The "Ensuring Lawful Governance" Order Seeks Broad Regulatory Pull-Back

On February 19, 2025, President Trump signed an Executive Order directing a broad-based effort to scale back administrative regulations and enforcement across the Federal Government (the “Deregulation Order”). The Deregulation Order calls for a government-wide review of regulations for modification or rescission under seven enumerated legal or policy grounds. It also orders agencies to de-prioritize enforcement inconsistent with Administration policy and legal views, including termination of ongoing proceedings.

While the Deregulation Order applies to almost all domestic non-security agencies, its impact on financial regulators may be disproportionately large, for two reasons. First, the prudential banking regulators are in the middle of a legally mandated decennial review of all their regulations, which provides both a process for applying the Deregulation Order and a basis for defending the resulting actions in court. Second, the Deregulation Order's broad definition of "enforcement action" appears designed to encompass at least some informal supervisory processes that agencies do not typically deem "enforcement."

What the Deregulation Order Requires

Regulation Review

The Deregulation Order directs agency heads to initiate the regulatory review in coordination with their DOGE Team Leads and the Office of Management and Budget (“OMB”). By April 20, agency heads are to identify seven classes of regulations for potential modification or rescission, prioritizing rules that satisfy the definition of “significant regulatory action” in Executive Order 12866. OMB's Office of Information and Regulatory Affairs (“OIRA”) would then develop a Unified Regulatory Agenda that includes actions to rescind or modify these regulations, as appropriate, in consultation with agency heads.

Four of the seven classes of regulations to be identified implicate conservative legal theories on federalism, delegation, and statutory interpretation. They include:

“(i) unconstitutional regulations and regulations that raise serious constitutional difficulties, such as exceeding the scope of the power vested in the Federal Government by the Constitution;

“(ii) regulations that are based on unlawful delegations of legislative power;

“(iii) regulations that are based on anything other than the best reading of the underlying statutory authority or prohibition; [and]

“(iv) regulations that implicate matters of social, political, or economic significance that are not authorized by clear statutory authority[.]”

The remaining three classes of regulations implicate the Administration's broader regulatory and economic policy priorities, specifically:

“(v) regulations that impose significant costs upon private parties that are not outweighed by public benefits;

“(vi) regulations that harm the national interest by significantly and unjustifiably impeding technological innovation, infrastructure development, disaster response, inflation reduction, research and development, economic development, energy production, land use, and foreign policy objectives; and

“(vii) regulations that impose undue burdens on small business and impede private enterprise and entrepreneurship.”

Enforcement Discretion

The Deregulation Order also instructs agencies to "preserve their limited enforcement resources by generally de-prioritizing actions to enforce regulations that are based on anything other than the best reading of a statute and de-prioritizing actions to enforce regulations that go beyond the powers vested in the Federal Government by the Constitution."

In addition to exercising discretion in bringing new enforcement actions, agency heads are to review ongoing enforcement of any regulations identified in the regulatory review. In consultation with OMB, the agencies are instructed to, "on a case-by-case basis and as appropriate and consistent with applicable law, then direct the termination of all such enforcement proceedings that do not comply with the Constitution, laws, or Administration policy."

"Enforcement action" for purposes of the Deregulation Order "means all attempts, civil or criminal, by any agency to deprive a private party of life, liberty, or property, or in any way affect a private party’s rights or obligations, regardless of the label the agency has historically placed on the action."

Scope of the Regulatory Review

The scope of the regulatory review extends beyond existing regulations. The Deregulation Order states that “regulation” means “regulatory action” as defined by E.O. 12866, which includes proposed rules and other actions “expected to lead to the promulgation of a final rule or regulation.” It also includes “guidance documents” as defined by a since-revoked George W. Bush Executive Order 13422. E.O. 13422 defines a guidance document as “an agency statement of general applicability and future effect, other than a regulatory action, that sets forth a policy on a statutory, regulatory, or technical issue or an interpretation of a statutory or regulatory issue.”

The Deregulation Order’s Regulatory Review provision also affects potential new regulations. It adds the seven new criteria to the factors that OIRA already considers in assessing proposed new regulations under E.O. 12866.

The Deregulation Order contains disclaimers and limitations typical in Executive Orders, including that it "shall be implemented consistent with applicable law and subject to the availability of appropriations." It also exempts:

(a) any action related to a military, national security, homeland security, foreign affairs, or immigration-related function of the United States;

(b) any matter pertaining to the executive branch’s management of its employees; or

(c) anything else exempted by the Director of the Office of Management and Budget.

Discussion

Obstacles to Broad-Based Action Based on the Regulatory Review

The Administration may have trouble making rapid progress on the deregulation initiative in most parts of the government. While the initial review may proceed as planned, the process of modifying or rescinding rules will be hampered by the ongoing disruptions in the federal workforce. The process for modifying or rescinding rules is labor-intensive and time-consuming. Some employees who would have done the work have been fired, and more may depart voluntarily. These employees are highly specialized and difficult to replace – whether with other humans or through artificial intelligence solutions.

Agency actions to modify or rescind current rules will have to survive court challenges under the Administrative Procedure Act (“APA”). The Administration will need to persuade courts that the changes are consistent with the regulation's authorizing statute and are not "arbitrary, capricious, an abuse of discretion, or otherwise not in accordance with law." Actions that repeal or scale back regulations are subject to the same judicial review standards as actions that impose or expand them. As the Supreme Court wrote in the seminal State Farm case:

A "settled course of behavior embodies the agency's informed judgment that, by pursuing that course, it will carry out the policies committed to it by Congress. There is, then, at least a presumption that those policies will be carried out best if the settled rule is adhered to." Atchison, T. & S. F. R. Co. v. Wichita Bd. of Trade, 412 U.S. 800, 807-808 (1973). Accordingly, an agency changing its course by rescinding a rule is obligated to supply a reasoned analysis for the change beyond that which may be required when an agency does not act in the first instance.

