Will White House memo be a roadblock for reg relief?

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During the first two years of the Trump administration, the Congressional Review Act proved to be an effective tool in blocking or halting the enforcement of Obama-era rules that the industry detested.

But now that the White House has moved to expand the scope of policies targeted by the 1996 law, by requiring agencies to submit new guidance for administration review, could rules backed by the industry also meet resistance?

Under the Congressional Review Act, GOP lawmakers (while they still held the majority in both chambers) successfully repealed both the 2016 Consumer Financial Protection Bureau rule restricting mandatory arbitration clauses and the bureau’s 2013 indirect auto lending guidance. The law was also seen as mitigating the impact of the bank regulators’ 2013 guidance on leveraged lending.

The administration recently issued a memo that could expand the scope of the Congressional Review Act to repeal or slow down regulations. The directive clarifies that independent agencies must submit not only formal rulemakings but also guidance for review by the White House Office of Information and Regulatory Affairs. That review will determine if policies are “major” — and therefore significant enough to stand on the congressional chopping block.

“The CRA applies to more than just notice-and-comment rules; it also encompasses a wide range of other regulatory actions, including … guidance documents, general statements of policy, and interpretive rules,” wrote Russell Vought, acting director of the Office of Management and Budget, in the memo.

Expanded checks on the agencies’ rule-writing ability seems squarely aimed at preventing overregulation. But these days the regulators — all appointed by President Trump — are more focused on crafting polices that ease rules issued by the previous administration.

Presumably, the administration memo adds another step in the process for finalizing deregulatory moves as well, possibly delaying actions that the industry would welcome.

“We see potential for unintended consequences, since most financial regulations in the works are deregulatory in nature,” Ian Katz, an analyst at Capital Alpha Partners, wrote in a research note this week.

“If banking regulators are promulgating rules — almost all of which these days are deregulatory — this stern memo from the White House could cause those regulators to take longer,” Katz said. “Maybe not much longer, but it’s one more bureaucratic hurdle to jump over.”

Subjecting the regulators to more scrutiny could result in more inefficiency, not unlike the effect that new rules have on private companies, said Justin Schardin, a fellow at the Bipartisan Policy Center.

“There are good reasons why government agencies, which exercise substantial power, should be subject to more oversight than private companies,” Schardin said. "But it’s also true that loading up agencies with more regulations hurts their efficiency and effectiveness just as it does with the private sector. We shouldn’t pretend there isn’t a trade-off involved.”

But he noted that the OIRA has “leeway in how it judges whether a proposed rule is major or minor.”

“If the new process is neutral and treats new regulatory and deregulatory actions the same way, then deregulation will also take longer to implement,” Schardin said. “But if the new process is just a smoke screen to delay or stop new regulations, then that’s the effect it will most likely have.”

Thomas Vartanian, a former senior regulatory official, agreed that “while there are positive benefits that derive from coordinating the nature and cost of new regulations, there are also significant disadvantages.”

“The more people inserted into the regulatory process, the longer it takes to get rules written and in force,” said Vartanian, now a professor at George Mason University’s Antonin Scalia School of Law and the executive director of the Financial Regulation and Technology Institute.

But he added that the White House review process could be relatively quick. “As a former general counsel of an agency, I know that these processes eventually boil down to touching some bases and checking some boxes, unless someone at OMB or the White House is really exercised about a particular rule,” he said.

Many of the current deregulatory proposals are formal rulemakings subject to notice and comment, which to some degree have already been subject to a review process. These include the Federal Reserve Board’s tailoring of its enhanced prudential supervisory standards for large banks.

And a lot of regulatory relief initiatives by the agencies are mandated by the law passed last spring rolling back certain provisions of the Dodd-Frank Act. It is hard to imagine either Congress or the administration objecting to those.

But the need to seek a stamp of approval from the White House could give regulators pause before coming out with new guidance, either to soften or expand regulatory restrictions.

Bankshot is American Banker’s column for real-time analysis of today's news.

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