The conventional wisdom about President Donald Trump is that his early days in office have provided a flurry of deregulation.
The truth is far more complicated. Yes, there is a clear administration blueprint for slashing into the Federal Register. Equally true is that the White House’s deregulation agenda dovetails with plans afoot by the Republican majority in Congress.
In large part, however, the administration has done far more anticipatory grunt work than direct regulatory slashing. There has been no shortage of executive orders to define the direction the White House wants to go. Citing estimates that regulations cost $2 trillion a year, the White House is aiming to reduce the cost of regulations by 75-80 percent.
In January, as promised and expected, President Trump issued an Executive Order demanding that for every new regulation issued, at least two prior ones must be identified for elimination.
The Director of the Office of Management and Budget was tasked with providing agency heads with guidance to address processes for standardizing the measurement and estimation of regulatory costs, and standards for determining what qualifies as new and offsetting regulations.
The Executive Order also required agency heads (with notable exceptions, including the Securities and Exchange Commission), starting in Fiscal Year 2018, to provide their “best approximation of the total costs or savings associated with each new regulation or repealed regulation.”
The OMB director was also instructed to provide regulators with a total amount of incremental costs that will be allowed for each agency in issuing new regulations and repealing regulations for the next fiscal year. No regulations exceeding the agency's total incremental cost allowance will be permitted in that fiscal year, unless required by law or approved in writing by the director.
Another Executive Order “On Core Principles for Regulating the United States Financial System,” laid out “core principles” of regulation under the Administration. Among them, to: prevent taxpayer-funded bailouts; foster economic growth; advance American interests in international financial regulatory negotiations and meetings; and rationalize the Federal financial regulatory framework.
Trump has issued executive orders demanding that the Department of Labor review a rule that creates a fiduciary duty for brokers and registered investment advisers who offer retirement advice. The goal of that review is to rescind or modify the controversial rule.
Another stroke of the pen directed the Environmental Protection Agency to begin dismantling, among other regulations, the Obama Administration’s Clean Power Plan. The targeted plan, for the first time, set state-by-state targets for reducing carbon pollution from existing power plants.
Trump also issued an order that instructed federal agencies to designate a Regulatory Reform Officer and a Regulatory Reform Task Force.
After ordering a review of the SEC’s controversial conflict minerals rule, the President also signed legislation to repeal the SEC’s extractive payments rule. The Dodd-Frank Act mandate required public companies involved in the extraction of natural resources to annually report payments they, subsidiaries, and entities they control make to governments for the commercial development of oil, natural gas, or minerals.
The Trump Justice Department also announced it will no longer defend the Consumer Financial Protection Bureau’s constitutionality amid lawsuits challenging is legal authority.
Despite what seems an ambitious wish list of regulatory rollbacks, the Trump administration hasn’t achieved many direct hits. The EPA has, as ordered, begun dismantling Obama-era regulations. The SEC’s extractive payments rule was also in the outbox of jobs accomplished.
Otherwise, despite his reputation, Trump and his staff have taken a measured approach to rule repeals, letting Congress and agency heads shoulder the burden and control the process.
As for those agency heads, Trump’s picks are certainly poised to leave their mark.
During an April speech at a coal mine in Pennsylvania, Trump’s pick to head the EPA, announced a “back-to-basics” agenda.
EPA Administrator Scott Pruitt has, as part of that announcement, signed four notices to review and, if appropriate, “revise or rescind major, economically significant, burdensome rules the last Administration issued.”
Under the leadership of Acting Chairman Maureen Ohlhausen, the “FTC is moving aggressively to implement Presidential directives aimed at eliminating wasteful, unnecessary regulations and processes.”
Philip Miscimarra, named chairman of the National Labor Relations Board, is seen as a retreat from the labor-friendly policies of the Obama Administration.
“When presidents overreach, it is up to the courts to remind them no one is above the law and hold them to the U.S. Constitution. This is one of those times.”
Earthjustice attorney Patti Goldman
“The appointment is the first step in a process of returning the Board to balancing the rights of employees with the legitimate interests of employers as set forth in the National Labor Relations Act,” says Michael Lotito, co-chair of law firm Littler Mendelson’s Workplace Policy Institute “Over the past five years, the NLRB has reversed years of precedent, often over the dissent of new Chair Miscimarra.”
