White House Reg Freeze Raises Questions for CFPB, Prepaid Industry

Written by FinTech Futures
24th January 2017

Prepaid providers—along with P2P and mobile wallet providers that fall under the CFPB’s final prepaid accounts rule—might have cheered to learn that President Donald J. Trump issued a freeze on forthcoming regulations on Jan. 20. Further examination of the White House memo detailing the freeze, however, suggests that it may not delay the Oct. 1 effective date for the final rule on prepaid accounts. But, it’s implications for the CFPB and some of its other regulations are unclear.

Reince Priebus, assistant to the president and chief of staff, sent out a memo Jan. 20, issuing a freeze on new or pending regulations to give President Trump’s appointees a chance to review them. According to the Priebus memo, no new regulations should be sent to the Office of the Federal Register (OFR) until they’re reviewed by a department or agency head appointed by the new president, and any regulations sent to the OFR, but not published in the Federal Register, should immediately be withdrawn until reviewed. The memo also says effective dates of regulations that have been published in the OFR and are not yet effective should be temporarily postponed until 60 days from the date of the memo.

“While we are still evaluating the contents of the Priebus memo, we don’t believe that it will have a direct impact on the CFPB final prepaid accounts rule because the CFPB is currently an independent agency and the initial effective date of the final rule is Oct. 1, 2017, which is well outside of the 60-day period described in the memo,” Brad Fauss, president of the Network Branded Prepaid Card Association (NBPCA), tells Paybefore.

The memo’s effect on the CFPB is a bit hazier. First off, the memo is addressed to “Heads of Executive Departments and Agencies,” so it’s unknown whether the administration sent the memo to the CFPB because it’s an independent agency rather than an executive agency, under the Dodd-Frank Act. A blog by Ballard Spahr LLP about the freeze refers to a 2012 report by the Congressional Research Service which discusses similar freeze memos that were issued by the chiefs of staff to Presidents Bill Clinton, George W. Bush and Barack Obama. Such memos “have generally exempted regulations issued by independent [agencies],” according to the report.

Whether the CFPB was sent the memo could depend on whether the Trump Administration considers the CFPB to be an independent agency or an executive agency, according to Ballard Spahr. However, it’s clear the CFPB has reviewed the memo, based on a Jan. 24 Wall Street Journal interview with Director Richard Cordray. When asked about the memo, Cordray said, “We’re still digesting these orders and I’ll leave that to the lawyers right now.”

The status of the CFPB as an independent agency is in question, and President Trump already has met with a possible replacement for Director Cordray. The U.S. Court of Appeals for the District of Columbia Oct. 11 deemed the structure of the CFPB unconstitutional because it’s an independent agency led by a single director who can only be removed by the President for cause, according to the court’s decision. The court also noted that the CFPB will now operate “as an executive agency akin to other executive agencies headed by a single person, such as the Department of Justice and the Department of the Treasury.” The court also changed the proviso in the Dodd-Frank law, which created the CFPB, that the agency’s director can be removed at will, not only for just-cause. The decision of the D.C. Circuit Court of Appeals is pending a stay until the D.C. Circuit rules on the CFPB’s petition for rehearing before the entire appellate court. The decision stems from a $109 million enforcement action issued by the CFPB in 2015 against mortgage servicer PHH Corp., alleging kickbacks in exchange for real estate referrals, which is in violation of the Real Estate Settlement Procedures Act.

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