Political Battle Lines Drawn Over OMB Memo on Independent Agencies

The leaders of the Senate Banking Committee are sharply divided over the impact of an Office of Management and Budget memo that requires independent agencies, including the NCUA, to submit proposed rules and guidance to the budget office for review.

Banking Chairman Mike Crapo (R-Id.) said during a hearing this week on the use of agency guidance in the regulation of banks, that the OMB memo will bring much-needed accountability to the regulatory process.

But ranking committee Democrat Sherrod Brown of Ohio said the memo represents a huge give-away to Wall Street.

A regulatory law professor went further, contending that the memo is illegal since it violates a 1993 Executive Order that remains in effect.

On April 11, the Office of Management and Budget announced that beginning May 11, all guidance and rules issued by independent agencies, such as the NCUA, CFPB and other financial regulators, must be submitted for review by the budget office. If the rules or guidance are deemed to be “major,” the agencies also will be required to submit them to Congress under the Congressional Review Act.

NCUA officials, except for new board member Todd Harper, have not commented on the memo.

Harper, at a recent board meeting, said that NCUA was created as an independent agency to allow it to be insulated from “transitory political winds.”

But Crapo said that in several instances, banking agencies have enacted guidance or policy statements that are being enforced as rules. That guidance is not subject to public comments and does not comply with the Congressional Review Act.

That law allows Congress to review major agency rules.

“All rulemaking authority at the banking agencies derives from authority delegated to the banking agencies by Congress, which means Congress has the authority to disapprove any rule a banking agency enacts,” he said.

He added, “This memorandum is a step in the right direction.”

During the hearing, Brown bluntly disagreed, saying that the hearing was called to “make life a little easier for Wall Street.”

Brown said the OMB memo was a gift to special interests.

“The agencies policing Wall Street are supposed to be independent to guard against that influence,” he said. “But now the same president whose cabinet looks like a Wall Street executive retreat wants to meddle.”

Patricia McCoy, a law professor at the Boston College Law School, said the memo violates a 1993 Executive Order issued by President Clinton.

That order established a process for agencies to submit rules to OMB and defines “agency” as those “other than those considered to be independent regulatory agencies.”

McCoy, a former Treasury Department and CFPB official, said that executive order “effectively shields federal bank regulators from White House review of their rules.”