Washington Is Moving Fast - Except When It’s Not

Hurry up and wait! The Trump Administration is moving a mile a minute, and as it does so, regulators are kinda stuck. Here are my thoughts on the NCUA Board Member dismissals and the semi-fangless CFPB. I'd love to hear what you think!

Last week was another unprecedented week for the credit union industry. First, the White House fired Todd Harper and Tanya Otsuka, the two Democratic members serving on the three-member NCUA Board. Secondly, the CFPB is considering rescinding all previous guidance issued by the CFPB since its inception. Both developments could have a direct and immediate impact on your credit union’s operations. Here is a look at some of the key implications of these changes.

NCUA Firings

Recently, I have had a number of exchanges with the Chairman and he is a classic small government conservative who will look for ways to reduce regulatory burden. But, without a full board, his ability to act is limited. So long as Chairman Hauptman remains in place, NCUA is able to carry out basic day-to-day functions. Section 12 USC 1752a(e) gives the Chairman several additional powers and responsibilities, including directing “the implementation of the policies and regulations adopted by the board.” Pursuant to this authority, examinations and general oversight of the industry can ostensibly continue until replacements are appointed and approved by the Senate. 

In contrast, former NCUA Chairman Dennis Dollar (the best last name for a financial regulator in history) opined in an interview with CU Today that the chairman’s power extends to rule-making authority. This is a highly questionable proposition. NCUA’s enacting statute vests rule-making authority in the Board, and the Board cannot operate without a quorum. The much more likely scenario is that the chairman will simply wait for new board members to be appointed before taking additional regulatory action. 

In addition, the board carries out several quasi-judicial functions such as deciding appeals related to materially adverse examiner findings with which a credit union disagrees. A prolonged absence of a quorum would raise questions as to the legality of NCUA enforcement actions in the absence of the availability of administrative appeals. In short, the legislative and regulatory structure does not envision a prolonged interregnum in which there is no functioning board. 

Some NCUA supporters have expressed concern that the Administration’s actions could also facilitate dramatic policy changes. For instance, a board of Trump Administration appointees could presumably be more receptive to efforts to restructure the NCUA by consolidating it into the FDIC or OCC. However, such concerns may prove to be exaggerated. As aggressively as the Trump Administration has acted, its decision to remove Democratic board members from independent agencies is based on a very plausible interpretation of existing Supreme Court case law. In contrast, the NCUA, like the CFPB, is a congressional creation that can only be restructured with Congressional approval. 

Is the removal of the board members legal? 

The Trump Administration’s decision to fire the two Democratic appointees has jolted the industry but is hardly surprising. In this Executive Order, the President explained that “so-called independent regulatory agencies” are unconstitutional infringements on the President’s executive authority. He further indicated that the Executive Order made almost all independent agencies subject to the oversight of the Executive Branch, with the exception of the Federal Reserve’s “conduct of monetary policy.” 

Since issuing this order, the President has fired several Democratic appointees on boards that were previously considered independent. Consequently, there is ongoing litigation, which will ultimately reach the Supreme Court, that will provide guidance as to the legality of the President’s actions. One such case is Grundmann v. Trump, No. CV 25-425 (SLS), 2025 WL 782665 (D.D.C. Mar. 12, 2025). On February 10th, the plaintiff was fired from her board position on the Federal Labor Relations Authority (FLRA). Under its enacting statute, members can only be removed for cause. The members also serve defined terms and, like the NCUA, no more than two of the three members of the board are permitted to be of the same party. 

These legal disputes involve two fundamental issues. First, is the Humphrey’s Executor case, in which the Supreme Court upheld the constitutionality of independent boards, still good law or will it be overturned by the Supreme Court? There are strong indications that the Court will, in fact, overturn this precedent. Secondly, even if the Court upholds Humphrey’s Executor, the Trump Administration is arguing that the courts have no power to force it to rehire dismissed board members.

CFPB Moves to Rescind “Illegal” Guidance

Law 360 is reporting that CFPB staff has been ordered to undertake a “comprehensive internal review” of existing CFPB guidance. An appendix accompanying this memo includes a list of 120 such documents dating back as far as 2012. Law 360 quotes Acting Director Vought saying, “For too long, the Agency has engaged in weaponized practices that treat legal restrictions on its authorities as barriers to be overcome rather than laws we are bound to respect. This weaponization occurs with particular force in the context of the Agency’s use of sub-regulatory guidance.” 

Once again, we are in unchartered territory. Past guidance issued by the Bureau touches on everything from overdraft fees to fair lending laws. Crucially, many of these policy statements are predicated on the Bureau’s interpretation of its UDAAP powers. While the Bureau’s actions would be a positive development for financial institutions, the exact consequences of rescinding guidance remain to be seen. For instance, even assuming that the Bureau ultimately withdraws guidance making overdraft fee charges a violation of UDAAP, there is now federal case precedent that reaches the same conclusion. 

Its most direct impact could be on the enforcement of federal law by state agencies such as the Department of Financial Services (DFS).  Under the Dodd-Frank Act, states have the independent authority to enforce most consumer protection laws but as applied to federal credit unions, state agencies can only enforce violations of federal regulations promulgated pursuant to such laws. This distinction means, for example, that DFS would not be allowed to sue a federally chartered bank or credit union based on its own interpretation of the Truth in Lending. However, it could sue for a violation of Regulation Z. 

A second issue, which the CFPB’s actions could once again bring to the forefront is whether the authority of state agencies to enforce federal consumer protection laws extends to the Bureau’s authority to bring enforcement actions under federal UDAAP authority. See 12 USC 5531. 

What is the Consequence for Your Credit Union?

First, the positives. The Harper Chairmanship aggressively attacked the consumer practices of credit unions in general and larger credit unions in particular. This period is over. The Chairman has the authority to establish examination priorities, and he has already stated that he is opposed to the regulation of overdraft fees. Second, once a new board is established, we may see rapid movement on mandate relief in areas such as mandatory succession planning and record retention. We may even see an expedited examination process. These are all areas that the Chairman has referred to in the past. Even if the Court ultimately rules against the Trump Administration, we are in a period where the NCUA, like the CFPB, is in a regulatorily induced coma.

The most dramatic impact of all these changes will continue to be on the CFPB. In the coming months, expect several existing regulations, including the Small Business Lending Rule, to be reexamined. In addition, by putting an end to regulation by enforcement action, the Bureau will move at a much slower pace, and it should be easier for all financial institutions to comply with its mandates.

What are the negative consequences? The answer depends in large part on what actions Congress takes in the coming weeks. The federal credit union industry is a statutory creation, and its key features, including a separate regulator and tax-exempt status, can only be eliminated with congressional action. However, we have already seen with the actions taken against the Bureau what a determined bureaucrat can do to limit the effectiveness of an agency. 

In the context of NCUA, in a worst-case scenario, we could have a board that openly advocates for Congress to consolidate NCUA into another banking regulator, such as the OCC. In addition, the Board could effectively halt all large credit union mergers on policy grounds. We could also see a dramatic reduction in staff.

As important as the NCUA is, the most important issue is, of course, the continued independence of the Federal Reserve Board. By establishing the precedent of direct control over independent financial agencies, the President is clearly laying the groundwork to argue that the same authority authorizes the Executive Branch to have direct oversight over the monetary policy functions carried out by the Federal Reserve.

As always, if you have any questions or wish to further discuss, please do not hesitate to reach out to me.

Washington Is Moving Fast - Except When It’s Not -