Washington's quiet revolution to destroy consumer protection
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As he has in other sectors like education and environmental protection, President Trump has pledged to deregulate the financial sector. Progress on an outright repeal of financial regulation has stalled, for now. However, deregulation can be achieved using other tools. One of them is through strategic agency appointments. Another is through changing the procedural rules under which agencies can create regulations.

Trump is well on his way to effecting change in financial regulation through his appointments, and Congress appears poised to stall new financial regulation through changes to the rulemaking process, most significantly through the Regulatory Accountability Act (RAA).

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Many proposals to “reform” the rulemaking procedures are designed to hinder regulation, just as many agency heads are selected to prevent their agencies from regulating. As Steve Bannon has stated, “Cabinet appointees ... were selected for a reason and that is the deconstruction [of the administrative state] ... the way the progressive left runs, is if they can't get it passed, they're just gonna put in some sort of regulation ... in an agency ... that’s why this regulatory thing is so important.”

 

Trump is repopulating the financial regulators with leaders with long industry ties: new Securities and Exchange Commission (SEC) Chairman Jay Clayton and acting Office of the Comptroller of the Currency Comptroller (OCC) Keith Noreika, to start. Rulemaking at these agencies will likely slow, even without any changes to rulemaking procedures. One of the remaining holdover agency heads is Richard Cordray, whose term as director of the Consumer Financial Protection Bureau (CFPB) expires in July 2018.

The CFPB has been one of the most effective outgrowths of Wall Street financial reform, returning $12 billion to 29 million consumers for abusive financial practices since it opened in 2011. Among other actions, the CFPB has written regulations to improve mortgages, payday loans, prepaid cards, and to oversee student loan servicers, auto lenders, and credit reporting companies. The agency’s latest agenda reveals that it intends to propose rules on overdraft and debt collection and to prioritize student loan servicing and credit reporting later this year. Yet all of these plans will be in jeopardy if the RAA advances in Congress.

Last month, the Senate Homeland Security and Governmental Affairs Committee (HSGAC) quietly approved a number of bills purportedly intended to improve federal rulemaking. The House already passed its own versions of these bills, and the HSGAC-passed bills await consideration by the full Senate.

While this sounds innocuous, these bills will impair the ability of regulators to prevent or react to another financial crisis. These bills will stop financial regulators, particularly the CFPB, from being able to propose new rules to protect consumers from abusive financial practices in areas such as mortgages, student loans, credit cards, and auto loans.

The procedures under which federal agencies transform congressional legislative language into rules on the ground can seem arcane but have far-reaching consequences. Agencies promulgate rules on everything from air quality, food safety, consumer products, workplace standards, and the financial system.

The ideas in the recent HSGAC bills are not new, and neither are the arguments for and against them. Versions of these bills have been circulating in both the House and the Senate since at least 2011, and proposals to reform the administrative state have existed for far longer. The backbone of administrative law, the Administrative Procedures Act (APA), was itself borne out of concern that the agencies created under the New Deal needed uniform procedures and more public accountability.

Since the APA’s passage, Congress and the executive branch have layered additional rulemaking procedures year after year, including those in the Unfunded Mandates Reform Act, Regulatory Flexibility Act, Paperwork Reduction Act, and several executive orders. Each of these has tended to require ever more impact analysis before finalizing rules, making change harder to effect and our agencies ever more ineffective at responding to environmental or other problems.

The most troublesome of the newest batch, the RAA, extends this trend even further. The RAA compounds the problem by adding an astonishing 53 new requirements to rulemaking. Even worse, the RAA introduces trial-like hearings for rulemaking, a process that was tried and abandoned decades ago. Such hearings inevitably favor industry insiders, who can afford to initiate them, over public commenters.

The administrative state is not perfect. Agencies currently take approximately four years to finalize rules, and the rulemaking process is outdated and overly complex. The financial regulations to implement the Dodd-Frank Act have taken years to finalize. As of last summer, six years after the law became effective, agencies had finalized only 70 percent of required regulations. Decades of layering on additional rulemaking requirements has resulted in a confusing process that alienates both individual citizens and businesses alike.

We can figure out a better way to encourage and analyze public comments on rules. We can figure out how to simplify the process agencies must undertake to finalize rules, and to allow businesses to provide input and adapt to changes more easily. Perhaps we should be having a debate about reforming the administrative state — but not by layering on dozens of additional requirements. Let RAA, and every other bill like it, die in the Senate and let’s move on.

Jeanette Quick served as senior counsel on the U.S. Senate Banking Committee and as a senior attorney for the U.S. Office of the Comptroller of the Currency.


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