Independent Agencies and the Executive Order on "Ensuring Accountability for All Agencies"

On February 18, 2025, President Trump issued a new Executive Order entitled “Ensuring Accountability for All Agencies” (the “Agency Accountability E.O.”). The Agency Accountability E.O. amends E.O. 12866 issued by President Clinton in 1993 (“E.O. 12866”) and adds requirements for independent regulatory agencies that go well beyond the scope of E.O. 12866.

As described below, the Agency Accountability E.O. provides for an unprecedented degree of executive control over independent agencies, not only in connection with rulemaking, but also in connection with policy and budgetary matters. As a result, the application of this new E.O. may materially diminish the independence of these agencies. Legal challenges based upon conflicts between the requirements in the new E.O. and existing law are likely.

This memorandum provides background on executive orders and independent regulatory agencies, explains the basic provisions of E.O. 12866 and how the new Executive Order modifies it, details the new requirements that apply to independent agencies, and discusses some possible consequences.

I. What is an Executive Order?

An Executive Order is a written statement by the President intended to have the force and effect of law. The authority to issue these orders must be found either in the Constitution or in a statute. Supreme Court precedents indicate that when there is a conflict between a statutory provision and the terms of an E.O., the statutory provision takes precedence. And even when Congress is silent on an issue, the E.O. must still be based on a clear grant of constitutional authority. As discussed below, these limits on the scope of an E.O. may have an impact on the application of the new E.O. to independent agencies.

II. Independent Regulatory Agencies

Beginning with the establishment of the Interstate Commerce Commission in 1887, Congress has established regulatory agencies in the Executive Branch that have varying degrees of independence from the Administration. Starting in the 1930s, the number of these agencies expanded dramatically, as Congress adopted New Deal proposals to regulate various aspects of commerce in the United States. Independent regulatory agencies now include the FDIC, the SEC, the Federal Reserve Board, the CFTC, the CFPB, the FCC, the Farm Credit Administration, and the National Credit Union Administration, among others.

Congress granted these agencies broad powers to issue regulations, adjudicate claims, and enforce penalties. Recognizing that these powerful entities wielded enormous power in our economy, Congress sought to insulate them from political pressure. The enabling statutes thus provided various degrees of insulation from the Administration. For example, independent agency heads or board members cannot be removed except for cause, funding is often through user fees or otherwise outside of the appropriations process, some agencies are granted independent litigation authority, and many of these agencies have the right to testify before Congress without prior Administration review.

III. Executive Order No. 12866

On September 30, 1993, President Clinton issued E.O. 12866, entitled “Regulatory Planning and Review.” This E.O. provides the Office of Information and Regulatory Affairs (“OIRA”), an office within the Office of Management and Budget (“OMB”), with the authority to review all “significant” proposed and final regulations issued by federal agencies. With respect to the independent regulatory agencies, OIRA powers are limited under E.O. 12866. Independent regulatory agencies, along with other agencies, must submit a unified regulatory agenda that includes a regulatory plan of the most important significant regulatory actions that the agency reasonably expects to issue in proposed or final form in that fiscal year or thereafter. OIRA reviews those plans, and if it determines that a significant proposed or final rule is inconsistent with the President’s priorities, it could request (but not require) further agency consideration. If it determines that the rule creates a conflict with another agency’s regulations, it could likewise request (but not require) inter-agency consultation but could not prevent the issuance of the rule.

OIRA’s limited authority over independent agencies under E.O. 12866 contrasts with the plenary authority OIRA has with respect to significant regulations proposed or finalized by the other Executive Branch agencies. With respect to these agencies, OIRA requires detailed justifications for any significant rulemaking, and has the power to prevent the issuance of a rule that is determined to be inconsistent with the goals of the Administration. A dispute between the agency and OIRA is settled by the President, or by the Vice President acting for the President.

