It didn’t take long — House passes bills to “regulate” the regulators

by Cydney Posner

Welcome to the future! On Wednesday, the House Republicans (with five Democratic votes) passed H.R. 5, the Regulatory Accountability Act of 2017, a bill that would change the way federal agencies issue regulations and guidance. This bill would require agencies to, as part of their rulemaking processes, expand the factual determinations required, provide advance notice with regard to certain important rule proposals and follow specified procedures for issuing important guidance, among other processes. Included as part of the same bill is the Separation of Powers Restoration Act, which provides for de novo judicial review of agency actions.  And last week, the House passed H.R. 26, Regulations from the Executive in Need of Scrutiny Act of 2017 (the “REINS” Act, another achievement in the fine art of acronyming), which provides that major rules of the executive branch will have no force or effect without a joint resolution of Congress. Another bill, H.R. 78, the SEC Regulatory Accountability Act, has also just been introduced in the House.  This bill would also enhance the requirements for cost-benefit analyses of rules proposed by the SEC and provide for post-adoption impact assessment and periodic review of existing regulations adopted by the SEC. Get the picture?  I feel confident in predicting that these won’t be the last bills of this type introduced in this Congress.  However, while Republicans control the Senate, their majority is not filibuster-proof, so it’s possible that none of these bills will become law in their current form — or at all.

As reported by Reuters, the Regulatory Accountability Act would give the new administration

“tools ‘to wipe out abusive regulation,’ said Bob Goodlatte, the Judiciary Committee chairman who is among the many House leaders calling for lighter regulation and saying the costs to comply with federal rules are too high. Republicans say there is little accountability for regulations that apply to almost every aspect of American life because they are created by appointed officials and not elected representatives. Federal agencies operate either independently or under the president’s authority…. Democrats have said the many extra procedures required by the reform bills would stall agencies’ work, making it impossible to create needed regulations on the environment, financial markets and other areas. Democrats contend that slowing down rulemaking is intended to help big businesses escape oversight. The accountability act would jeopardize the government’s capability ‘to safeguard public health and safety, the environment, workplace safety and consumer financial protections,’ the Judiciary Committee’s senior Democrat, John Conyers, said before the vote.”

SideBar: Some of provisions of this legislation may sound familiar; the Financial CHOICE Act, which was introduced in the last Congress, also sought to dramatically change the regulatory process by adding new layers of required analysis, retrospective review of existing rules and expansion of the scope of judicial review of regulations. (See this PubCo post.)

A few of the provisions of the Regulatory Accountability Act should give you a flavor of the proposed legislation:

  • In making factual determinations, a Federal agency must take into consideration a number of specific issues, including legal authority, the nature of problem and whether existing rules have contributed to it, costs and benefits of other alternatives, reasonable alternatives to the proposed rule, such as amending or rescinding current rules, no Federal response at all and “potential responses that—
    • (i) specify performance objectives rather than conduct or manners of compliance;
    • (ii) establish economic incentives to encourage desired behavior;
    • (iii) provide information upon which choices can be made by the public; or
    • (iv) incorporate other innovative alternatives rather than agency actions that specify conduct or manners of compliance.”
  • For certain very significant (i.e., “major,” “high-impact” and “negative impact on jobs and wages” (all as defined)) rules, as well as novel rule proposals, not later than 90 days before publishing a notice of proposed rulemaking in the Federal Register, an agency must publish advance notice of proposed rulemaking in the Federal Register providing specified information, such as the data and other evidence on which the agency expects to rely, an achievable objective for the rule and the metrics by which the agency will measure progress toward that objective. For some high-impact rules, hearings are required prior to adoption. A  “major” rule is a rule that the

    Administrator of the Office of Information and Regulatory Affairs determines

    has resulted in (or is likely to result in) an annual cost to the economy of $100 million or more; a major increase in costs or prices for consumers, industries, agencies, or geographic regions; significant adverse effects on competition (including with foreign entities), employment, investment, productivity or innovation; or has significant impact on multiple sectors of the economy.