Commodity Futures Trading Commission’s Acting Chairman J. Christopher Giancarlo is seeking public input on simplifying and modernizing its rules and rulemaking process.
The exercise is not about identifying existing rules for repeal, or even a rewrite, he said. It is about taking CFTC’s existing rules as they are and applying them in ways that are simpler and less burdensome.
“At times the CFTC rules are unnecessarily complex, and the harder they are to understand and costly to follow, the less dynamic and vibrant these markets become,” he said. "Industry will still have to comply with CFTC rules and Congressional laws, but we need to be able to do so in a way that makes sense and reduces regulatory burdens.”
New SEC Chairman Jay Clayton, previously a partner with the law firm Sullivan & Cromwell, has a reputation as a master of corporate deal making. He is already steering the Commission towards a renewed focus on capital formation, retreating from the “broken windows” enforcement philosophy of Mary Jo White.
Trump supporters in Congress also have the power of the purse to rely on, and they are doing so by level-funding the SEC and CFTC, rather than funding further regulatory expansions.
Banks, banks, banks
Under the Trump administration, the Treasury Department’s first report on regulatory changes addresses the state of banking in the United States. In a nutshell, the report says that big banks face an overly strict and complex regulatory burden. So do smaller credit unions and community banks, despite not posing systemic risk.
Congress is doing its part to help relieve those alleged burdens. The Community Lending Enhancement and Regulatory (CLEAR) Relief Act introduced by Rep. Blaine Luetkemeyer, for example, includes several provisions from the Independent Community Bankers of America’s pro-growth Plan for Prosperity regulatory relief platform. It promotes regulations tiered to the size and complexity of regulated institutions.
“I’ve heard countless stories from consumers about the impact Washington has on their ability to access banking products and move toward financial independence. The bottom line is that the Obama-era regulatory environment has stifled growth and hurt local communities,” Luetkemeyer said in a statement. “The pendulum has swung too far, and it’s time to return to a common-sense, responsible approach to financial regulation that protects consumers from harm without jeopardizing access to the financial products they need to grow their businesses, invest in their communities, and provide for their families.”
In March, President Trump met with community bankers from across the country to discuss the difficulties they have faced as a result of the excessive regulatory environment fostered by Dodd-Frank. Included in the meeting was Luanne Cundiff, president and CEO of First State Bank in St. Charles, Missouri.
REDUCING REGULATORY COSTS
The following is from President Trump’s Jan. 30 Executive Order on reducing regulatory costs.
It is the policy of the executive branch to be prudent and financially responsible in the expenditure of funds, from both public and private sources. In addition to the management of the direct expenditure of taxpayer dollars through the budgeting process, it is essential to manage the costs associated with the governmental imposition of private expenditures required to comply with Federal regulations. Toward that end, it is important that for every one new regulation issued, at least two prior regulations be identified for elimination, and that the cost of planned regulations be prudently managed and controlled through a budgeting process.
Regulatory Cap for Fiscal Year 2017. (a) Unless prohibited by law, whenever an executive department or agency (agency) publicly proposes for notice and comment or otherwise promulgates a new regulation, it shall identify at least two existing regulations to be repealed.
(b) For fiscal year 2017, which is in progress, the heads of all agencies are directed that the total incremental cost of all new regulations, including repealed regulations, to be finalized this year shall be no greater than zero, unless otherwise required by law or consistent with advice provided in writing by the Director of the Office of Management and Budget (Director).
(c) In furtherance of the requirement of subsection (a) of this section, any new incremental costs associated with new regulations shall, to the extent permitted by law, be offset by the elimination of existing costs associated with at least two prior regulations. Any agency eliminating existing costs associated with prior regulations under this subsection shall do so in accordance with the Administrative Procedure Act and other applicable law.
(d) The Director shall provide the heads of agencies with guidance on the implementation of this section. Such guidance shall address, among other things, processes for standardizing the measurement and estimation of regulatory costs; standards for determining what qualifies as new and offsetting regulations; standards for determining the costs of existing regulations that are considered for elimination; processes for accounting for costs in different fiscal years; methods to oversee the issuance of rules with costs offset by savings at different times or different agencies; and emergencies and other circumstances that might justify individual waivers of the requirements of this section. The Director shall consider phasing in and updating these requirements.
