Comptroller Brian Brooks left the OCC on January 14 and Chief Operating Officer Blake Paulson was named Acting Comptroller upon Mr. Brooks’ departure.  President Biden has not yet named an Acting Comptroller to replace Mr. Paulson.)

Since Mr. Klain’s memorandum appears to be directed at rules already published in the Federal Register that would have taken effect before March 22, it may not impact already published final rules that are scheduled to take effect after that date, such as the CFPB’s Part I and Part II final debt collection rules scheduled to take effect on November 30, 2021.  However, the CFPB and OCC under new leadership could move to reconsider and potentially rescind such rules through the regular rulemaking process.  Other final rules not subject to the memorandum that might be reconsidered by new leadership include the OCC and FDIC final “Madden-fix” rules, the OCC final “true lender” rule, and the CFPB final small dollar loan rule.  All of these rules are currently the subject of litigation.  In addition, any final rules that are within the statutory time window could be subject to a challenge under the Congressional Review Act.

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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