Timothy A. Raty
A lot has been written about President Trump’s recent executive order instructing the Secretary of the Treasury to consult with member agencies of the Financial Stability Oversight Council (“FSOC”) and to provide a report concerning current financial regulations.
While these articles focus a lot (and quite validly) on how the regulations made pursuant to the Dodd-Frank Wall Street Reform and Consumer Protection Act (124 Stat. 1376 ) may be repealed, how the Consumer Financial Protection Bureau (“CFPB”) may be restructured, etc., most do not delve into the actual language of the order and what its proclaimed objectives are. The executive order, the full text of which can be found here, is split into three sections, two of which contain significant content:
The Trump Administration sets forth seven principles (“Core Principles”) it will use in creating and judging financial regulations:
- Empower Americans to make independent financial decisions and informed choices in the marketplace, save for retirement, and build individual wealth;
- Prevent taxpayer-funded bailouts;
- Foster economic growth and vibrant financial markets through more rigorous regulatory impact analysis that addresses systemic risk and market failures, such as moral hazard and information asymmetry;
- Enable American companies to be competitive with foreign firms in domestic and foreign markets;
- Advance American interest in international financial regulatory negotiations and meetings;
- Make regulation efficient, effective, and appropriately tailored; and
- Restore public accountability within Federal financial regulatory agencies and rationalize the Federal financial regulatory framework.
The Secretary of the Treasury must consult with the heads of the member agencies of FSOC and, within 120 days of the executive order, provide a report “on the extent to which” existing laws, policies, and requirements, and actions taken “promote the Core Principles.”
A particularly noteworthy clause of this section states the following:
“That report, and all subsequent reports, shall identify any laws, treaties, regulations, guidance, reporting and recordkeeping requirements, and other Government policies that inhibit Federal regulation of the United States financial system in a manner consistent with the Core Principles.”
Impact on the Mortgage Industry
While speculation abounds as to the fate of the Dodd-Frank Act based on this executive order (and public statements from Administration officials), what is clear from the text of this order is the following:
- The executive order does not mention the Dodd-Frank Act, let alone repeals it – and for good reason. Presidents cannot unilaterally repeal Public Acts; they can only be repealed by a subsequent Act of Congress (which is either approved by the President or by two-thirds majority in Congress if overriding a Presidential veto). However, the President can order financial regulatory agencies to interpret and enforce the Act in ways differently than the Obama Administration did.
- The Administration intends to take a more active role in relation to foreign entities engaged in financial activities. While current regulations do focus on such entities, the stated, rationalized intent of such regulations is that they are for law enforcement practices (g. preventing money laundering and the channeling of funds to terrorists, enabling sanctions to be imposed upon high-ranking foreign government officials, etc.). The “Core Principles” indicate that the Federal Government will take a renewed role in “enabl[ing] American companies to be competitive” and “advance American interests” in regards to foreign entities, rather than just law enforcement.
- More accountability is expected, not only from Federal financial regulatory agencies (“restore public accountability within” these agencies), but also from financial institutions as well, who may have to rely upon their own contingency plans to get them through economic hard times, rather than relying upon Uncle Sam (“prevent taxpayer-funded bailouts”).
- The Administration still intends to regulate the financial markets, as evidenced not only by references to “foster” financial markets through “more rigorous regulatory impact analysis,” “make regulation efficient, effective and appropriately tailored,” and “rationalize the Federal financial regulatory framework” (dependent upon how it’s defined, even the phrase “empower Americans” is an indication), but also by the clause which orders the Secretary of the Treasury and FSOC to identify rules and policies which “inhibit” the Administration from regulating the financial system in accordance with its “Core Principles.”
For the mortgage industry, we can anticipate reforms being made to the interpretation and enforcement of the Dodd-Frank Act and possibly other Federal Acts, such as TILA, RESPA, ECOA, etc. We can also anticipate reforms being made to the Federal agencies who enforce these Acts, such as the CFPB. It’s also quite possible that more rigorous regulations may be put in place which are directed towards foreign financial firms (possibly pursuant to the BSA and PATRIOT Act). A repeal of these Acts, however, will only occur through actions by Congress who, so far, are only proposing reforms to these Acts (e.g. Rep. Hensarling’s “Financial CHOICE Act”) and not outright repeals.