For Better or Worse, Regulation-Making Machine Has Slowed

The first years of the Trump Administration have slowed the regulation-producing machine – and it’s a slowdown that credit union attorneys and lobbyists said has helped credit unions that previously faced an onslaught of rules from agencies such as the CFPB.

“The regulatory climate during the first couple of years of the Trump Administration [has] been favorable to credit unions, which we had expected it would be,” Ryan Donovan, CUNA’s chief advocacy officer, said.

When asked if Trump is responsible for that, Donovan said, “The tone is set from the top.”

Former NCUA Chairman Dennis Dollar agreed.

“Elections matter,” he said. “The Republican NCUA appointees under President Trump have reflected his less activist regulatory philosophy, just as the Democrat NCUA appointees under President Obama reflected his more activist approach to regulatory actions.”

While Trump has appointed only one Republican so far, he did designate board member J. Mark McWatters as chairman before nominating the current chairman, Rodney Hood.

“We’ve certainly moved toward a deregulatory climate,” Ann Kossachev, NAFCU’s director of regulatory affairs, said.

“We’re going to cancel every needless job-killing regulation and put a moratorium on new regulations until our economy gets back on its feet,” Trump said during a campaign rally in Tampa, Fla., as he ran for president.

While there has not been a formal ban, Trump did sign an executive order requiring that agencies repeal two rules for every one that is issued. While the NCUA is an independent agency, NCUA officials have said they are trying to follow the spirit of executive orders.

“When President Trump assumed office, he saw the need for a complete review of regulations that had been put in place by various federal agencies over the years,” former NCUA Chairman Michael Fryzel said. “Government has the knack of responding to problems or issues by creating more laws, rules and regulations.”

In a June 2019 report, Trump’s Council of Economic Advisers outlined the administration’s philosophy once again.

“This new approach to regulation not only reduces or eliminates costly regulations established by prior administrations but also sharply reduces the rate at which costly new Federal regulations are introduced,” the council said, adding, “Since 2017, consumers and small businesses have been able to live and work with more choice and less Federal government interference.”

The anti-regulatory philosophy has carried over to the NCUA, even though it remains independent, according to John McKechnie, senior partner at Total Spectrum.

“The mindset at the NCUA board leadership level has been instinctively in favor of less regulation and in the direction of giving more latitude to the credit union industry,” he said. “I would add that less is not synonymous with lax.”

But Bart Naylor, a financial policy analyst at Public Citizen, said that philosophy has not helped with oversight of financial institutions, and criticized Trump for appointing bankers to head several agencies. “Personnel is policy,” he said.

Trump’s anti-regulatory moves may be limited by his own executive order to require all independent agencies to submit rules and guidance to the Office of Management and Budget.

“If, however, the administration wants to have potential regulations reviewed by the OMB, it limits the deregulatory nature by adding another layer of review to the process,” former NCUA board member Geoff Bacino said.

The administration may have made the most direct impact at the CFPB, where a Trump Administration appointee is now the director. There has been less regulation by enforcement at the bureau under Republican leadership, Kossachev said; Donovan added that during the past two years, the agency has paused major new rules.

“The changes at the CFPB are certainly one of the major highlights of the past two years,” according to Fryzel, who said Republicans can point to the new philosophy at the agency as a major accomplishment. “Regardless of what is said, the CFPB appears to be running effectively and efficiently,” he added.

Kossachev also pointed to the enactment of S.2155, the major regulatory overhaul passed during the last Congress, as one of the highlights of the past couple of years. But the Democratic takeover of the House appears to have calmed some of the anti-regulatory zeal.

“It will be more difficult for any comprehensive regulatory package to move through,” Kossachev said.

As a result, credit unions will have to rely on the Trump Administration more than Congress, McKechnie said.

“On the surface, the fact that Congress is now divided means that any future regulatory relief initiatives will be from the Executive and not the Legislative branch,” he said.

The Democratic House may attempt to reverse some of the things Republicans have done, but a divided government will doom those efforts, Fryzel predicted.

“The Democrats may try to restore some of the changes made by the Republicans, but with the Senate controlled by the GOP, their chances of success are nil,” he said.

And the battles between House Democrats and the Trump Administration will consume a lot of time over the next two years.

“Their plates appear to be full at this time as they work to fulfill their oversight role, and it seems that they have [not] or will [not] focus on the regulatory environment in any meaningful way,” attorney Kathy Winger, whose practice includes financial regulatory matters, predicted.

NASCUS President/CEO Lucy Ito said the House Financial Services Committee has provided the needed oversight of the financial regulators, citing the May 16 hearing that featured the officials who supervise banks and credit unions.

“This was the first hearing to convene all four federal prudential regulatory agency heads in over three years,” she said.

The attorneys and lobbyists said in their view, there is still more work to be done.

Ito noted that during the Financial Services Committee’s hearing, witnesses emphasized the uncertain and possibly negative impact that the Current Expected Credit Loss standard may have on small institutions.

Legislation to delay and study the CECL standard has been introduced in Congress.

She also said state credit union regulators have voiced frustration over the NCUA’s recent merger rules. “Those frustrations include inconsistent messages from the NCUA regarding the rule and unnecessary delays of common-sense mergers,” she said.

McKechnie cited the ongoing discussion among NCUA board members concerning Risk-Based Capital rules as an important move by the agency, adding that the accompanying potential for supplemental capital has “enormous and positive implications” for the credit union system.

Winger said as states adopt their own cybersecurity standards, a patchwork of rules will make compliance difficult, time-consuming and costly.

And Naylor said that as Trump took office, there was a possibility the administration would push to restore the Glass-Steagall Act separation between investment and commercial banking.

“That was official policy,” he said, adding that he blames Treasury Secretary Steven Mnuchin, a former banker, for nixing the idea. “Mnuchin quickly blew that bubble.”