Financial Regulators Race To Finish New Rules, But Congress Can Still Try To Roll Them Back

Image courtesy of Adam Fagen

The wheels of government turn slowly, especially when it comes to rulemaking — the process by which a federal agency proposes, drafts, and finalizes new rules. It can take anywhere from a few months to a few years for this process, but with the incoming Trump administration giving every indication of having a light-touch on regulation, financial regulators have reportedly kicked things into high gear to finish up pending rules in the next two months, even though Congress may be able to roll them back.

Among the most controversial rules still waiting to be finalized is the Consumer Financial Protection Bureau’s effort to limit how financial institutions can use arbitration to prevent customers from bringing class action lawsuits against them.

The CFPB issued a draft of the rules for public comment in May, but has yet to finalize them. The Wall Street Journal reports that the Bureau is now in a mad dash to finish this ruling before President-elect Donald Trump takes office on Jan. 20, 2017.

This would not be such an immediate concern if a federal appeals court had not ruled in October that the CFPB’s single-director structure is unconstitutional. That ruling, which the CFPB is currently challenging, would give the Trump administration the authority to remove CFPB Director Richard Cordray from office, rather than letting Cordray stay until he finishes his current five-year term.

The Journal notes that other agencies where challenges in leadership are definite, like the Federal Reserve and the Securities and Exchange Commission, are also hurrying to finalize rules before the late January deadline.

However, even if the agencies do finish these rules, they are not set in stone. In fact, Congress can deploy a rarely used federal law — the Congressional Review Act — to try to roll back any rules that were finalized in the last few months of the Obama White House.

The CRA, passed in 1996, requires that agencies provide Congress with a copy of each new finalized rule along with a written, relatively plain-language summary. Congress has 60 legislative days to either do nothing about it or issue a joint resolution of disapproval. Much like other legislative actions, a President can veto that resolution and Congress — with votes of 2/3 in both the House and Senate — can override that veto.

Additionally, any rules that were finalized in the 60 legislative days before Congress formally adjourns get a fresh 60-day CRA review clock when the new session starts. That means that any rules finalized since May 2016 may be ripe for rolling back through the joint resolution process.

In the 20 years since the CRA went into effect, Congress has used it a number of times to express their distaste with a new rule, but only one rule — a 2000 Occupational Safety and Health Administration regulation on ergonomics — has ever been overturned in this fashion.

However, we’ve got a new President who has repeatedly expressed his dislike of the Obama administration regulations and a majority in both the House and Senate that fought many of those rules during Obama’s second term.

Last week, the Congressional Research Service released a long list of major rules that Congress and the Trump administration could roll back through the CRA process (which ones, if any, lawmakers will actually try to roll back remains to be seen). This list, while extensive, does not include pending rules that have yet to be finalized.