Statement of the Issue
Bottom Line: The USG states that guidance documents are binding on federal agencies, unless an aggrieved party convinces their superiors to the contrary, but not on the regulated community.
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?”
“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.
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.
(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.