Correcting the Conventional Wisdom on the CRA

The truth about "substantially the same"

By Amit Narang

Last week, news broke that the acting head of the Office of Comptroller Currency, one of the financial regulatory agencies whose job it is to ensure the safety and soundness of our financial system, had taken the unusual and highly irregular step of sending a letter urging Congress to not to undo a Trump era rollback of predatory lending protections for consumers called the “True Lender” rule. Currently, legislation has been introduced under an obscure law called the Congressional Review Act (CRA) to reverse this harmful rollback of consumer financial protections. In fact, it stands a good chance of passage since under the CRA, Congress can reverse last-minute regulations from the previous President with just a bare majority because the main benefit of the CRA is that it allows Congress to bypass the filibuster when reversing regulations.

Not surprisingly, the acting head of the OCC, a Trump holdover who was made acting head of the agency before Biden came into office, was keen to defend the rollback of consumer protections that the OCC rushed into place as President Trump left office. But the letter contains a number of inaccuracies and falsehoods which has prompted the Senate Banking Committee to clear the air by holding a hearing yesterday on the OCC rollback.

One of the misleading inaccuracies in the letter is that if Congress uses the CRA to reverse the OCC’s attack on consumer protections, it will “constrain future Comptrollers’ ability to address the true lender issue.” This claim rests on a basic and common misperception: that the CRA “salts the earth” for any future regulations when a previous version of that regulations has been overturned using the CRA.

It’s true that under the CRA agencies are prohibited from issuing regulations that are “substantially the same” as regulations that Congress overturned using the CRA. But there is strong evidence that agencies still have wide latitude and discretion to issue future regulations even after previous versions of the regulations have been repealed under the CRA.

As a recent Congressional Research Service (CRS) report points out, the Trump Administration tested the conventional wisdom that the CRA “salts the earth” by issuing new regulations in two instances when previous versions of the regulation had been overturned by Congress under the CRA in 2017. Not only did the Trump Administration prove that the CRA does not “salt the earth” but it also proved that agencies can issue future regulations that are stronger or more stringent than the versions repealed under the CRA.

That’s because one of the Obama era regulations that was overturned by Republican use of the CRA in 2017 was done so in order to allow the Trump Administration to issue a new and more stringent version of the regulation. Subsequently, Trump’s Department of Labor did just that by issuing a regulation that is significantly broader in scope and application than the Obama era version. As we pointed out at the time, this meant that agencies could issue new regulations in even stronger form than the versions that were repealed under the CRA. This is a very important factor for agencies under President Biden to keep in mind when it comes to issuing new and stronger regulations where previous versions were repealed by Republicans and President Trump using the CRA in 2017.

The CRS report also casts considerable doubt on the ability for courts to overturn any new regulations that are alleged to be “substantially the same” because of the clear bar on judicial review in the CRA. This is a good thing since the extreme vagueness of the terms “substantially the same,” which is hardly an exemplar of thoughtful and careful legislative drafting, would likely lead to regulatory uncertainty for both agencies and the public if courts were allowed to interpret those terms. Indeed, the determination of what is and isn’t a “substantially the same” regulation is certainly one that’s best left to the political branches rather than the courts.

OCC acting head Paulson and members of Congress would do well to revisit their understanding of the effect of the “substantially the same” prohibition under the CRA. When they do, they will realize that contrary to the common misconception, the prohibition hardly “salts the earth” and in fact is more of a “paper tiger” where there is far less than meets the eye.