New Administration Outlook: Game Changer—Newly Revived Executive Order 13892 Expands Protections for Regulated Parties, For Now

The recent confirmation of Russ Vought as director of the Office of Management and Budget (OMB) is expected to kickstart the Administration's centralized approach to reforming the administrative state. The recently revived Executive Orders (EOs) from the first Trump Administration offer an indication of what the administration has in mind. One of these areas involves more protections for regulated parties facing federal agency action.

• Banks and other regulated and supervised entities should review these new protections and consider whether a more assertive, yet still constructive, approach with their regulators might yield better results.
• Leadership at federal agencies—including the federal financial regulators—should implement these protections in rulemakings that comply with the Administrative Procedure Act and the Congressional Review Act, which will make these protections harder to unwind.

Need for Due Process and More Protections

Ambiguous expectations and the opaque processes that accompany federal agency actions have been vexing, particularly for the banking industry, which is subject to comprehensive regulation and continuous, intrusive examination. Due to the cost and complexity of banking operations and their potential impact on the economy, clarity about bank regulatory and supervisory expectations is critical but often missing.

Disagreements with examiners can lead to severely negative consequences for banks, including supervisory ratings downgrades, activities restrictions, higher deposit insurance fees, and costly bank-specific compliance measures that are not generally applicable or broadly known.

In practice, the word of the bank examiner has been the equivalent of law. But examiners do get it wrong. As Professor Julie Hill noted in her seminal article,[1] the internal processes at each federal banking agency allowing for appeals of examiner findings are inconsistent, opaque, and, as a practical matter, often ineffectual because agency management/staff essentially remain judge and jury.

To former FDIC Chair Jelena McWilliams' credit, she introduced a more independent supervisory appeals process. That process was scrapped by her successor, now-former FDIC Chair Marty Gruenberg, who reinstated the old system.

The Federal Reserve doesn't even publish anonymized summaries of supervisory appeals. The OCC does. But no matter the agency, the recent win-loss record for industry is 0-14, decidedly in the agencies' favor. The shrouded and unfair nature of these processes suggests that they are not effective mechanisms for banks to use.

EO 13892: Promoting Transparency and Fairness (2019, 2025)

The first Trump Administration tackled "big picture" regulatory challenges right out of the gate with Executive Orders such as 13777 (revoked by the Biden Administration but now revived), which requires the appointment of Regulatory Reform Officers and Regulatory Reform Task Forces in each federal agency. More detailed challenges with agency fairness generally came to the surface in the second half of the first Trump Administration. After considering information from the banking industry and others, it called for processes for regulatory engagement with the public that sought to: be more fair, provide more information to regulated parties and opportunities to contest findings before they became final, provide more transparent document requirements, and encourage cooperation between the private sector and federal agencies.

On October 19, 2019, the first Trump Administration published EO 13892, "Promoting the Rule of Law Through Transparency and Fairness In Civil Administrative Enforcement and Adjudication." While the Biden Administration rescinded it, the second Trump Administration recently brought it back through EO 14148.

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It is a remarkable document in that it does not attempt to expand the regulatory perimeter or powers but, rather, places obligations on the federal agencies to ensure the fair and efficient treatment of those who are regulated.

More-Than-Constitutional Protections for Regulated Parties

EO 13892 is broader than a typical order affecting federal agencies and is very much pro-regulated party.

In explaining the policy underpinning the EO, it states that "agencies shall afford regulated parties the safeguards described in this order, above and beyond those that the courts have interpreted the Due Process Clause of the Fifth Amendment to the Constitution to impose." We are not aware of many (if any) actions in which the Executive Branch imposed on itself safeguards and protections for citizens that are "above and beyond" those guaranteed to them in the Constitution.

Covered administrative activities appear to include bank supervision

EO 13892 applies to typical administrative enforcement or adjudicative matters—enforcement actions, inspections, and enforcement rulings. But EO 13892 also covers actions that have a "legal consequence," which means "the result of an action that directly or indirectly affects substantive, legal rights or obligations" and "includes subjecting a regulated party to potential liability." The breadth of that language is significant.

Its wide scope arguably covers bank examinations, and it is likely that the Administration would be sympathetic to this reading.

Limiting the use of guidance, eliminating unfair surprise

Section 3 of EO 13892 states that an agency "may not treat noncompliance with a standard of conduct announced solely in a guidance document as itself a violation of applicable statutes or regulations" thereby seemingly limiting the ability of a federal agency to engage in so-called "informal enforcement."

Under this approach, when a federal agency proceeds with an enforcement action, it must do so based on a violation of an applicable statute or regulation. Furthermore, section 4 requires that when an agency makes a determination that has a "legal consequence" for a person, "it may apply only standards of conduct that have been publicly stated in a manner that would not cause unfair surprise," which is defined to mean "a lack of reasonable certainty or fair warning of what a legal standard administered by an agency requires." In other words, constant reinterpretation of critical terms should stop.

Jurisdictional limits

In some administrative actions, it can be difficult to determine the boundaries of a federal agency's jurisdiction. Section 5 of EO 13892 (Fairness and Notice in Jurisdictional Determinations) states that any claim to regulate "a new subject matter or an explanation of a new basis for liability—must be published" in the Federal Register or on the agency's website "before the conduct over which jurisdiction is sought occurs." This requirement ties in closely to Section 4's prohibition on unfair surprise.

