The Presidential "Regulatory Freeze" May Force CFPB Showdown

On January 20th the Trump Administration released a memo that applies to all regulations that are in the process of being sent to the Office of Federal Register (OFR), have already been submitted to the OFR, or have been published by the OFR but have not yet taken effect. 
On January 20th the Trump Administration released a memo that applies to all regulations that are in the process of being sent to the Office of Federal Register (OFR), have already been submitted to the OFR, or have been published by the OFR but have not yet taken effect. The memo covers all regulations by all executive departments and agencies and is not an uncommon action for a new incoming administration to take. That said, those focused on the future regulation of the mortgage industry should keep a close eye on this regulatory freeze, how the CFPB reacts to it, and the corresponding response from the Trump administration as a strong signal as to what is in store for the regulatory environment surrounding the mortgage industry over the next four years. 
This will be the first opportunity the Trump administration will have to officially reveal how they view the current organizational structure of the CFPB and how aggressive of an approach they intend to take in reformation of financial services regulation. It all relates to the fact that the regulatory freeze pertains to executive agencies, although the Clinton Administration's regulatory freeze in January 1993 sought to cover independent regulatory agencies, the Congressional Research Service says regulatory moratoria by incoming presidents are generally construed as not applying to such agencies.  Dodd Frank created the CFPB as an independent agency and therefore they should not be subject to this freeze. However, in the widely covered PHH matter the U.S. Court of Appeals for the D.C. Circuit held that "the CFPB is unconstitutionally structured" and its independent agency structure violated Article II of the Constitution. To remedy the Article II violation the court held, "the CFPB therefore will continue to operate and to perform its many duties, but will do so as an executive agency."
In November of 2016 the CFPB filed a petition for rehearing en banc, meaning they asked for the full appellate court to reconsider the case. The act of filing the petition stays the filing of what's called a mandate until disposition of the petition. A mandate is the device that officially closes the appeal, until said mandate issues, the D.C. Circuit's order is not final and it could be amended. This would seemingly protect the CFPB as the Court's order is still pending the CFPB is technically still an Independent Agency and therefore not subject to the freeze.  
In a recent Wall Street Journal interview Director Cordray was asked directly, do you think the freeze on executive agency rules applies to your agency - or does it not apply? Cordray only responded by stating that he will "leave that to the lawyers for now", indicating that he has no intention of abiding by the regulatory freeze.
The CFPB is believed to be close to publishing final rules governing the use of arbitration clauses and payday lending either of which could be published anytime in the near future. But the term "regulation" is defined as "any substantive action by an agency (normally published in the Federal Register) that promulgates or is expected to lead to the promulgation of a final rule or regulation, including notices of inquiry, advance notices of proposed rulemaking, and notices of proposed rulemaking." "Regulation" also means any "guidance document," which is defined as "an agency statement of general applicability and future effect, other than a regulatory action, that sets forth a policy on a statutory, regulatory, or technical issue or an interpretation of a statutory or regulatory issue." This provides for a large scope of actions that the CFPB routinely takes in their day to day operations. It will be very enlightening to see how both the Bureau and the new administration approach this process in the coming weeks.  

By Shelia Burke & Craig Nazzaro
Baker, Donelson, Bearman, Caldwell & Berkowitz, PC