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,i 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.

Please Note: The Cadwalader Cabinet our legal research, news and intelligence platform – is a subscription service designed to manage and simplify clients’ evolving regulatory obligations. The Cabinet now includes a complimentary section available to non-subscribers, titled the Cabinet Center for Administrative Transition (“CCAT”). CCAT is a curated repository of pronouncements, policies and proposals for legislative and regulatory change that reflect the financial services agendas of President-elect Donald Trump and Congress. Within this memo you will find direct links to resources available on CCAT. More information about CCAT is noted at the end of this memo.

Executive Orders

Presidential “executive orders” are written directives from the President of the United States that manage operations of the federal government.ii The President’s source of authority to issue executive orders can be found either (i) in Article II of the U.S. Constitution,iii 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.iv

Discretionary Agency Directives and Guidance Documents

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,v 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),vi 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,vii as to the use of marijuana in states where such use had been approved by the state,viii and to delay the implementation of certain provisions of the Affordable Care Act (ACA), including the so-called employer mandateix and the requirement that employers subject to the Fair Labor Standards Act (FLSA) automatically enroll health plan participants in such coverage.x

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.

Financial Services in General and the CFPB In Particular

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.xi 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).xii 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”xiii to prove discrimination in lending.xiv This bulletin was supported by a CFPB “white paper,” titled “Using Publicly Available Information to Proxy for Unidentified Race and Ethnicity.”xv The mathematics of this paper were very heavily criticized.xvi

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 CFPB under President Trump could interpret that the Equal Credit Opportunity Act (ECOA), under which the CFPB brought its legal action, does not provide by its terms for discrimination claims where there is no intent to discriminate. Second, with or without changing its interpretation of the ECOA, the CFPB could find that the mathematics used in its white paper were insufficient to demonstrate disparate impact. Third, the CFPB could simply not bring lending discrimination claims based on evidence of disparate impact.

Of these three options, disavowing disparate impact as a legal basis for stating a claim seems the least likely way to go, as it would be highly controversial because the use of disparate impact analysis to evidence discrimination has been long accepted.xvii On the other hand, disavowing the CFPB’s disparate impact analysis seems a position that the CFPB could very easily take, since there has been so much criticism of the statistical basis for the CFPB’s analysis and it would seem an effective way of disavowing an analysis whose results were viewed by many as having been motivated more by politics than by mathematics. Finally, the CFPB’s decision to bring a claim based on evidence of disparate impact will be necessarily case specific and it would not be necessary for the CFPB to announce a particular policy in this regard.

Conclusion

While a good deal of attention has been given to the use of Executive Orders by President Obama – and to the corresponding ability of President-elect Trump to amend or reverse those orders – in fact, executive action takes a wide variety of forms, including the issuance of agency orders, the issuance of interpretations, the selection of which enforcement actions to pursue, and the release of statistical studies. All of these actions involve a significant degree of executive discretion, and thus they will all be, to some extent, in the control of the new President.