How Could Trump's Regulatory Reform Impact Consumer Lending? Part One

On February 24, President Trump signed an executive order detailing how the executive branch intends to enforce his regulatory reform agenda, giving consumers lenders a better idea of what to expect in the near future. 

In Part One of this series, we'll discuss what the president's regulatory reform agenda consists of and how the Trump administration plans to implement those changes. In Part Two, we'll discuss the impact these executive orders could have on consumer lending. 

'Reducing Regulation and Controlling Regulatory Costs'

Before we get into how Trump plans to address regulations, let's focus on his first executive order regarding the matter. 

One provision that made headlines was that "for every one new regulation issued, at least two prior regulations be identified for elimination." Section 2, Part b of the executive order noted that, for the 2017 fiscal year, the heads of all federal agencies need to ensure that the total incremental cost of all new regulations is zero.

Essentially, any new proposed regulations should not impose any cost to the entities that adhere to them. However, if incremental costs are unavoidable, agencies would have to offset that financial burden by eliminating the costs associated with two active regulations. 

To prove that agencies are tracking the costs associated with the regulations they create and enforce, they have to provide annual regulatory cost submissions to the Office of Management and Budget (OMB). The Office of Management and Budget Director will guide agency heads on standards for:

• Measuring and estimating regulatory costs.
• Figuring out what qualifies as a new and "offsetting" regulation. 
• Determining the costs of existing regulations that agencies have proposed for elimination.
• Calculating costs in different fiscal years. 

All in all, the executive order doesn't specify which regulations agencies need to eliminate. It leaves the decision-making process to the agencies themselves. 

'Principles for Regulating the United States Financial System'

Trump's executive order, titled "Core Principles for Regulating the United States Financial System" gets into the consumer lending realm. These core principles consist of:

• Enabling Americans to "make independent financial decisions and informed choices in the marketplace, save for retirement, and build individual wealth."
• Eliminating taxpayer-funded bailouts.
• Encouraging economic growth by conducting regulatory impact analyses. 
• Allowing American companies to compete with foreign enterprises in both domestic and foreign markets.
• Advancing U.S. interests when negotiating international financial regulations. 
• Implementing efficient, effective and "appropriately tailored" regulations. 
• Restoring "public accountability within Federal financial regulatory agencies" and bringing reason to the Federal financial regulatory framework.

Much like the one we discussed earlier, the executive order doesn't specify any particular regulations the Trump administration intends to eliminate. 

The Executive Orders' Impact on Consumer Lending 

In order to understand how Trump's executive orders will affect consumer lending operations, we have to outline how the executive branch intends to enforce the regulatory reform agenda.

It seems that the key issue for the Trump administration is cost. How the federal government will eliminate those costs largely depends on the decisions of each agency's Regulatory Reform Task Force (RRTF).

A key requirement in the president's executive order on enforcing the regulatory reform agenda is that every federal agency must create a RRTF that's responsible for determining which regulations could be repealed, replaced or modified on the basis of whether those laws:

• Eliminate or inhibit job creation.
• Impose costs that do not create demonstrable benefits.
• Are outdated, ineffective or unnecessary
• Are inconsistent with regulatory reform initiatives.

So given that the Consumer Financial Protection Bureau will need to set up an RRTF, it's possible that the task force will find regulations that meet one of these criteria. If a CFPB law indirectly imposes costs on lenders, for example, that law may be eliminated, replaced or adjusted to eliminate those costs. 

In Part Two, we'll speculate as to how Trump's regulatory reform agenda will impact consumer lenders' day-to-day operations.