WASHINGTON — Although the deadline to use the Congressional Review Act to reject Obama-era rules technically passed on Thursday, Republicans are working on a plan that could extend its reach so that it may be used to overturn certain policies all the way back to 1996.

Sen. Pat Toomey, R-Pa., has led the effort to explore the outer bounds of the obscure legislative process that had hardly been used before President Trump took office. As part of that effort, Toomey recently sent a letter to the Government Accountability Office requesting an opinion on whether guidance — such as regulators’ guidelines on leveraged lending or the Consumer Financial Protection Bureau’s bulletin on auto lending — count under the congressional review law.

If the GAO says that it does, that could give Republicans the ability to overturn dozens of guidelines issued over the years on a range of topics critical to the financial industry.

“As a technical matter, guidance is not supposed to be binding, but the lived experience of financial institutions is that it might as well be,” said Margaret E. Tahyar, a partner with Davis Polk’s financial institutions group. “It is a very brave financial institution that ignores guidance, and so part of what Toomey is trying to do is to make the point that regulators are hiding the ball. He is calling out the disconnect.”

Senator Patrick Toomey.
Sen. Pat Toomey, R-Pa., argues that regulators have been creating de facto regulations in the form of guidance, which he says should be subject to congressional review. Bloomberg News

To understand just how much is potentially on the table, it’s important to know exactly how the Congressional Review Act works. The law gives Congress 60 legislative days to review and veto agency regulations by a simple majority vote. That clock starts when the rules are sent to Congress for review.

But the Congressional Review Act’s definition of a “rule” is broader than the Administrative Procedure Act's, so while agency guidance might not fall under the APA definition, Toomey is arguing to the GAO that it should count for the purposes of the Congressional Review Act.

Guidelines issued by the agencies typically haven’t been considered “rules” and as a result, in most cases, the banking regulators have not sent their guidance and financial institution letters to the GAO, which then formally gives it to Congress. If the GAO rules that such items count as regulations, it effectively means all such guidance issued since 1996, when the Congressional Review Act was passed, could be reviewed and rejected by Congress.

The impact of that could be tremendous, and give Republicans the ability to invalidate scores of guidelines.

“The Senate, at least up until this point, has not interpreted the Congressional Review Act as applying to things other than specific regulations,” said Wayne Abernathy, executive vice president for financial institutions policy and regulatory affairs at the American Bankers Association. “Should the Senate interpret” the Congressional Review Act as “applying to things other than very specific regulations, then I think we might have some ideas” of other guidance that might be ripe for review.

For example, the CFPB issued a bulletin in March 2013 on indirect auto lending that was specifically cited in one of Toomey’s letter. If the GAO ruled that it was a regulation — and assuming the CFPB did not send that guidance to Congress — it could then be reviewed by lawmakers. That would give Republicans, who have long complained that the indirect auto lending guidance violated congressional intent, an opportunity to scrap it.

The same would be true of leveraged lending guidance that was also issued by regulators in March 2013.

Abernathy, meanwhile, cited other guidelines that could be targeted.

“One that has really bothered us for a long time has been the [Federal Deposit Insurance Corp.’s] … guidance on overdraft which goes far more detailed and far more intrusive then the actual regulation,” Abernathy said.

The Congressional Review Act is also particularly potent because once it is used to reject a rule, a substantially similar rule cannot be rewritten without an act of Congress.

“It is a very blunt instrument, so the threat of using" the review law "really scared CFPB into delaying its” prepaid card rule, said Brian Gardner, a policy analyst at Keefe, Bruyette & Woods.

The CFPB announced in March that it was delaying the rule’s effective date by six months after Congressional Review Act resolutions were introduced in the House and Senate.

“If GAO gives Congress some political cover, you could see [the Congressional Review Act] used more often in the future,” Gardner said.

However, once President Trump appoints his own agency heads, using the Congressional Review Act may not be necessary.

“Whoever gets into the agencies and runs the agencies they are going to want some independence and be reluctant to have congressional interference, even with rules they would like to change,” Gardner said. “I suspect there are a number of rules Trump officials would like to tweak instead of get rid of, and the Congressional Review Act can limit their options on amending the rules.”

However, it will likely take until 2018 for Trump to install new agency heads at the regulators, and the Congressional Review Act could be used to expedite a rollback of particularly contentious guidance.

Tahyar also said the threat of the Congressional Review Act might serve another purpose.

“Toomey is calling for some public accountability from the financial regulators, to stop with the fakery. It is either binding or not binding,” Tahyar said. “The leveraged lending guidance has had a real impact on the market. I don’t think there is a bank out there whose lived experience has been that the leveraged lending guidance is optional.”

“Toomey is shining a light on a place that needs more public accountability and transparency. He might not win the battle with the GAO, but he might win the longer war.”

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