A Lamentation on the Status of Guidance Documents

Statement of the Issue

Recently there has been a flurry of concern regarding regulatory guidance documents notwithstanding their multi-decade review by experts in the field. In response to the release and resultant public discussion of the aforementioned documents, both inside and outside of government, CRE has received and has responded to a number of comments from its readers, most of which are captured in the statements which follow.

The controversy centers around the meaning of the term “guidance”. Many of our readers are involved in regulatory compliance and they accept the dictionary definition of guidance: to advise but not to compel. When regulated parties are informed that a guidance document is “not legally binding but entitled to judicial deference” they consider it tantamount to mandatory compliance because agencies frequently resort to regulation by litigation when they seek  judicial review of  non-compliance with guidance documents which have not been subjected to notice and comment.

Hopefully the legal  profession might be able to explain the rationale for using the word “guidance” in a context which is  foreign to the public at large.  There may be a systemic issue involved in that the academy continues to believe the  procedures and terminology used to resolve judicial disputes are directly applicable to resolving disputes within the Executive Branch.

Regulated Parties: Question

“We have received “guidance” from agency “x”. It does not break the bank but it is cumbersome and is another expense we do not need. Do I have to comply with it?”

CRE: Response

“Yes, you must comply with the guidance document, subject to the exceptions set forth below, unless you can convince the superior of a lower level employee in the agency that you need not comply with the guidance document. Having to make the aforementioned argument is troublesome when one recognizes  that the “guidance” never went  through  notice and comment.  The resultant policy is somewhat of a mystery because notwithstanding  the strong traditional support of the academy for notice and comment rulemaking  the aforementioned interpretation is the position of leading legal scholars and not unexpectedly it has been adopted by most if not all federal regulators .

  A regulated party can ignore agency guidance and risk the chance of being subject to an enforcement action based on non- compliance with a document which has not been subjected to notice and comment which in this instance is a form of regulation by litigation  or  choose  not to comply with the guidance if the sponsoring agency failed to comply with the Congressional Review Act by not notifying  Congress of its existence.  All of our readers should solicit the views of counsel to ensure there are no constraints unique to their transaction.

The Federal Housing Finance Authority states that its Regulatory Interpretations “are Agency guidance concerning the application of a statute or regulation to a particular supervisory issue; not legally binding but entitled to judicial deference”. 

Editor’s Note: In lieu of the aforementioned statement could the agency  have issued the guidance and then opined that it is not going to initiate any enforcement actions based upon its guidance until which time it is promulgated as a rule in accordance with the APA and potentially the Congressional Review Act? If the answer is yes, is there still a guidance problem? 

The issuance of a “guidance” document accompanied by an announcement that it will not be enforced until it is promulgated as an APA rule might be designated as an  “advisory opinion”. 

Regulated Parties: Comments

“Wow! Are you serious? Do I really have to spend time trying to convince the government that I need not comply with each and every “guidance” document applicable to my firm which I consider to be wasteful and if I fail to do so I am subject to an enforcement action even though I was never given the opportunity to comment on the “guidance???  Give me a break!

“You must be kidding! This approach gives regulators the ability to choose winners and losers.  Notwithstanding the substantial expense, the possibility of  bad publicity  coupled with the fact that we may anger our regulators and shareholders by not complying with guidance that could  be the basis for an enforcement order gives us a huge incentive to comply with guidance documents.”

“Generally it will be considerably less burdensome to include these unwanted expenses into our operating costs and hope we can pass them on to our customers.”

Editor’s Note: Complete subservience to guidance documents will, in many instances, increase both market concentration and income inequality.

CRE:Response

The bottom line is that agency “guidance” cannot be considered as an “advisory bulletin” –meaning a document the regulated community should consider but has no regulatory consequences.– a definition more akin to what the general public interprets the term “guidance” to mean. In  other words an advisory bulletin  would contain the substance of the regulation an agency would issue should it decide to do so through the notice and comment process. In the meantime it would have no regulatory consequence because the sponsoring agency would take no legal action until the guidance is issued as a final rule after notice and comment. The regulated entities would not undergo an immediate compliance cost but in the interim they would benefit from the advise and counsel of the regulator.

