NEW EXECUTIVE ORDER COULD CHANGE REGULATORY ENVIRONMENT DRAMATICALLY GOING FORWARD

President Trump, in his whirlwind first month in office, has certainly given us a lot to write about in recent Client Updates – particularly from a regulatory perspective.

The White House issued a sweeping executive order Tuesday of this week designed to ensure that all federal agencies, including independent agencies, are accountable to the president.

Notably, the executive order specifies that all federal government departments and agencies under the executive branch are to submit all proposed and final regulatory actions to the Office of Information and Regulatory Affairs (OIRA) within the Executive Office of the President before publication in the Federal Register. The order also requires independent agencies to have a liaison designated to coordinate any regulatory actions with the White House.

Perhaps of most significance to credit unions, the order clarifies that the president – through the attorney general – is the final arbiter of legal interpretations of statutes that Federal agencies follow. This could impact interpretations of the Federal Credit Union Act, including preemption of state regulation and law by NCUA as the federal regulatory agency.

The order also calls for the director of the Office of Management and Budget on an ongoing basis to:

• Review independent regulatory agencies’ obligations for consistency with the president’s policies and priorities; and
• Consult with independent regulatory agency chairmen and adjust such agencies’ apportionments by activity, function, project, or object, as necessary and appropriate.

A link to the Executive Order is provided below:

https://www.whitehouse.gov/presidential-actions/2025/02/memorandum-for-the-heads-of-executive-departments-and-agencies-7c05/

This action is significant not because independent federal regulatory agencies such as NCUA, FDIC, OTC, FHFA and others do not reflect the regulatory philosophy of the presidents that appointed the board members and chairman. They do and always have.

The difference is that the influence on the regulatory philosophy of these federal independent agencies has historically been done through the president’s appointees on the various boards and commissions that administer the agencies. This executive order plainly states that these independent agencies are officially a part of the executive branch of government and should coordinate their actions with the White House going forward.

Essentially, if this executive order remains in place, this current administration – and all future administrations – will control the federal regulatory process in its entirety.

It will cut both ways. When a Republican is president, the regulatory agencies will become less activist and more de-regulation oriented. When a Democrat is president, the regulatory agencies will become much more activist and focused on additional regulation.

The agencies will reflect the presidential administration in which they serve, not be more independent as has been the case in the past with bipartisan boards with longer terms and members of both parties represented on the boards.

There is good and bad that will come from this change, if it stands.

The good is that there will be a uniform application of regulatory philosophy consistent with the presidential administration elected by the people in the last election. The will of the voters will be reflected throughout the regulatory centers of power in Washington.

The bad is that bipartisanship and compromise in rulemaking could be sacrificed in order to make the regulatory agencies part of the administration and not as independent of political influence in their regulatory duties.

There is no doubt this will be litigated as integral to the congressional designation in the law of an independent agency is that it has a bipartisan board and is not tied to any administration or political party. That’s what “independent” was designed to mean when Congress set up those agencies in the law.

That said, President Trump is obviously pushing back on that historical designation as he is on a wide range of governmental precedents and longstanding interpretations. His intention seems to be to use the mandate of his election in order to change the federal government as we know it.

That is not necessarily a bad exercise for our extremely bloated federal government to go through from time to time. There is unquestionably billions of dollars of waste and inefficiency – if not downright fraud. So there will certainly be give and take on this as always happens in Washington, but challenges to the status quo can be healthy and hopefully bring about better government once things settle in. That is, of course, to be seen.

The courts will work this out or else Congress will clarify just how independent the independent agencies will be going forward. In the meantime, his order on regulatory pre-submission of any proposed rules to his OIRA will have an impact on new rules until the courts decide on this or Congress acts.

After four years of regulatory activism under the Biden administration, this will slow down that activism dramatically even at agencies like NCUA that still has a Democrat majority board or the CFPB whose staff is almost entirely Biden administration holdovers.

Some would argue that the independent regulatory agencies are already less independent than the term implies.

The NCUA under the Biden appointed Chairman Todd Harper and Board Member Tanya Otsuka were in lock step with the Biden administration with their larger budgets, consumer protection agenda, opposition to overdraft fees and climate change emphasis.

The previous Chairman Rodney Hood during the first Trump administration was often seen in photos with the president and carried a much less activist agenda with smaller budgets, CUSO authority expansion, more flexible service center rules and greater investment authorities.

In both cases, the agency reflected the administration’s priorities without actually being required to “check in” with the administration before they acted.

In my case, I was made NCUA Chairman by President George W. Bush because he knew from my previous three and a half years on the NCUA Board that I shared his regulatory philosophy. He or his administration never contacted me directly asking for me to follow their lead on a regulatory issue.

President Bush trusted my regulatory philosophy because, before I was appointed, he did his homework and determined that I shared his philosophy and was deserving of the trust he placed in me to lead the agency as he felt it should be led.

So, the “independence” of the federal regulatory agencies is really not – nor has it ever been – completely independent.

However, the pre-approval of regulatory actions by the administration that President Trump is requiring under this executive order is definitely plowing new ground.

And it must be kept in mind that presidents change, party control of the White House swings both ways and what’s good regulatory practice in a Republican administration may not be good regulatory practice in one where the Democrats control the White House.

The swings of the political pendulum is what the “independent” structure of some federal regulatory agencies was designed to protect against. However, on the other hand, that “independence” could result in a dysfunctional agency that operates not only inconsistently with – but possibly in direct opposition to – an administration that received a voter mandate for an elected president to move in a different direction.

Again, this executive order – like many that a president issues without a corresponding act of Congress to incorporate it permanently in the law – will be challenged in court. Or Congress may well spell out a new definition of “independent” federal agencies through legislation. This will settle in over the course of time and we’ll know what the future holds for the federal regulatory process.

But in the meantime, the executive order is a shot across the bow to those independent federal agencies that have long felt that their “independence” protects them from having to follow the mandates of the President and his administration.

That is what the executive order is obviously designed to do – make independent federal regulatory agencies decide just how independent they want to be to the administration whose president was elected by the American people and how far they are willing to go to buck the administration they serve under.

It will be fascinating to watch. And we will keep our eyes on it for you.

Until next time.

Dennis Dollar