The Trump Administration: Change by Executive Action and Inaction
Commentary by Steven Lofchie
The election of Donald J. Trump, along with a Republican majority in both branches of Congress, likely will result in significant changes to U.S. financial services, energy, and commodities laws and markets. A new memorandum on the subject 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.
As noted in a recent memorandum, it is important to consider not only the substance of any potential change, but also the process by which change can be effected. Though legislative change is often difficult, a new president can utilize other significant avenues to reverse rapidly the policies of a previous president's administration. To the extent that President Obama's policies were not embedded in either statutory law or rulemaking, this is particularly significant. Executive action takes a wide variety of forms, including the issuance of interpretations and agency orders, selecting which enforcement actions to pursue, and releasing statistical studies. All of these actions involve a significant degree of executive discretion and, to some extent, all will be under the control of the new president.
Commentary
Although President Obama did not make material use of his executive authority in the area of financial services, there are many ways that President-elect Trump may choose to do so. Control of the Consumer Financial Protection Bureau ("CFPB"), which is held directly by a sitting president, offers a good illustration of the means through which President-elect Trump could effect change with the use of executive authority.
The CFPB issued a bulletin on the use of evidence 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 which were criticized heavily. The CFPB's policy on charging discrimination in lending based on "disparate impact" could be reversed in three different ways. First, and most unlikely, the CFPB could interpret the terms of the Equal Credit Opportunity Act ("ECOA"), under which the CFPB brought its legal action, not to provide for discrimination claims where there is no intent to discriminate. Second, and far more likely, without changing its interpretation of the ECOA, the CFPB under new leadership could find that the mathematics used in the white paper, which were authorized under former leadership, proved insufficient to demonstrate disparate impact. Third, the CFPB could choose not to bring lending discrimination claims based on evidence of disparate impact.