The current system for promulgating guidance has been embedded in our regulatory infrastructure for decades and  its owners continue to defend the status quo notwithstanding a multitude of attempts to reform the system. That said there is a minute number of the members of the academy who have raised red flags  concerning the merits of a program to issue more guidance to solve the guidance problem.

It should be noted that although Section§ 553(b)(A) of the APA provides for an exemption of select guidance from the rulemaking process the following questions remain:

(1) whether it is sound public policy to interpret the exemption in the narrowest possible manner?

(2) have the agencies interpreted the exemption in the narrowest manner?

(3) would a narrow interpretation of the statute ameliorate the aforementioned criticisms?

Consequently our readers should decide for themselves whether the current proposals to improve the guidance program present an opportunity to make non-marginal changes in the guidance program or are they an exercise in sub-optimization– defined in this context as doing something well which you should not be doing in the first place?

The recommendation that follows accords a higher preference for regulation by rulemaking rather than regulation by litigation through enforcement actions and therefore it is, in the context of prevailing administrative law,  hardly a non-marginal change; that said it most certainly is a non-marginal change in view of current agency practice as delineated above.

 CRE recommends that as a part of the recently announced new guidance initiatives, taking place both inside and outside of government, that a study be undertaken to determine whether the prevailing system of regulatory guidance as enunciated above is so far beyond repair that it should be replaced with the issuance of advisory bulletins as defined herein or a comparable alternative.

The challenge is not to implement an Executive Order addressing the ever present guidance issue but instead to implement an Iconic Executive Order which lasts through a number of Administrations.

N. B

(1) CRE encourages its readers to express their views in the “comment” section below or email them to CRE. We are particularly interested in receiving comments as to whether the aforementioned conclusions will change when the Administration’s guidance initiative described below is fully implemented.

(2)  Much to its credit OIRA has instituted and is in the process of instituting a number of additional reforms regarding the issuance of  guidance documents.  The implementing platforms could also be used not only to address the views expressed herein but could also encourage participation by a number of  disciplines outside the legal profession which has dominated the debate for decades, particularly those having a background in political science, public administration and economics. Also see this statement.

 

6 comments. Leave a Reply

  1. CRE

    We appreciate both the verbal and written responses we have received in the very short period of time the post has been up; you are encouraged to also post your comments on this page. To those readers who are going to respond in other publications we would appreciate being informed of their whereabouts and we will provide a link thereto from this post.

  2. Richard Williams

    This is an interesting take on guidance. I was not aware that agencies were taking legal action based on non-compliance with guidance. The FDA states that its guidance is not binding on industry nor does it bind the agency itself to comply with its own guidance. If, as was the case in a previous administration, the guidance must go through notice and comment, it makes no sense to issue guidance instead of a regulation as there is no doubt as to whether or not parties must comply, but also because the agency gets deference. Reform is certainly needed, not just of guidance but of agency litigation and “sue and settle.”

    • Jim Tozzi

      CRE’s atypical description of this very important public policy issue was written to encourage its assessment by individuals and organizations whose foresight could complement that of those in the insular worlds of administrative law, of an arcane economist and of associated regulatory wonks. Such an assessment is needed because (1) the gargantuan measures recently directed by OMB probably would not have occurred if the authors of the guidance policy implemented over a number of decades made the slightest bow towards reality and (2) at some point in time the guidance program of an incumbent Administration will be reviewed by one of its successors.

  3. Edward P Richards

    While the Federal Housing Finance Authority may claim its guidance is entitled to judicial deference, I challenge it to find a case supporting that position. Sadly, we seem to be in a period when agencies feel free to ignore the law and make outrageous and unsupported claims. The government’s usually high win record in the courts has plummeted because of basic adlaw errors. There is the Attorney’s Fees and the Equal Access to Justice Act to help fund challenges. The government has paid more than $2,000,000 in fees to plaintiffs on the census case so far.

  4. CRE

    We appreciate the emails we have received; in addition we would welcome a response on the record to the following question raised in our post:

    Editor’s Note: In lieu of the aforementioned statement could the agency have issued the guidance and then opined that it is not going to initiate any enforcement actions based upon its guidance until which time it is promulgated as a rule in accordance with the APA and potentially the Congressional Review Act? If the answer is yes, is there still a guidance problem? [In that we never quote the content of incoming emails we do accept anonymous posts by their authors.]

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