By Henry Meier, Esq., The Law Office of Henry C. Meier, Esq.
When it comes to federal policy shifts, most of us in the credit union industry are accustomed to the slow, winding process of legislation or the formal regulatory rulemaking process. You know the drill: proposals, comment periods, revisions and then finally, rules. That may no longer be the norm.
This week, things got a jolt from the top. On July 8, the Supreme Court issued an emergency order that allowed the Trump administration to move forward with a sweeping executive order to reorganize and dramatically downsize parts of the federal workforce, even before the legality of the order is confirmed. Even before the legal battle involving former NCUA Board Members Todd Harper and Tonya Otsuka plays out.
In plain language, executive orders are being permitted to reshape the federal government. It’s not a passing fad. It’s the new playbook.
What’s Really Going On
SCOTUS issued an emergency order permitting the Trump administration to go forward with plans to reorganize and implement massive cuts to the Federal Government, as the underlying legality of his actions is being litigated. This decision overturned a California district court’s decision, affirmed by the Ninth Circuit Court of Appeals, blocking the Trump administration from carrying out its executive order before the case makes its way through the normal litigation and appeals process. It will still, ultimately, be decided by the Supreme Court.
What’s interesting is that the Court’s order was not accompanied by a written majority opinion explaining its rationale. As a result, we don’t know how expansively SCOTUS views the executive branch’s authority to reorganize the federal workforce.
So, what, you ask?
A Quiet Green Light for Executive Power
Because the Supreme Court acted through its so-called “emergency docket,” it didn’t explain its reasoning. That leaves a big question mark: How far does this green light go? Could it make it easier for any future president to reorganize or even consolidate independent agencies, such as the NCUA, FDIC or OCC, without requiring congressional approval or the usual regulatory process? No one knows, but a precedent is quietly being established.
For credit unions, that uncertainty is more than academic. We’ve already seen the two board members removed (unrelated to the federal government staff reduction). The NCUA is voluntarily complying with the Trump administration’s executive order, reducing its workforce 18% by year-end. This is a profound shift in how things have been done in Washington.
By granting this order the way SCOTUS did, we could hypothetically have a situation in which the executive order pursuant to which the NCUA’s retirement plan was put in place is found to be unconstitutional after it has already taken effect.
Regulation By Memo
Historically, credit union regulations have been developed through a deliberate and open process. That’s part of why the credit union industry has led with a strong voice to shape policy. We’ve participated in that process, submitted comment letters, attended hearings and worked closely with lawmakers and regulators.
But if executive orders and emergency legal maneuvers become the default, then public comment from the people, like you and me, becomes optional or worse: irrelevant.
This shift has been building. Earlier this year, we saw warning signs that traditional regulatory norms were being pushed aside. This article takes a closer look at how issues like the credit union tax exemption are being pulled into broader political fights.
The risk? Decisions with massive implications for our movement will be made without consultation, transparency or possibly due process.
And frankly, weren’t we just a little more than six months ago complaining about the CFPB, under the then-Democratic administration, regulating by press release? It’s déjà vu all over again.
True, there has been an increasingly aggressive use of executive orders dating back to President Bill Clinton. However, President Trump is using them to an extent and to address virtually every major policy issue facing the country. Congress has had little appetite for checking this power. We are in a fundamentally different era where the rules of the game are being changed.
So, What Should Credit Union Leaders Do?
To begin, we must acknowledge that we’re operating in a more volatile and unpredictable policy environment. Executive orders aren’t new, but their growing influence and the way courts are treating them mean credit union strategies must be nimble.
Second, stay plugged in. Know which executive actions are affecting financial regulation and which agencies are quietly being restructured. Keep a close eye on the shifting balance of power between the executive branch, Congress and independent regulators.
And finally, don’t count on the old playbook. If your credit union relies on a stable regulatory framework to plan investments, services or compliance strategies, revisit your assumptions. This is what we’ve got to work with, and we can’t let it freeze us.
What It All Boils Down To…
…is that no one’s really got it figured out just yet, as Alanis Morissette sang. We don’t know how the courts will rule in the end. Some of these aggressive executive actions may be walked back. However, the machinery is already in motion, and in some cases, it’s altering the landscape before the legality is even decided.
The Court’s action is yet another strong indication that we will continue to see dramatic and rapid changes in Washington. The Court has still not ruled on whether to reverse Humprey’s executor, which codified that Congress can limit the president’s powers to remove officials from independent federal agencies, such as the NCUA. Nevertheless, we already have independent agencies complying with and being affected by some of the most aggressive executive orders ever issued. It is increasingly unlikely that the traditional proposal and comment regulatory process will continue to play as important a part of the governing process as it has in the past.
Regardless of your credit union’s field of membership, size or location, Washington is dramatically changing shape. And your credit union must morph to change how we watch, adapt and lead.