  • For “major” guidance or guidance involving a novel issue, the agency must summarize the evidence and data, perform a cost-benefit analysis, assure that the benefits justify the costs and describe alternatives and their costs and benefits. Agency guidance must clearly state that it is not legally binding.

The Separation of Powers Restoration Act provides that, in reviewing agency actions, courts  will “decide de novo all relevant questions of law, including the interpretation of constitutional and statutory provisions, and rules made by agencies.” The provision would apply in any action for judicial review of agency action authorized under any provision of law.

SideBar:  This bill appears to represent an effort to repeal by statute the so-called “Chevron doctrine.” That is a reference to the well-worn two-step test for determining whether deference should be accorded to federal administrative agency actions interpreting a statute, first articulated by SCOTUS in 1984 in Chevron v. Natural Resources Defense Council. Generally, that doctrine mandates that, if there is ambiguity in how to interpret a statute, courts must accept an agency’s interpretation of a law unless it is arbitrary or manifestly contrary to the statute. For example, in a decision released on June 14, Monica Lindeen v. SEC, the D.C. Circuit applied Chevron to uphold the SEC’s rules adopted under Reg A+ against a challenge by two state securities regulators.  And, as another example, the D.C. District Court applied Chevron in initially upholding the SEC’s conflict minerals rules in 2013 in Nat’l Ass’n of Mfrs. v. SECNational Association of Manufacturers v SEC, which was subsequently reversed on other grounds. If adopted, this type of provision could facilitate the types of regulatory challenges frequently mounted by the U.S. Chamber of Commerce, Business Roundtable and others.

The purpose of the REINS Act, according to the bill, is to address the issue that “Congress has excessively delegated its constitutional charge while failing to conduct appropriate oversight and retain accountability for the content of the laws it passes. By requiring a vote in Congress, the REINS Act will result in more carefully drafted and detailed legislation, an improved regulatory process, and a legislative branch that is truly accountable to the American people for the laws imposed upon them.” This bill also requires federal agencies to publish in the Federal Register a list of information on which the rule is based (including data, scientific and economic studies) and cost-benefit analyses, as well as a classification of the rule as a major or non-major rule (with a definition similar to the Regulatory Accountability bill above). To become effective, major rules require a joint resolution of Congress, while non-major rules are subject to disapproval by a joint resolution.  The bill also provides for annual review of 10% of eligible rules adopted by an agency, which rules will also be subject to the joint-resolution process. A corresponding bill, S.21, has been introduced in the Senate.

The SEC Regulatory Accountability Act directs the SEC as follows:

  • “before issuing a regulation under the securities laws, identify the nature and source of the problem that the proposed regulation is designed to address;
  • adopt a regulation only upon a reasoned determination that its benefits justify its costs;
  • identify and assess available alternatives to any regulation; and
  • ensure that any regulation is accessible, consistent, written in plain language, and easy to understand.”

In determining the costs and benefits of a proposed regulation, the SEC is required to evaluate whether the regulation is tailored to impose the least burden on society and consider its impact on investor choice, market liquidity and small business. The bill also requires the SEC to reevaluate its rules every five years to assess  whether they are “outmoded, ineffective, insufficient, or excessively burdensome” and make appropriate changes. In adopting “major” rules, the SEC must state the metrics for measuring the regulation’s economic impact, the post-adoption assessment plan to determine whether it has achieved its stated purposes, and  any foreseeable unintended or negative consequences of the regulation. With regard to any regulation that would subject issuers with a public float of $250 million or less to the auditor attestation requirements of SOX 404(b), the bill instructs the SEC, in reviewing regulations, to “specifically take into account the large burden of such regulation when compared to the benefit of such regulation.” The bill also provides that it is the “sense of the Congress” that the PCAOB should also follow the requirements of the bill.

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