WASHINGTON — The Government Accountability Office has agreed to determine whether Congress can easily reject guidance issued by the independent financial regulators.

Using the Congressional Review Act, which gives Congress 60 legislative days to reject a regulation with a majority vote, Republicans have nullified 14 rules promulgated in the waning days of the Obama administration. They are now looking at guidance and bulletins that they believe have the effect of a regulation, but which were never sent to Congress.

In a major step forward, the GAO has agreed to issue a ruling on whether such guidance effectively constitutes rulemaking, which would put it under the purview of the congressional review law.

Sen. Pat Toomey, R-Pa.
Sen. Pat Toomey, R-Pa., has led the fight to target agency guidance as part of the Congressional Review Act. Bloomberg News

“GAO accepts your request as work that falls within the scope of its authority,” Katherine Siggerud, managing director of congressional relations at the GAO, wrote in two letters to Sen. Pat Toomey, R-Pa., who made requests to the GAO. "Staff are available to begin the work shortly" on providing a legal opinion.

The letters, which were obtained by American Banker, do not provide a timetable for when the review will be completed.

The stakes are enormous for the banking regulators and the financial services industry.

If the GAO determines that guidance does fall under the Congressional Review Act, Congress would have the legal cover to wipe out guidance with a simple majority vote. That could theoretically include guidance stretching back two decades, when the review act was enacted, if regulators did not formally notify Congress of the guidance.

Moreover, if Congress does reject guidance, it prevents the development of a substantially similar rule. As a result, guidance that Republicans have objected to, such as the Consumer Financial Protection Bureau's bulletin targeting indirect auto lending and regulators' leveraged lending guidance, could be effectively scrapped.

Toomey has led the fight to expand the purview of the Congressional Review Act, specifically asking the GAO to weigh in on the leveraged lending guidance and the CFPB's indirect auto lending guidance, both of which were issued in 2013. The letters to Toomey confirmed the GAO would look at both.

However, some industry experts have warned that overusing the process could become dangerous.

“You do want some guidelines and interpretations and FAQs and policies from the regulators. We are not going to able to function in a world without regulatory policy and interpretation and FAQs,” Margaret E. Tahyar, a partner with Davis Polk’s financial institutions group, told American Banker earlier this month.

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