WASHINGTON — Republican lawmakers had already proven the value of the Congressional Review Act in repealing Obama-era banking rules, but Wednesday’s Senate vote overturning restrictions on indirect auto loans opens the door to an even expanded use of the law, threatening earlier agency policies.

The first recent industry victory via the 1996 law, which gives Congress 60 legislative session days from a rule’s issuance to consider its repeal, was an October vote to block the Consumer Financial Protection Bureau’s mandatory arbitration rule.

But under a relatively novel interpretation of the Congressional Review Act, which resets the review clock for less formal guidance that operated like rules, lawmakers could now try to target a whole host of past policies that regulators had never submitted to Congress.

“This is the next leg in Trump’s deregulatory agenda,” said Ed Mills, a Washington policy analyst for Raymond James.

Sen. Pat Toomey, R-Pa.
Wednesday’s vote overturning the CFPB’s 2013 guidance followed a Government Accountability Office opinion, requested by Sen. Pat Toomey, R-Pa., that the guidance in fact operated like a rule. Bloomberg News

Lawrence Kaplan, an attorney at Paul Hastings, said lawmakers could look at policies such as a 2007 interagency guidance on subprime lending, or the Federal Deposit Insurance Corp’s “frequently asked questions” document on brokered deposits, to see if they should have been considered rules that were subject to congressional review.

In the case of the FAQ document, Kaplan said, the FDIC “never came out with a regulatory issuance.”

“It’s all interpretation,” he said.

But he added that policymakers should be cautious about eliminating certain pieces of guidance, such as one on third-party risk management, that protect the system.

“It creates a significant dilemma because [regulators] have tried on certain issues, such as the third-party guidance, to really come up with a framework to make sure that institutions are acting safely and soundly," he said.

Wednesday’s vote overturning the CFPB’s 2013 guidance — restricting auto loan markups imposed by car dealers — followed a Government Accountability Office opinion, requested by Sen. Pat Toomey, R-Pa., that the guidance in fact operated like a rule. The GAO made the same determination about a 2013 guidance restricting leveraged lending.

“The applicability of the Congressional Review Act to a guidance, in my view, is very obvious and very well-established and should not be controversial,” Toomey said Wednesday. “I understand people might like the CFPB’s rule, which I don’t. But to suggest that somehow because they issued it through a guidance rather than through the appropriate rulemaking process that we somehow shouldn’t be using the Congressional Review Act, I think is completely mistaken.”

The GAO rulings effectively suspended both policies, and reset the clock for Congress to repeal them under its review authority. The House will likely now consider a repeal of the indirect auto lending guidance.

The Senate’s repeal of the CFPB guidance “is important as it’s predicated on the GAO’s interpretation regarding guidance and opens up a whole new strategic avenue for congressional Republicans,” said Isaac Boltansky, director of policy research and Compass Point Research & Trading.

But others noted that the auto lending guidance could be a special case in that the Senate’s repeal was strongly backed by auto dealers, giving it a better chance of passage than other pending Congressional Review Act resolutions, such as one to overturn the CFPB’s payday lending rule.

“I’ve had a view that this is a far easier vote than the payday loan vote or any of the other" Congressional Review Act votes, said Charles Gabriel, president of Capital Alpha Partners. “The auto dealers are very politically powerful. They have legitimately won the fight on this vote.”

While the GAO could issue similar opinions on other guidance, another effect of the Senate auto lending resolution could be to discourage regulators from issuing guidance without the notice and comment process mandated for more formal rulemaking.

In a floor debate Wednesday, Banking Committee Chairman Mike Crapo, R-Idaho, quoted former Democratic Sen. Harry Reid when the Congressional Review Act was debated in the nineties.

Reid, according to Crapo, said the law's "authors are concerned that some agencies have attempted to circumvent notice-and-comment requirements by trying to give legal effect to general statements of policy, ‘guidelines,’ and agency policy and procedure manuals."

Recently appointed regulators in the Trump administration, meanwhile, appear to agree about setting clearer distinctions between rules and guidance.

“I do think that there is a role for guidance. I think that it's clear that, in some instances, the practices of the banking regulators have blurred the role between guidance and rules,” said Federal Reserve Board Vice Chairman for Supervision Randal Quarles at a congressional hearing on Tuesday.

“If something is to be a binding rule, both our obligation of sort of democratic accountability, as well as our desire to see that rule be as effective as possible and therefore receive as much comment as possible, would require us to go through a transparent rulemaking process.”

Quarles added: “Guidance does have a role. The banks, in fact, sort of want to know, once a rule has been made, if there are — you know, where there are questions of interpretation. But we need to make sure that that guidance really is just guidance and doesn't supplant the rulemaking process.”

Kaplan said in some cases eliminating guidance through the Congressional Review Act could have negative repercussions.

“If you pull the rug out from under the regulators that have tried to create a framework for safety and soundness, it could be more disruptive than leaving them in place,” he said.

Neil Haggerty

Neil Haggerty is the Congress reporter for American Banker. He previously was a financial regulation reporter at MLex Market Insight.