Sec. 3. Annual Regulatory Cost Submissions to the Office of Management and Budget. (a) Beginning with the Regulatory Plans (required under Executive Order 12866 of September 30, 1993, as amended, or any successor order) for fiscal year 2018, and for each fiscal year thereafter, the head of each agency shall identify, for each regulation that increases incremental cost, the offsetting regulations described in section 2(c) of this order, and provide the agency's best approximation of the total costs or savings associated with each new regulation or repealed regulation.
(b) Each regulation approved by the Director during the Presidential budget process shall be included in the Unified Regulatory Agenda required under Executive Order 12866, as amended, or any successor order.
(c) Unless otherwise required by law, no regulation shall be issued by an agency if it was not included on the most recent version or update of the published Unified Regulatory Agenda as required under Executive Order 12866, as amended, or any successor order, unless the issuance of such regulation was approved in advance in writing by the Director.
(d) During the Presidential budget process, the Director shall identify to agencies a total amount of incremental costs that will be allowed for each agency in issuing new regulations and repealing regulations for the next fiscal year. No regulations exceeding the agency's total incremental cost allowance will be permitted in that fiscal year, unless required by law or approved in writing by the Director. The total incremental cost allowance may allow an increase or require a reduction in total regulatory cost.
(e) The Director shall provide the heads of agencies with guidance on the implementation of the requirements in this section.
Sec. 4. Definition. For purposes of this order the term "regulation" or "rule" means an agency statement of general or particular applicability and future effect designed to implement, interpret, or prescribe law or policy or to describe the procedure or practice requirements of an agency, but does not include:
(a) regulations issued with respect to a military, national security, or foreign affairs function of the United States;
(b) regulations related to agency organization, management, or personnel; or
(c) any other category of regulations exempted by the Director.
Sec. 5. General Provisions. (a) Nothing in this order shall be construed to impair or otherwise affect:
(i) the authority granted by law to an executive department or agency, or the head thereof; or
(ii) the functions of the Director relating to budgetary, administrative, or legislative proposals.
(b) This order shall be implemented consistent with applicable law and subject to the availability of appropriations.
(c) This order is not intended to, and does not, create any right or benefit, substantive or procedural, enforceable at law or in equity by any party against the United States, its departments, agencies, or entities, its officers, employees, or agents, or any other person.
Source: White House
“Since the implementation of Dodd-Frank, over 1,900 banks have disappeared across the country,” Cundiff said. “Community banks are critical to our local economies and with the alarming number of these banks closing, we are hoping for relief from costly regulations.”
Add Federal Reserve Governor Jerome Powell to the growing chorus of those seeking a reconsideration of the nation’s regulatory regime.
“Today, our financial system is without a doubt far stronger than it was before the crisis,” Powell said during a speech at The Global Finance Forum, Washington, D.C. The largest financial institutions now hold much higher levels of higher-quality capital, he said. They hold higher levels of liquidity, and are much less reliant on runnable short-term funding.
“Many of the statutory provisions and regulations put in place to affect these changes were novel; it is not likely that we would have gotten everything exactly right on the first attempt,” he said. “This is a good time to step back and ask what changes have worked and where adjustments should be made.”
In too many cases, new regulation has been inappropriately applied to small and medium-sized institutions, he added, citing a “need to go back and broadly raise thresholds of applicability and look for other ways to reduce burden on smaller firms.”
“The new rulebook is excessively complex,” Powell added, urging the need to look “for ways to simplify the rules so that they support our goals but also improve the efficiency of regulation.” For example, he suggested allowing boards of directors and management to spend a smaller portion of their time on technical compliance exercises and more time focusing on the activities that support sustainable economic growth.
Congress steps in
On June 8, the Financial CHOICE Act, a Republican plan to revise and repeal much of the Dodd-Frank Act, earned a majority vote in the House of Representatives on June 8.
The nearly 600-page bill passed with a party-line vote of 233 to 186. It now moves into the far greater challenge of passage in the Senate. At the very least, it outlines Republican ideas for reducing regulatory burden.
The legislation is a comprehensive package of rules and regulations intended to overhaul and replace what its architect, Rep. Jeb Hensarling (R-Texas), refers to as “the failed Dodd-Frank Act that has contributed to the worst economic recovery of the last 70 years.”