The loss of experienced personnel will put agencies at a further disadvantage in court. The quality of the "reasoned analysis," as reflected by the rulemaking record and a rule's written preamble, is a major focus of APA judicial review. Rules written by inexperienced or understaffed teams risk being vacated due to the agency’s process and the quality of its explanation, even before getting to the merits of the rule’s substance. Moreover, where the deregulatory action is based on a new statutory interpretation, the courts will no longer defer to the agency's interpretation given the Supreme Court’s recent decision in Loper Bright Enters. v. Raimondo, which scaled back deference to agencies’ interpretations of the statutes they administer.

Smoother Path for Prudential Banking Regulators

Notwithstanding the challenges at most agencies, the prudential banking regulators are relatively well positioned to effectuate the regulatory changes directed by the Deregulation Order expeditiously. A legally mandated decennial review of all banking regulations that is currently underway provides both a vehicle and additional legal support for actions seeking to apply the policies animating the Deregulation Order.

The Economic Growth and Regulatory Paperwork Reduction Act of 1996 (“EGRPRA”) requires that regulations prescribed by the Federal Financial Institutions Examination Council, Office of the Comptroller of the Currency, Federal Deposit Insurance Corporation, and Board of Governors of the Federal Reserve System be reviewed at least once every 10 years "in order to identify outdated or otherwise unnecessary regulatory requirements imposed on insured depository institutions."

The third iteration of the EGRPRA review began in 2024. In a series of notices covering different subject areas, the agencies ask commenters to identify areas of the regulations that are "outdated, unnecessary, or unduly burdensome." The law then requires the agencies to respond to the comments and "eliminate unnecessary regulations to the extent that such action is appropriate."

The ongoing EGRPRA review mitigates the factors likely to slow down deregulation in most parts of the government. Though personnel terminations and departures have impacted the OCC and FDIC, the agencies have already completed almost a year of work on the EGRPRA review, including issuing three of the four notices. The statutory timelines all but ensure that the review will be completed – and the resulting report to Congress submitted – during the current presidential term.

More importantly, EGRPRA puts the banking agencies in a much stronger position to defend their regulatory changes in court. EGRPRA arguably shifts State Farm's status quo presumption in the direction of deregulation. Moreover, EGRPRA clearly contemplates that agencies will take deregulatory actions based on factors other than those set out in the regulation's authorizing statute. Indeed, some of the EGRPRA factors overlap with the factors set out in the Deregulation Order.

Complicated Picture at the CFPB

While the CFPB is not part of the EGRPRA process, it is subject to its own more limited regulatory review provision. Section 1022 of the Dodd-Frank Act requires the Bureau to "conduct an assessment of each significant rule or order adopted by the Bureau under Federal consumer financial law" within five years of its effective date. The assessment must “address, among other relevant factors, the effectiveness of the rule or order in meeting the purposes and objectives of [the Consumer Financial Protection Act] and the specific goals stated by the Bureau.” Before publishing the report of its review, the Bureau is required to "invite public comment on recommendations for modifying, expanding, or eliminating the newly adopted significant rule or order."

While Section 1022 may offer a vehicle for some deregulatory actions under the Deregulation Order, its impact is far narrower than EGRPRA, for several reasons:

• The review only applies to “significant” rules or orders (though that term is not defined for purposes of this statute.)
• The review only applies to rules or orders that have taken effect within the past five years.
• Unlike EGRPRA, Section 1022 does not explicitly direct the agency to take any substantive action, only to conduct the assessment, solicit public comments, and submit a report to Congress.
• While EGRPRA’s purpose is expressly deregulatory, Section 1022 is neutral and contemplates assessments that result in expanding as well as scaling back the rule or order.

There is also a practical factor making Section 1022 less salient than EGRPRA: The functioning of the CFPB has been impaired by recent personnel disruptions more than any other financial regulator. As of this writing, the agency has been effectively closed for over two weeks. Under these circumstances, it is unclear whether and when the CFPB will have sufficient capacity to undertake extensive deregulatory actions, under the Deregulation Order, Section 1022, or otherwise.

Definition of Enforcement Action

The regulatory review is not the only provision of the Deregulation Order that may disproportionately impact financial services regulators. The broad definition of enforcement action – which expressly disregards how an action is labeled – could be read to encompass supervisory actions that fall short of "enforcement" under the agencies' traditional rubrics. Actions particularly vulnerable to this interpretation include:

• Certain downgrades of supervisory ratings that carry legal consequences, such as less-than-satisfactory composite and management ratings under the CAMELS framework.
• Directives that directly or indirectly cause banks to terminate relationships with customers or third parties (commonly known as "de-banking").

Potentially Impacted Regulations and Guidance

Given the breadth of the Deregulation Order, there are few regulations and guidance documents beyond its potential reach. On the consumer front, any of the Biden-era CFPB’s actions could be vulnerable, with several enforcement actions already in the process of termination. One especially likely target is the small business lending rule implementing Dodd-Frank Section 1071. Aside from being controversial and subject to active litigation, the 1071 rule contains provisions that recognize and protect transgender individuals, which the Administration has actively sought to rescind in other areas.

On the prudential side, the EGRPRA process includes all regulations issued by the prudential regulators, though controversial guidance (such as the FDIC Statement of Policy on Bank Merger Transactions) would likely be the first to fall. An analysis of the EGRPRA comments on the first three EGRPRA notices could be revealing in pinpointing priorities and vulnerabilities that may not otherwise be evident.