President-elect Donald Trump has nominated South Carolina Republican Congressman Mick Mulvaney to be Director of the Office of Management and Budget. The OMB oversees the creation of the federal budget for the president. Mulvaney has long been an advocate of balanced budgets. His nomination is viewed as sending a signal that federal regulations are likely to face tough scrutiny in the Trump administration.
Although the CFPB is currently not required to submit its regulations to OMB for review, that could change as a result of a D.C. Circuit Court’s decision in the pending PHH litigation, PHH Corp. v. CFPB. PHH has challenged the constitutionality of the CFPB’s structure, specifically the fact that its single director can only be removed “for cause.” The key question for the court is whether the CFPB is to be considered an “executive agency.” If so, then it is subject to the regulatory review process of the Office of Information and Regulatory Affairs (OIRA) within OMB. Pursuant to Executive Order 12866, federal agencies must submit proposed and final regulations constituting a “significant regulatory action” to OIRA for review prior to publication in the Federal Register. The CFPB argued that it is exempted from this requirement because it is an “independent regulatory agency.”
In PHH, the court ruled that the CFPB’s single-director-removable-only-for-cause structure is unconstitutional and, to remedy the constitutional defect, severed the removal-only-for-cause provision from the Dodd-Frank Act so that the President “now has the power to supervise and direct the Director of the CFPB, and may remove the Director at will at any time.” As the court stated, the consequence of this structural change is that the CFPB is no longer an “independent agency” and instead “now will operate as an executive agency.”
The D.C. Circuit’s decision is not yet effective because PHH has filed for an en banc review of the decision. A ruling is expected early in 2017. If the D.C. Circuit’s decision takes effect, it is likely that the CFPB would no longer be considered an “independent regulatory agency.” In that case, the bureau’s proposed rules would fall under Mulvaney’s shadow. However, even if the CFPB prevails in court, Congress could amend the law so that it no longer defines the CFPB as an “independent regulatory agency,” or the new president could revise Executive Order 12866 to specifically subject CFPB regulations to OIRA review. In any event, the CFPB will be subject to greater financial accountability in the coming administration.