House Financial Services Committee Chairman Jeb Hensarling (R-TX) wrote a letter yesterday to CFPB Director Richard Cordray arguing that the D.C. Circuit’s recent opinion in PHH Corp. et al. v. CFPB requires the CFPB to abide by Executive Orders issued by the President.  As the letter notes, the PHH decision characterized the Bureau “as an executive agency akin to other executive agencies headed by a single person, such as the Department of Justice.”  (Slip op. at 10)  According to Chairman Hensarling, that means that Executive Orders now apply to the CFPB.

The letter focuses on four particular Executive Orders:

  • Executive Order 12866: This order requires federal agencies to “promulgate only such regulations as are required by law, are necessary to interpret the law, or are made necessary by compelling public need.” The order further requires agencies to assess the costs and benefits of regulatory alternatives and to select the approach that “maximize[s] net benefits.”
  • Executive Order 13563: This order reiterates the principles in Executive Order 12866, and requires agencies to (1) adopt a regulation only upon a “reasoned determination” that the regulation’s benefits outweigh the costs, (2) tailor regulations to be least burdensome, and (3) maximize net benefits.
  • Executive Order 13132: This order requires agencies to prepare a “federalism” report describing State and local officials’ concerns, as well as what the agency has done to ameliorate those concerns.
  • Executive Order 13175: This order requires agencies to have a process for obtaining input from tribal leaders for regulations that have “tribal implications.”

Chairman Hensarling characterized these orders as “modest attempts” to achieve accountability and “to prevent agencies from recklessly promulgating damaging rules.” In some ways, Chairman Hensarling’s letter is an effort to achieve limitations on rulemaking that his bill, the Financial Choice Act, seeks to impose. Among other things, the bill would require a cost-benefit analysis for all CFPB rule-making, and would impose a dual-mandate of consumer protection and competitive markets on the CFPB.  The bill, H.R. 5983, was reported out of the House Financial Services Committee on September 13.

The House Financial Services Committee and Chairman Hensarling have long criticized the CFPB for an alleged lack of accountability. For example, the Chairman’s opening statement for a Committee hearing with Director Richard Cordray in March 2016 lamented the “frightening” and unaccountable power of the CFPB.  This concern was echoed in the PHH decision, which found that the Bureau lacks adequate structural checks on its activities, “yet wields vast power over the U.S. economy.”  (Slip op. at 9)

Chairman Hensarling’s letter, which requests a response by October 26, may be only the first salvo in an extended battle over the ramifications of the PHH decision.