Beyond Slaughter: OMB and Independent Federal Agencies

Summary

In Trump v. Slaughter, the U.S. Supreme Court made a profound change to the administrative state. The Court ruled that "for cause" removal protections for members of the Federal Trade Commission (FTC) are an unconstitutional infringement on the President's executive powers. Gone is Humphrey's Executor v. United States, the seminal case that upheld limits on the President's authority to remove FTC Commissioners, and nine decades of independent agency leadership with a degree of insulation from Presidential control.

The implication of Slaughter for other independent agencies, including the Federal banking agencies, is clear. The President can likely fire the heads of the independent agencies "at will," with the exception of the members of the Federal Reserve Board, as held in a companion case, Trump v. Cook.

While public attention has focused intensely on the removal question, less well known, but also significant, is the President's recent assertion of Executive authority to review and approve the rules, guidance, and external-facing interpretive opinions (regulatory actions) issued by independent agencies. In the past, independent agencies were expressly excluded from Executive review of regulatory actions under E.O. 12866. As such, these agencies could move ahead with regulatory actions without direct review and approval by the administration. Now, independent agencies must send regulatory actions to the Office of Information and Regulatory Affairs (OIRA) within the Office of Management and Budget (OMB) for review and clearance under E.O. 12866. As part of this process, independents also need to prepare and submit cost-benefit analyses to OIRA.

This significant shift in the relationship between the independents and the Executive preceded Slaughter and has resulted in a meaningful change in the day-to-day work of independent agencies.

There are now two tracks for Executive control of the independents. The first is the power of the President to remove most agency leaders at will. The second is OIRA's review and clearance of agency rulemakings, guidance, and legal opinions. Taken together, these changes have brought the independent agencies under the effective control of the President, which will fundamentally change the way the agencies function.

Background

The Office of Information and Regulatory Affairs

OIRA was established by the Paperwork Reduction Act (PRA) of 1980. The OIRA regulatory review process was established by E.O. 12866, "Regulatory Planning and Review," issued by President Clinton on September 30, 1993. OIRA's two key roles are to assess whether an agency's proposed regulatory action is consistent with the President's priorities and whether the benefits of a proposed action are greater than its costs.

The scope of E.O. 12866 is quite broad and extends to "rules," defined in E.O. 12866 to mean "an agency statement of general applicability and future effect, which the agency intends to have the force and effect of law, that is designed to implement, interpret, or prescribe law or policy or to describe the procedure or practice requirements of an agency." Significantly, the current OIRA leadership interprets "rules" as including guidance documents that are expected to lead to rulemakings or are otherwise considered to be significant policy changes. The inclusion of guidance in OIRA's scope of review is a substantial expansion of its jurisdiction.

In terms of procedure, agencies submit their regulatory actions to OIRA once the action has been vetted through upper agency management and is near final. OIRA initially reviews all regulatory actions to assess whether they are "significant" as defined in E.O. 12866. If OIRA deems an action to be significant, OIRA conducts a full review of the action under 12866. Agencies must prepare regulatory impact analyses (RIAs), including cost-benefit analysis, for significant regulatory actions. E.O. 12866 gives OIRA up to 90 days to conduct its reviews of regulatory actions. During the 90-day period, OIRA circulates the rule to other agencies for comment as well as other parts of OMB and other entities within EOP. OIRA passes back their comments and edits, along with those of other stakeholders, to the agency for consideration. If OIRA is not satisfied with the agency's response, OIRA issues a "return letter" to the agency. Once this happens, the review process begins anew if and when the agency sends the rule back to OIRA.

The bottom line is that OIRA's approval of rulemakings is effectively required before an agency can move ahead with regulatory actions.

Independent Agencies

Under E.O. 12866, independent agencies were exempt from OIRA's review jurisdiction. This exemption held until February 18, 2025, when President Trump issued E.O. 14215, which amended E.O. 12866 to expressly include independent agencies in the OIRA review process, with one key exception. Under Section 3(b) of E.O. 12866, as amended, the Federal Reserve is exempt from OIRA's review of the Federal Reserve's and FOMC's conduct of monetary policy. The Federal Reserve is, however, covered by 12866 and OIRA review with respect to its "conduct and authorities directly related to its supervision and regulation of financial institutions."

Implementation of OIRA Review by the Federal Banking Agencies

The OCC and the FDIC are complying with E.O. 12866 as amended and submit proposed and final rules, guidance, and public-facing interpretive opinions to OIRA for review. The NCUA and CFPB, which are frequent regulatory partners with the OCC and FDIC, have done the same. In practice, therefore, these agencies, which have statutory provisions that designate the agencies as independent of the Executive and shield their leadership from "at will" removal, are no longer independent of the Executive.

One open question – what is the status of the Federal Reserve Board's compliance with E.O. 12866? Prior to the departure of Jerome Powell from the Chairmanship of the Board, the Federal Reserve demurred on sending its regulatory actions to OIRA for review. Now that the Federal Reserve has a chairman appointed by the current administration, the situation may change. As of the date of this article, OIRA's website does not show current or past reviews of rules issued solely by the Federal Reserve, although interagency rules involving the Federal Reserve, OCC, and FDIC have been reviewed by OIRA indirectly after submission by the OCC and FDIC.

Whether the Federal Reserve acquiesces to OIRA review is significant. The power to withhold approval of the Board's regulations, guidance, and interpretive opinions (and its RIAs) can, for all the reasons discussed earlier, have a profound effect on agency policy and is integral to agency independence. As such, while the Governors may not be removable at will, there may yet be significant Executive control in the offing for the Federal Reserve.