GAO Report Says Agencies Would Benefit from Additional Guidance for Major Dodd-Frank Rulemaking (with Lofchie Comment)

A report released by the GAO determined that the Office of Management and Budget ("OMB"), in coordination with the regulatory agencies, may not be consistently determining which rules are considered "major rules" under the Congressional Review Act ("CRA"), which was put in place to allow Congress to review major rules before they became effective. The GAO recommends, as it first did in 2011, that the OMB issue guidance to help standardize CRA processes.

The GAO found that some independent agencies submitted all of their rules to the OMB while others did not, and that inconsistencies remain in how these agencies applied the CRA criteria. The GAO found, for example, that rules issued by different agencies had similar economic impacts but were not similarly classified as major. According to the GAO report linked below, these ongoing issues raise the risk of some rules not being properly classified as major, limiting Congress's ability to review these rules before they become effective.

Lofchie Comment: Overall, the report is critical of regulators' not undertaking appropriate analyses or coordinating rulemakings. The bar is set fairly low for regulators to meet the standards discussed in the report. As noted (on page 2), financial regulators are not subject to the Executive Order requiring that "major" rules be subject to a formal cost-benefit analysis. More significantly, the GAO report merely indicates whether a regulator stated that it has performed a cost-benefit analysis, the report does not discuss the quality of the analysis done. While "major" rules are intended to be subject to additional procedures, the financial regulators may be failing to identify all such rules, or subdividing rules in such a way that none of the subdivided rules are considered "major". A perfect example of the problem is the CFTC's cross-border guidance, which is now the subject of litigation, and which should have been subject to a formal rulemaking procedure.By way of a further and, arguably, even more significant example of how low the GAO's bar was set, below is an excerpt from CFTC Commissioner O'Malia's dissent from the CFTC' adoption of the Volcker Rule:"Throughout the Commission's rulemakings under the Dodd-Frank Act, I have urged the Commission to faithfully act in accordance with the applicable statutory authorities and the Administrative Procedure Act ("APA"). However, in the implementation of one of the most important mandates issued by Congress in response to the financial crisis, the Commission seems to have forgotten the basics of agency rulemaking. I am deeply troubled by the egregious abuse of process in this rulemaking. Without a doubt, it far surpasses all other previous transgressions to date."The first opportunity each Commissioner had to review a partial draft of the nearly 1,000-page final rule came only three weeks prior to today's vote. Further, because the Commission was operating in an information vacuum, the fact that the Commissioners were not reviewing the working interagency draft - but instead had the "CFTC-preferred" version of the rule - only came to light a few days later. The Commission did not receive a near-final draft of the rule (with language agreed to by all five agencies) until just six days prior to the vote, despite repeated requests by Commissioners for a version of the draft then in circulation amongst the responsible agencies. This six-day draft was not even accompanied by the courtesy of a summary or term sheet in order to aid the Commission in digesting, at the last minute, this incredibly complex and dense final rule."I am disappointed that today's vote on the final rule is besmirched by the purposeful circumvention of measured review by each Commissioner's office. It is simply not possible to carefully weigh a final rule - particularly one with as much detail and consequence as the Volcker Rule - in the briefest of timeframes. Accordingly, I am concerned that the lack of meaningful participation by the full Commission in the rulemaking process has therefore seriously impaired the ability of the Commission, as a deliberative body, to engage in reasoned decision-making."

See: Dodd-Frank Regulations: Agencies Conducted Regulatory Analyses and Coordinated but Could Benefit from Additional Guidance on Major Rules (GAO Report).Related pages: Cadwalader's Dodd-Frank Studies Chart, compiling and organizing all studies conducted pursuant to Dodd-Frank (accessible to Cabinet subscribers only).