DOL Could See Lawsuit by Fiduciary Rule Supporters

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By Kristen Ricaurte Knebel

The Department of Labor may experience deja vu in the form of more legal challenges if it further delays the fiduciary rule, this time from the rule’s supporters.

“If they delay the rule again, they should expect to get sued. We are one of several consumer organizations that would not let this go,” Micah Hauptman, financial services counsel at the Washington-based Consumer Federation of America, told Bloomberg BNA.The department “should expect to be challenged vigorously in court” if the two provisions of its fiduciary rule that are set to go into effect June 9—the revised definition of the term fiduciary and the impartial conduct standard—are delayed again, Stephen Hall, legal director of the advocacy group Better Markets, told Bloomberg BNA.

A legal challenge from rule supporters would likely be brought under the Administrative Procedure Act, Erin M. Sweeney, an employee benefits attorney and of counsel with Miller & Chevalier in Washington, told Bloomberg BNA. What that challenge would look like will depend on what steps the DOL takes to delay or rescind the rule.

The DOL delayed portions of the Obama administration’s regulatory package that aimed to reduce the allegedly conflicted investment advice given to retirement savers until June 9. Other portions of the rule are delayed until at least Jan. 1, 2018, while the rule is under a presidentially mandated review by the agency.

As newly minted Secretary of Labor Alexander Acosta was sworn in, one big question was whether he would seek to push the rule’s applicability date out further. Opponents of the rule, including the Financial Services Institute and the American Council of Life Insurers, as well as members of the House and Senate, called for further delay of the rule the week that Acosta was confirmed. Stakeholders on both sides of the issue have sought meetings with Acosta. Though there have been reports that the secretary aims to quash the rule, the DOL has thus far been mum on the matter.

Heavy Lifting

Delaying the rule again would be “an extremely heavy lift,” but there are ways it can be done, Sweeney said.

One option would be to simply pull the rule. If the DOL did this and didn’t provide the public with a notice and comment period, it would likely spur a legal challenge under the APA. That challenge would take issue with a lack of notice and comment period, Sweeney said.

Another route the agency could take would be to issue a proposed rule that would suspend or revoke the fiduciary rule. An action like that also could produce a challenge under the APA, Sweeney said.

Groups have successfully challenged the suspension of regulations before. In the 1980s, several groups sued the Reagan administration’s Environmental Protection Agency for delaying rules indefinitely, Sweeney said.

Still, this isn’t something that happens all the time and there is a question of how much merit a case like this would have, Edward A. Zelinsky, professor of law at the Benjamin N. Cardozo School of Law at Yeshiva University in New York, told Bloomberg BNA.

Zelinksy said a lawsuit challenging a delay would have “very little chance of success” and ultimately this is something that will need to be decided “administratively.”

The DOL isn’t a stranger to legal challenges on the fiduciary rule. Multiple industry groups and companies that oppose the rule have filed lawsuits challenging the rule from a variety of angles. Every federal judge who has ruled on these cases has upheld the rule in its entirety, handing losses to the Chamber of Commerce and the American Council of Life Insurers, Market Synergy Group, and the National Association for Fixed Annuities.

To contact the reporter on this story: Kristen Ricaurte Knebel in Washington at kknebel@bna.com

To contact the editor responsible for this story: Jo-el J. Meyer at jmeyer@bna.com

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