Executive Orders Limit Agency Guidance

Financial Services Law

Two executive orders recently signed by President Donald Trump will now require that federal agencies publish all informal guidance and limit its use in enforcement actions.

“All too often, guidance documents are a back door for regulators to change the laws and vastly expand their scope and reach,” Trump said during the signing. “A permanent federal bureaucracy cannot become a fourth branch of government unanswerable to voters.”

What happened

On October 9, Trump signed two executive orders. The first, “Executive Order on Promoting the Rule of Law Through Transparency and Fairness in Civil Administrative Enforcement and Adjudication,” emphasized the need for transparency and that regulated parties must know in advance the rules by which the government will judge their actions, as established in the Administrative Procedure Act (APA).

“Unfortunately, departments and agencies in the executive branch have not always complied with these requirements,” according to the order. “In addition, some agency practices with respect to enforcement actions and adjudications undermine the APA’s goals of promoting accountability and ensuring fairness.”

No person should be subjected to a civil administrative enforcement action or adjudication absent prior public notice of both the enforcing agency’s jurisdiction over particular conduct and the legal standards applicable to that conduct, the order stated.

“Guidance documents may not be used to impose new standards of conduct on persons outside the executive branch except as expressly authorized by law or as expressly incorporated into a contract,” per the order. “When an agency takes an administrative enforcement action, engages in adjudication or otherwise makes a determination that has legal consequence for a person, it must establish a violation of law by applying statutes or regulations.”

Agencies may not treat noncompliance with a standard of conduct announced solely in a guidance document as itself a violation of applicable statutes and regulations, the order added.

Similarly, the “Executive Order on Promoting the Rule of Law Through Improved Agency Guidance Documents” reiterated that agencies have used their power to clarify existing obligations through non-binding guidance documents—exempt from the APA’s notice-and-comment requirements—inappropriately to regulate the public.

“Therefore, it is the policy of the executive branch, to the extent consistent with applicable law, to require that agencies treat guidance documents as non-binding both in law and in practice, except as incorporated into a contract, take public input into account when appropriate in formulating guidance documents and make guidance documents readily available to the public,” according to the order.

“Agencies may impose legally binding requirements on the public only through regulations and on parties on a case-by-case basis through adjudications, and only after appropriate process, except as authorized by law or as incorporated into a contract.”

The order also established a requirement that each agency shall create or maintain a single, searchable, indexed database that contains or links to all of its guidance documents in effect.

Going forward, guidance documents must also clearly state that they do not bind the public and include procedures to petition for withdrawal or modification of a particular guidance document.

Why it matters

The issue of “regulation by enforcement” has made headlines in recent years, particularly with regard to the Consumer Financial Protection Bureau, when Acting Director Mick Mulvaney declared that “regulation by enforcement is done,” at the Bureau. The executive orders are the latest move by President Trump in his efforts to deregulate and limit oversight, following a pair of executive orders signed in 2017, the first requiring that for every one new regulation promulgated by an agency, at least two existing regulations must be repealed and a second order mandating the review of all existing financial regulations.



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