Henry Meier, Esq., The Law Office of Henry Meier, Esq.
A pair of decisions issued by the Supreme Court on Monday are among the most important issued by the Court in decades.
After all, the Supreme Court didn’t just rule that the Trump Administration could remove Board Members from the FTC without cause; it effectively altered the separation of powers between Congress and the Executive Branch by holding that President Trump and future presidents have the authority to appoint all the directors of most independent agencies. In addition, while it held that Federal Reserve Board members could only be removed by a President “for cause,” it left open the possibility that the “for cause” standard will be easily satisfied by administrations seeking to remove board members who don’t do their bidding. The impact of the Court’s decisions on the credit union industry will be direct, long-lasting, and consequential.
Now that the Court has held that FTC Board member Rebecca Slaughter can be fired by the Trump Administration for being a Democrat, it’s safe to say that Tonya Otsuka and Todd Harper will not be returning to the NCUA, at least not under the Trump Administration.
We have already seen that much can be done when a board reflects one set of ideological beliefs. Under Republican Chairman Hauptman, credit unions have seen dozens of mandated relief proposals, much less emphasis on consumer protection issues, such as overdrafts, and an emphasis on safety and soundness. This trend will only continue with a three-member board, all of whom will be picked by and subject to removal by the Trump Administration. Remember, the same authority Republicans now enjoy will also be available for a Democratic president.
This decision will also create even more of an impetus for the administration to fill the NCUA’s vacancies. The President has the power to remove board members, but board members must still be approved by Congress. As a result of this decision, if the Democrats take over the Senate, expect the nomination process to become even more contentious, even for low-level agencies like the NCUA. Once a member of the opposing party is placed on an Agency board, Congress will have even less ability to impact her conduct.
On a practical level, this means that credit unions in general, and their compliance departments in particular, have to be more able than ever before to nimbly institute compliance mandates. For example, earlier today I was talking to a credit union about President Trump’s Executive Order and the recently issued FinCen guidance emphasizing the need for financial institutions to identify and file SARS when there are indications that a member may be illegally employed. However, even as credit unions integrate this guidance into their BSA frameworks, they should be mindful that this is exactly the type of Executive Order that could be reversed within seconds by a new administration. In other words, it is no longer enough to know what regulations are being amended; you also need to know what regulations are most likely to be reversed in the future.
The decisions may also create uncertainty in the financial markets once the Wunderkind of Wall Street actually gets around to reading what the Supreme Court said today. On the one hand, a slim majority at 5-4 was ruling to hold that members of the Federal Reserve Board could only be removed for cause, but on the other hand it did not decide how much evidence or what kind of conduct met the for-cause standard. As Justice Kavanaugh explained in his concurring opinion, “Today’s interim ruling does not decide whether the President may lawfully remove Governor Cook for cause.” What’s more, Justices Barrett, Thomas, Alito, and Gorsuch would have issued an even narrower ruling simply sending the case back to the District Court for more fact-finding.
A majority of the Court was openly concerned that the decision not to address the power of the president to remove board members may have scared the heebie-jeebies out of the previously mentioned Wunderkind. But, by leaving open the possibility that the President may ultimately be able to remove Board Member Cook, this decision may ultimately jolt Wall Street anyway.
If you think that today’s decisions put an end to the ongoing debate about the extent of executive power, you are wrong. Even as it upheld the President’s removal powers when applied to the FTC, it acknowledged that future cases would have to delineate where exactly executive power ends, and judicial or legislative authority begins. What we know for sure is that the Court’s Federal Reserve Ruling did little to shed light on this important issue. As Justice Barrett noted in dissent, the Court’s ruling on the constitutionality of the Federal Reserve’s removal powers is in “serious tension” with the Court’s Slaughter decision. This is a remarkable comment given the fact that the cases were decided on the same day.
One of the few things we know for sure is that the executive branch has much more power than it did a day ago. For example, Congress passed legislation replacing a single director of the NCUA with a bipartisan board in part because President Ford fired an NCUA director, hours after the director gave blunt testimony to Congress that the President didn’t like.
Notwithstanding this legislative history, the NCUA’s board will most likely be subject to Presidential removal once again. Simply put, for 100 years, Congress has created independent agencies assuming that they would be independent of the President. Congress never would have created these agencies the way they did if they knew that all they were doing was giving the executive branch more power. That is ultimately why these decisions are so far-reaching and consequential for any industry subject to agency oversight.
There may not be a new sheriff in town, but the current sheriff sure got a lot more powerful.