FinReg Currents - Week 5

Each week of the first 100 days of the new Trump administration, we will publish updates on key federal financial services regulatory and related developments.

This week, we review the following developments as of Wednesday:

• Executive Order on independent agencies
• Further workforce developments at the Consumer Financial Protection Bureau (CFPB)
• Introduction of Congressional Review Act (CRA) resolutions to nullify CFPB overdraft rule
• Federal Reserve master account access change
• Federal Reserve Board Governor Waller on stablecoins

Executive Order on Independent Agencies

On February 18, 2025, President Trump signed an Executive Order designed to reduce the power of federal independent agencies by bringing them under the purview of the White House. The Executive Order provides that it applies to the Federal Reserve “only in connection with its conduct and authorities directly related to its supervision and regulation of financial institutions,” and does not apply to “its conduct of monetary policy.”

The Executive Order gives Office of Management and Budget Director Russell Vought supervisory power over the independent agencies and requires him to “establish performance standards and management objectives for independent agency heads.” The Executive Order also requires Vought to “report periodically to the President on [the agency heads’] performance and efficiency in attaining such standards and objectives.” Further, Vought is directed, on an ongoing basis, to review the budgets of the independent agencies “for consistency with the President’s policies and priorities” and make changes to the budgets “as necessary and appropriate, to advance the President’s policies and priorities.” How this provision will affect the budgets of independent agencies funded outside of the congressional appropriations process remains to be seen.

In addition, under the Executive Order, the president and the U.S. attorney general will have sole authority to provide interpretations of law for the executive branch, and no one in the executive branch “may advance an interpretation of the law . . . that contravenes the President or the Attorney General’s opinion on a matter of law, including . . . the issuance of regulations, guidance, and positions advanced in litigation, unless authorized to do so by the President or in writing by the Attorney General.” The impact of this provision on certain independent agencies that employ administrative law judges to preside over formal agency administrative proceedings is unclear.

Further Workforce Developments at the CFPB

Following last week’s reported termination of approximately 70 probationary employees, the Trump administration reportedly moved on February 13, 2025 to further reduce the CFPB workforce. However, on February 14, 2025, the National Treasury Employees Union (NTEU) and the CFPB reportedly agreed to a briefing schedule in NTEU v. Vought, which paused additional action. This was followed by a February 14, 2025 order by U.S. District Judge Amy Berman Jackson directing CFPB Acting Director Russell Vought not to (1) terminate any CFPB employee except for cause, (2) delete any CFPB data, or (3) reduce the amount of money available to the CFPB pending a March 3 hearing in the case. All CFPB employees reportedly were then placed on indefinite administrative leave, except those asked to return to work.

Separately, according to press reports, Office of Management and Budget Chief Legal Officer Mark Paoletta also is serving in that role for the CFPB, and former Department of Justice attorney Jeffrey Clark has joined the CFPB as a senior advisor to Paoletta. Additional new CFPB hires reportedly include James Bishop, an OMB deputy director, as a senior advisor to Vought, and Daniel Shapiro, a former law clerk to Justice Clarence Thomas, as deputy chief legal officer.

Introduction of CRA Resolutions to Nullify CFPB Overdraft Rule

On February 13, 2025, Senate Banking Committee Chairman Tim Scott (R-S.C.) and House Financial Services Committee Chairman French Hill (R-Ark.) introduced companion CRA joint resolutions in the Senate and House to nullify the CFPB’s December 30, 2024 overdraft final rule. Under the final rule, the largest financial institutions will be required to (1) limit the charge for overdraft services to the amount of their costs and losses, as defined by the CFPB; or (2) adhere to a fee cap of $5. Higher overdraft fees will be considered credit and subject to a new section of Regulation Z. The final rule is scheduled to take effect on October 1, 2025.

No action has yet been taken on either joint resolution. So far, these are the only CRA joint resolutions introduced to nullify a substantive CFPB “midnight rule,” i.e., a rule issued late in the final year of an outgoing administration. If Congress passes a joint resolution of disapproval that President Trump signs, the CFPB would be precluded from promulgating a rule on a substantially similar topic unless authorized by a law enacted subsequent to the CRA joint resolution.

Federal Reserve Master Account Access Change

On February 11, 2025, Federal Reserve Chair Jerome Powell testified before the Senate Banking Committee on the Semiannual Monetary Policy Report to Congress. According to press reports, Powell discussed access to Federal Reserve master accounts during Q&A. While not discussing how this change will affect the granting of accounts, Powell said the Federal Reserve will no longer use the “concept” of reputational risk to evaluate access to master accounts. Master accounts provide access to wholesale payments systems and other Federal Reserve payments systems. Powell said that the Federal Reserve will remove reputational risk from the manual that reserve banks use to determine whether a financial institution will be granted a master account.

Federal Reserve Board Governor Waller on Stablecoins

At a conference on February 12, 2025, Federal Reserve Board Governor Christopher Waller discussed the current stablecoin market and possible challenges. He called for a clear regulatory regime to minimize risks to the safety and soundness of stablecoins and pointed out the importance of federal and state regulatory harmony for continued stablecoin development. Waller also examined issues of fragmentation with stablecoins, as stablecoin providers operate on different blockchain networks and with differing systems that prevent a high degree of interoperability and use cases for stablecoins.

For more details on any of these developments, or to discuss how these changes may impact your business, please reach out to our team. Stay tuned for next week’s update, where we will continue to bring you the latest in federal financial services regulatory and related developments.

You may use the following links to access our prior issues:

FinReg Currents – Week 4 | Morrison Foerster

FinReg Currents – Week 3 | Morrison Foerster

FinReg Currents – Week 2 | Morrison Foerster

FinReg Currents – Week 1 | Morrison Foerster