Federal agencies—including federal financial regulators—may learn that despite even their good faith efforts, unfair surprise is not a rare occurrence. Imprecise and otherwise ambiguous guidance, interpretive rules, and other agency explanations abound and can be used for supervisory criticisms. In theory this practice was brought to a halt via the 2018 interagency Guidance on Guidance, as well as regulations on guidance that followed. In recent years, however, those often were honored in the breach.

Approaches that rely on unilateral announcements may contribute to this effect, whereas a more collaborative approach may yield better results in the long run (e.g., more robust rulemakings in consultation with industry, followed by guidance that further explains the rulemaking).

Contesting agency determinations

Section 6 of the EO states that before an agency may take an action "with respect to a particular person that has legal consequence for that person," it generally "must afford that person an opportunity to be heard, in person or in writing, regarding the agency's proposed legal and factual determinations. The agency must respond in writing and articulate the basis for its action."

While the EO does not provide specific examples, the provision appears to cover SEC Wells Notices, CFPB PARR Letters, and other similar agency communications—however formal or informal—that the agency intends to recommend enforcement action and the regulated party may make a written submission to make a defense, rebut, or otherwise provide additional facts or context. Notably, EO 13892 states that upon making such a submission, the agency must reply in writing, providing some details explaining the basis for the action. Presumably that should be different from a written notice of an enforcement action or supervisory criticism. It also may alleviate, to an extent, the "one-way information flow" phenomenon in which regulated parties must reveal their arguments in defense in exchange for nothing in return from the regulators.

Collection of information

EO 13892 also extends the application of the Paperwork Reduction Act (PRA) to collection of information from a (i.e., one) person. The PRA otherwise applies to the collection of information from 10 or more persons. Thus, prior to proceeding under the PRA, any collection of information during the conduct of an investigation (other than those excepted) must either (a) display a valid control number assigned by the director of the OMB, or (b) inform the recipient through prominently displayed plain language that no response is legally required.

Cooperative information sharing and enforcement

Section 9 of the EO requires that each federal agency propose procedures to: (1) encourage voluntary self-reporting of regulatory violations by regulated parties in exchange for reductions or waivers of civil penalties; (2) encourage sharing of information by regulated parties; and (3) provide pre-enforcement rulings to regulated parties. This will provide more clarity to regulated parties about what the consequences of cooperation may be, allowing them to make more rational decisions as to how to protect their rights and their interests. However, without further reform or reconsideration of the federal agencies' views on confidential supervisory information (CSI), large swaths of information would be precluded from this provision.

Connecting the Dots

1. This is a policy priority for the Administration. EO 13892 calls for broad change and does not exempt the federal banking agencies' enforcement and supervisory activities.

   Regulatory Reform Officers and Regulatory Task Forces established by Executive Order 13777 likely will be responsible for implementing these changes at each federal banking agency, likely cooperating with the federal agencies' general counsels and heads of operations, as well as OMB.

   EO 13892 was originally promulgated late in the first Trump Administration and was never fully implemented. This time it was issued within the first weeks and is expected to be implemented in full, particularly with the return of OMB Director Russ Vought and OMB General Counsel Mark Paoletta.
   
   

2. Banks should know of and take these protections seriously. Banks and other regulated entities should be aware of these new protections and should be prepared to insist upon them. The aggressive regulatory, supervisory, and enforcement actions of the Biden Administration were largely possible because of the absence of these safeguards and the inability for banks to counter actions taken outside of formal rulemakings. Now there are new policies, but banks will have to use or invoke them if they are to be meaningful.
   
   

3. New leadership at agencies should implement these EOs in rulemakings. Given new leadership at the federal financial regulators, these agencies should codify the EOs' protections in agency rulemakings establishing robust procedures that will be harder to sweep away in a new administration, unlike EOs. The absence of Chevron deference makes lasting protections even more potent.

   Further agency steps, particularly among the federal financial regulators, could include:

• More independent, "easy-to-use" and faster supervisory appeals processes.
• The development of processes for prompt legal review of examiner activities, including reports provided by banks (or other regulated persons) of examiners' oral statements that may be unlawful or otherwise contrary to the EOs or agency policies.
• Audit, review, and revision of examination manuals and procedures so that improper instances of guidance used as rules are eliminated or clearly labeled as not constituting rules and merely provided as explanations. This review also would remove any improper bases for regulatory action or inaction, such as potentially denying access to banking systems on the basis of disfavored, though legal, activity or speech.
• Staying enforcement actions and investigations until the conclusion of examinations, supervisory appeals processes, and a reasonable opportunity to remediate any supervisory criticisms (that survive appeal).
• More robust consultation with industry on guidance and submitting more guidance for industry comment to reduce the risk of unfair surprise to regulated persons, including banks.
• Reforming the agencies' views of and practices concerning CSI—the attendant secrecy and the regulators' views that CSI is the property of the government.
• Publishing more supervisory trends and developments—not merely the topics of supervisory concern but the ways in which activities are being constrained and controlled, or safeguards are being developed.
• Develop ways to share CSI and related trends among third-party service providers (TPSPs) and banks as needed, particularly in cases where large TPSPs provide services to many banks or other regulated persons and the issue affects many or all of them.

Conclusion

A close study of many of the recently revived and newly promulgated EOs reveals a willingness by the Administration to provide unprecedented protections for regulated parties. Regulated entities should study these new tools closely, consider how to engage in order to claim them, and adopt a forward leaning posture to work with the regulators both on these issues and on the possibility of future improvements. The old paradigm of adversity has shifted to one of greater collaboration. Now is the time for productive engagement.