IV. Agency Accountability E.O. Modifies E.O. 12866

The Agency Accountability E.O. extends the authority of OIRA to review and modify significant proposed or final rules issued by independent regulatory agencies in the same manner as other Executive Branch agencies. The only exception to this new requirement is for regulations related to the conduct of monetary policy by the Federal Reserve Board (or its open market committee). Significant regulations promulgated in connection with the Federal Reserve Board’s bank regulatory function will be subject to OIRA controls. The Agency Accountability E.O. also applies to the Federal Election Commission, making its rules subject to OIRA review. In short, OIRA is given the same authority to review the regulations issued by an independent regulatory agency, and the Federal Election Commission, that it previously had only with regard to non-independent agencies.

V. Other Oversight of Independent Agencies under the Agency Accountability E.O.

The Agency Accountability E.O. goes well beyond the scope of regulatory review by OIRA. It provides substantial oversight and control by OMB over independent regulatory agencies’ policies and management. For example, OMB is to establish performance standards and management objectives for independent agency heads, thereby determining the actions of agency staff that will be viewed as positive in their performance evaluations and setting objectives for management to meet.

OMB will also review independent agencies’ expenditures and may prohibit these agencies from expending appropriations on particular activities, functions, projects or objects, so long as such restrictions are consistent with law. This gives OMB control over what programs and projects the independent agency will pursue when using appropriated funds. However, some agencies are funded outside of the appropriations process and therefore may not be impacted by this provision.

The Agency Accountability E.O. also directs the independent agencies to regularly consult with and coordinate policies and priorities with the directors of OMB, the White House Domestic Policy Council, and the White House National Economic Council. The agencies’ strategic plans are to be submitted to OMB for clearance prior to finalization. This is another provision that gives the Administration control over the actions and programs of the agency.

The Agency Accountability E.O. states that the President and the Attorney General’s opinions on questions of law are controlling on all employees in the conduct of their official duties, including employees of independent regulatory agencies. No employee of the executive branch, including employees of independent regulatory agencies, acting in their official capacity may advance an interpretation of the law as the position of the United States that contravenes the President or the Attorney General’s opinion on a matter of law, including positions advanced in litigation, unless authorized to do so by the President or in writing by the Attorney General. This requires the independent agencies, as well as all other Federal employees, to accept the legal views of the President and the Attorney General, even if inconsistent with prior court precedent. Of course, the E.O. does not prevent a court from taking a different position than that articulated by the President or Attorney General, in which case the court’s interpretation will govern.

Finally, the Agency Accountability E.O. states that “Nothing in this order shall be construed to impair or otherwise affect the authority granted by law to an executive department, agency, or the head thereof.”

VI. Legal Basis

The Agency Accountability E.O. conflicts with many of the statutes establishing independent regulatory agencies as non-political entities independent of Presidential control. The Constitutionality of independent agencies is based on the 1935 Supreme Court’s decision in Humphrey’s Executor v. United States and the 1988 decision Morrison v. Olson. In these cases the Supreme Court upheld limits on the President’s power to remove agency heads, thereby establishing the principle that Congress could insulate agencies from Presidential control. However, more recently, in the case Seila Law LLC v. CFPB, the Court held that the Constitution’s separation of powers requirement was violated when Congress limited the President’s power to remove the head of an independent agency governed by a single Administrator, as opposed to a multi-member bi-partisan board.

The legal authority for the Agency Accountability E.O. could be based on a similar separation of powers rationale. This position is supported by an opinion of the Justice Department’s Office of Legal Counsel in 2019. This opinion argues that the Constitution vests all the executive power in the President and charges him with the responsibility to take “Care that the Laws be faithfully executed.” According to this legal opinion, these constitutional duties require the President to have control of those executing the laws, including the independent regulatory agencies. However, as explained above, current Supreme Court precedents support the authority of Congress to establish independent agencies with multi-member boards. It is not clear whether the Supreme Court will continue to abide by these precedents, but if the Court maintains these prior decisions, the Agency Accountability E.O. would be found to be inconsistent with certain laws and would not have an independent Constitutional base that would support its issuance.

