Henry Meier, The Law Firm of Henry Meier, Esq.
Reporting on yesterday’s argument before the Supreme Court about whether the President has the power to remove the leaders of independent agencies, the Times declared that the Supreme Court “appeared ready to make it easier for President Trump to fire independent government officials.” Having listened to today’s argument, the Times lede is the equivalent of saying that a mummy seems to be dead.
While it can be dangerous to extrapolate too much from oral arguments, make no mistake about it: The Supreme Court will give the President expansive authority to remove the heads of independent agencies, including the NCUA. The only question is how expansively or narrowly the court will interpret this power.
The case was Trump v. Slaughter, in which a Democratic commissioner overseeing the Federal Trade Commission was fired by President Trump without cause. She argued, as have many other displaced board members have, that heads of independent agencies can only be removed for cause and demands to be put back on the commission. She pointed to a 1935 decision by the Supreme Court, Humphrey’s Executor, which held that President Roosevelt did not have the authority to remove a commissioner of the FTC without cause. Unfortunately for Slaughter and the Democratic heads of all independent agencies interested in keeping their jobs, the Supreme Court took Slaughter’s appeal to reconsider the court’s original ruling in Humphrey’s Executor.
Why does this matter to the NCUA? Because Chairman Harper and Board Member Otsuka are also arguing that under the Federal Credit Union Act, board members can only be removed for cause. Nevertheless, the Court of Appeals for the DC Circuit decided to put their appeal on hold until the outcome of Trump v. Slaughter, making it all but certain that it will base its ruling on the Supreme Court’s decision, which is expected sometime in June or early July (see Harper v. Bessent).
As Justice Kagan noted during the oral argument, a decision by the Court giving whatever current President expansive executive authority over independent agencies would result in “massive power” to promulgate the regulations he favors and to set the priorities of administrative enforcement actions. In contrast, the Republican majority argued that the existing system gives unelected bureaucrats too much power.
However, at least some of the Republican bloc were openly musing about ways in which the grant of power to the executive could be more limited. For example, Justice Gorsuch mused about reinvigorating a legal theory which restricts the amount of power Congress can grant to the Executive Branch, even if it passes legislation. Similarly, Justice Barrett questioned whether the Court’s ruling should be based on the fact that Article II of the Constitution vests all executive power in the Executive Branch, or on the President’s obligation to ensure that the laws enacted by Congress “be faithfully executed” (US CON Article II Section 3). This is esoteric stuff, but it could decide just how much power the President can exercise over previously independent agencies.
So what is all this likely to mean for credit unions? Let me speculate just a bit.
At the very least, you won’t have to worry about the Supreme Court granting the President authority over the Federal Reserve. The court has already made it clear that it considers the Federal Reserve to be a unique entity whose independence will be kept in place. This is good news, if only because a contrary decision would result in one of Wall Street’s worst days.
The three-member NCUA Board must comprise both Republicans and Democrats. The need for a consensus sometimes moderated NCUA’s policies. For example, when Todd Harper was first appointed as the Chairman of the NCUA by President Biden, his ambitions were constrained by Republicans Hauptman and Hood. In contrast, when Democrat Tanya Otsuka joined the team, he aggressively pressed an agenda emphasizing a thorough review of credit union compliance with consumer protection laws and public criticism of overdraft practices. With all three board members subject to removal by the administration in power, we are likely to see more decisive board action (or inaction, depending on what party is in power).
We can also expect greater financial oversight of the NCUA’s budget process. The board will still decide on the budget, and the budget will still be derived from credit union assessments, but the NCUA is likely to follow the lead of the executive in charge regarding budgeting priorities. We have already seen this dynamic taking place under Chairman Hauptman, who has cut the NCUA’s workforce consistent with the Trump Administration’s executive orders and budget mandates.
Credit unions should prepare for even more regulatory whiplash. The control of the President over independent agencies will make it that much easier for a new President of a different party to undo the previous administration’s regulations. This has already happened at the Consumer Financial Protection Bureau. The CFPB being dismantled also demonstrates that a Bureau under a Democratic president can move just as quickly to reimpose previously repealed mandates.
One last bit of speculation: If the NCUA is ultimately subject to the same executive oversight as the FDIC and the OCC, the argument for an independent agency to oversee credit unions will be more and more difficult to make. Maybe not today, maybe not tomorrow, but someday the demise of the NCUA’s independence from the other banking regulators will result in the monolithic supervision of the banking industry.