Included in the bill:
Abolishing the Federal Reserve’s authority to supervise and set regulations for non-bank financial institutions;
directing the SEC to publish a manual establishing its enforcement policies and procedures;
eliminating the Volcker rule’s prohibition on proprietary trading;
exempting some financial institutions that meet capital and liquidity requirements from many of Dodd-Frank’s restrictions that limit risk taking; and
replacing Dodd-Frank’s method of dealing with large and failing financial institutions, known as the orderly liquidation authority, with a new bankruptcy code provision.
The legislation would also weaken the powers of the Consumer Financial Protection Bureau. Under the proposed law, the president could fire the agency’s director at will and its oversight powers would be curbed.
Many of those recommendations dovetail with a report issued by Treasury Secretary Steven Mnuchin. It was prepared in response to an Executive Order. Among the suggested actions contained in the report:
Congress should take action to reduce regulatory fragmentation, overlap, and duplication.
FSOC’s statutory mandate should be broadened so that it can assign a lead regulator as primary regulator on issues where agencies have conflicting or overlapping jurisdiction.
Tailoring bank regulations to the size of institutions.
Establishing a “regulatory off-ramp” from all capital and liquidity requirements, nearly all aspects of Dodd-Frank’s enhanced prudential standards, and the Volcker Rule for depository institutions and holding companies.
Reducing burdens of the Volcker rule’s compliance regime.
The opposition
The future success of deregulation plans by the Trump Administration may depend on future successes and failures of the Democrat agenda and the resolution of legal challenges.
Senate Democrats, for example, are demanding that SEC Inspector General Carl Hoecker conduct an investigation into the reopening of public comments regarding the conflict minerals rule.
There is also a lawsuit challenging the President’s ‘one-in, two-out’ executive order. A coalition of consumer, environmental and worker advocacy groups have sued to block its full implementation.
The plaintiffs—Public Citizen, Natural Resources Defense Council, and the Communications Workers of America —are asking the court to issue a declaration that the order cannot be lawfully implemented and bar federal agencies from implementing the order.
The lawsuit, filed in the U.S. District Court for the District of Columbia, names as defendants the President, the acting OMB director, and the current or acting secretaries and directors of more than a dozen executive departments and agencies.
The complaint alleges that the agencies cannot lawfully comply with the order because doing so would violate the statutes under which the agencies operate and the Administrative Procedure Act.
“No one thinking sensibly about how to set rules for health, safety, the environment, and the economy would ever adopt the Trump Executive Order approach, unless their only goal was to confer enormous benefits on big business,” says Public Citizen President Robert Weissman. “By irrationally directing agencies to consider costs but not benefits of new rules, it would fundamentally change our government’s role from one of protecting the public to protecting corporate profits.”
“When presidents overreach, it is up to the courts to remind them no one is above the law and hold them to the U.S. Constitution,” says Earthjustice attorney Patti Goldman. “This is one of those times.”
By requiring agencies to consider factors that are not permitted under the law, the Executive Order “usurps congressional power and violates constitutional separation of powers principles” plaintiffs say of the legal rationale for the lawsuit. It also violates the Take Care Clause in Article II of The Constitution, which directs the President to take care that the laws be faithfully executed, they argue.
“The government has moved to dismiss,” Goldman said. “Their main arguments are that we cannot bring the case this way and we need to wait until the Executive Order is applied in a way that harms us.”
“Our argument is that, basically, what you have going on here is the President is establishing a whole new program that is establishing regulatory budgets and trading one regulation for another. There is no authority to do that because Congress makes the laws.”
Regarding a separation of powers argument, “there is language peppered throughout the Executive Order that clarifies that its actions are to the extent permitted by law or “unless prohibited by law,” Goldman says.
“Their premise is that if there is any problem with a specific application, they will deal with it then,” she adds. “Our premise is that the entire thing is unconstitutional because there is not any authority to do this…It takes time to promulgate a regulation and it takes more time to repeal two others. It is inevitable that there will be delay in needed protections.
On the flip side, 14 Republican attorneys general have lent their support to the Administration’s planned rollbacks in an amicus brief.
In the brief, the attorneys general wrote that one in, two out rule, “is based upon a reasonable, easy-to-administer principle, which will help limit the cumulative costs of these ever-growing regulations.”
“The President’s duty to take care that the laws enacted by Congress are faithfully executed carries with it the authority to direct the agencies to adopt certain policies or regulatory priorities when carrying out their work,” they wrote. “Because the President’s subordinates ultimately serve at his or her pleasure, it follows that the President may direct their actions or set the agenda for their department or agencies.”
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