VII. Discussion

If the Agency Accountability E.O. survives legal challenge, it would effectively convert independent regulatory agencies into arms of the Administration, much like the traditional Executive Branch Departments. The President, acting alone or through OMB, would be able to direct the policies and rules issued by the independent agencies, and if the President establishes the power to remove agency heads at will, the quasi-judicial functions of these agencies would also be subject, indirectly, to the Administration’s control. Only the monetary policy functions of the Federal Reserve Board would remain independent of the President’s prerogatives.

This new E.O. will be a controversial change in the current system of government. Some may view it as politicizing government regulations that Congress sought to be non-political. On the other hand, it could also be viewed as restoring Presidential authority over the Executive Branch that some would say is envisioned in the Constitution and was the norm until the 1930s. The E.O. will no doubt be challenged in court. If the E.O. survives such a challenge, some practical changes can be expected:

1. Agency policies will be subject to significant changes every four years as a new Administration takes office. Independent agencies today are acutely aware of the President’s goals and typically move in a direction that is consistent with these goals. But under the new E.O., the changes in regulatory policies will likely be more abrupt and less likely to be modified by other factors. For example, the years long multi-agency development of new capital standards for banking organizations (Basel End Game) could abruptly be halted or significantly revised by OMB. The oversight of independent agencies’ budgets and legal opinions only increases the likelihood of these significant changes.

2. While some of the independent agencies are funded outside of the appropriations process, such as the Comptroller of the Currency and the Federal Reserve Board, the E.O. would permit the OMB to control the use of appropriated funds, including the ability to prevent an agency from using appropriated funds for a particular project.

3. The E.O.’s statement that the President and the Attorney General “shall provide authoritative interpretations of law for the executive branch” will require independent agencies to take the same legal position as espoused by the Administration regarding constitutional provisions and statutory interpretations. Currently, as a matter of practice, executive branch agencies accept the legal interpretations of the Office of Legal Counsel within the Department of Justice as binding. The E.O. will extend this practice to the independent agencies. It does not prevent a court from disagreeing with the DOJ or the President’s legal argument, and under the U.S. system of government, the courts are the final arbiters of questions of law.

4. The independent agencies have considerable discretion in determining whether to bring an enforcement action or enter into litigation against a private entity. The E.O. raises the possibility that the enforcement and litigation actions could be influenced by political considerations of the Administration.

5. The goals and policies of the Administration may conflict with the goals prescribed in an agency’s enabling legislation or other statutory mandate. For example, an agency directed by statute to increase financing for lower income mortgages could be trumped by an Administration’s policy to lower credit risk in the financial markets. This could raise questions under the Administrative Procedure Act (“APA”) and the constitutional obligation on the Executive to take care that the laws are faithfully executed.

6. The influence of Congress on the development of new rules may be diminished. The heads of independent agencies are acutely aware of the views of committee chairs and/or ranking members, as well as the views of other prominent legislators. As a practical matter, independent agencies take these views into consideration when promulgating regulations. Under the new E.O., the ability of members of Congress to affect regulatory policy may be lessened.

7. Regulations may take longer to be issued as the process will now include possible delays awaiting OMB review, and increased legal challenges based on the inconsistency between OMB control, statutory mandates, and APA requirements. While some independent regulatory agencies voluntarily submit rules to OMB for review, requiring OMB approval will elongate the rulemaking process.

8. The expertise and business knowledge developed by the independent regulatory agencies may be overruled by the political decisions made by OMB. This could result in regulations that are not appropriate for particular business organizations or that have even more unintended consequences. For example, OMB could change the regulatory landscape for bank capital or liquidity requirements, CRA regulations, and lending discrimination rules based on the politics of the current Administration.

9. Until the legal issues with the E.O. are resolved, there will be significant questions regarding the validity of new rules issued by independent agencies, and the regulatory landscape will be uncertain for some time. This could make the development of new products and procedures more expensive and riskier.