The Trump Administration: Change By Executive Action and Inaction

[co-author: Allison Saltstein - Law Clerk]

The election of Donald J. Trump as the 45th President of the United States, along with Republican control of the majority of both the House of Representatives and the Senate, will likely result in significant changes in U.S. financial services, energy, and commodities laws and markets.

As we have written previously, in considering the changes that are likely in the now-forming Trump Administration, one must consider not only the substance of any potential change, but also the process by which change can be effected. In that memo, we observed that legislative change is often difficult, even when the President has a majority in both houses of Congress, given the ability of the minority party to filibuster. Nonetheless, there is quite a lot a new President can do to rapidly reverse the policies of a previous President’s Administration, particularly to the extent that these previous policies were not themselves embedded either in statutory law or in rulemaking. To the extent that outgoing President Obama created policy through the direct and indirect power of his office, incoming President-elect Trump may readily revise or reverse those policies. This memorandum focuses on the ability of President-elect Trump to reshape policy through the use of various forms of executive action, including executive orders, discretionary agency directives and enforcement decisions.

Presidential “executive orders” are written directives from the President of the United States that manage operations of the federal government. The President’s source of authority to issue executive orders can be found either (i) in Article II of the U.S. Constitution, which sets out the powers of the three branches of the government or (ii) in authority granted to the President or the executive agencies by Congress.

Despite the attention given to “executive orders,” many of the more controversial Obama Administration’s policies were instead implemented pursuant to discretionary agency directives and guidance documents, or appointment powers, rather than through executive orders. Discretionary agency directives – which include executive agency policy statements, bulletins, interpretive rules, guidance documents, letters and even press releases – are issued by executive branch agencies, overseen by the President. These directives are used to notify the public as to an agency’s interpretation of a particular law and inform regulated parties as to an agency’s enforcement priorities. While “legislative rules” are required to undergo the notice and comment procedures of the Administrative Procedure Act (APA), thereof, directives are not subject to these agency procedural constraints.

Agency directives may also be used to highlight the manner in which the executive branch intends to enforce the law, or not to enforce it. By way of example, under the current Administration, executive agencies announced that they would not pursue aggressive enforcement in certain immigration cases, as to the use of marijuana in states where such use had been approved by the state, and to delay the implementation of certain provisions of the Affordable Care Act (ACA), including the so-called employer mandate and the requirement that employers subject to the Fair Labor Standards Act (FLSA) automatically enroll health plan participants in such coverage.

President-elect Trump will, on assuming office, be able to direct the head of an executive branch agency to withdraw discretionary directives and guidance documents that were issued by that agency during the Obama Administration.

President Obama did not make extensive use of executive orders in the regulation of financial services. In fact, the most significant and arguably relevant order that he issued pertaining to financial services was directing the executive agencies to consider the burdens of imposing additional rules and regulations. Given the pace of rulemaking during this administration, it is certainly arguable that this order was honored more in the breach than the observance. Accordingly, rather than repeal this order, President-elect Trump might in fact reiterate and reinforce it by, for example, directing agencies to repeal outdated orders (though the actual revocation would be required to conform to ordinary rulemaking and APA procedures).

Although President Obama did not make material use of executive orders in the area of financial services, President-elect Trump’s new authority in this area may serve as a good illustration of the potential uses of executive power. One agency that now falls under the direct control of the President is the Consumer Financial Protection Bureau (CFPB). One of the more significant actions that the CFPB has taken in this administration is the issuance of a bulletin on the use of “disparate impact” to prove discrimination in lending. This bulletin was supported by a CFPB “white paper,” titled “Using Publicly Available Information to Proxy for Unidentified Race and Ethnicity.” The mathematics of this paper were very heavily criticized.

The fact that the CFPB’s policy in charging discrimination in lending based on disparate impact, using as an evidentiary base the math of the CFPB’s white paper, could be reversed in three different ways, illustrates the powers of the President. First, the...