Effective Agency Guidance

Introduction

The American Bankers Association (ABA) and its members are committed to compliance with all Federal laws and regulations. Banks of all sizes devote considerable resources each year to compliance—resources that could otherwise be directed to serving their customers and communities and to innovation. ABA encourages Federal bank regulators to issue guidance that helps banks and other regulated entities understand and more efficiently comply with legal requirements. Given the many and sometimes conflicting legal requirements that apply to banking activities, guidance can promote understanding of agency expectations and legal positions and can help level the playing field. As the Office of Management and Budget has explained:

Guidance documents, used properly, can channel the discretion of agency employees, increase efficiency, and enhance fairness by providing the public clear notice of the line between permissible and impermissible conduct while ensuring equal treatment of similarly situated parties.

However, not everything that an agency calls "guidance" is in fact guidance. Too often, agencies announce as "guidance" what is in practice a "legislative rule" that Federal law requires go through notice-and-comment rulemaking. This is because legislative rules bind the public, and Congress decided that before an agency can bind the public, it must publish the text of a proposed rule, seek public input, evaluate costs and benefits, and in the case of the Consumer Financial Protection Bureau (CFPB or Bureau), consider the impact on small entities.

Guidance, in contrast, does not bind the public. Rather, it advises regulated entities on what the agency believes the law requires, or how the agency will use discretion in exercising the authority Congress has given it. Agencies issue guidance in a variety of forms, including advisory opinions, statements, circulars, blogs, and frequently asked questions. Depending on their function, the Administrative Procedure Act (APA) refers to these types of agency documents as either "interpretive rules" or "general statements of policy."

Recently, more and more Federal agencies, including Federal bank regulators, have issued so-called "guidance" documents that are legislative rules. This misuse of guidance creates unnecessary confusion for regulated entities, often deprives the industry of fair notice, and undermines the legitimacy of the regulatory process.

In contrast, regulated entities appreciate and welcome guidance that provides information about an agency's interpretation of existing law and how it intends to use its discretion. However, even in these cases, while notice-and-comment is not legally required, soliciting comment from the public helps promote the effectiveness of the guidance. This is because the failure to confer with regulated entities to understand interpretive questions, operational challenges, and system constraints often limits the utility of guidance.

ABA is publishing this white paper to help agencies issue guidance that complies with agencies' legal requirements while providing useful advice and information to regulated entities. This paper begins by discussing the applicable legal requirements, especially those related to when agency action should be considered a legislative rule and go through the APA notice-and-comment process. It then discusses instances in which agencies issued guidance consistent with these legal requirements and contrasts these examples with a discussion of guidance documents that were ineffective for one or more reasons.

Finally, the paper recommends that Federal bank regulators adopt written procedures governing the development, issuance, and use of guidance, which will maximize the utility of future guidance documents. Further, we urge each agency to publish – after soliciting public comment – a mandatory process that will govern the issuance of "significant" guidance documents, which shall include public notice of a draft of the proposed guidance and a reasonable opportunity to comment before issuance of a final document.

Download the white paper to read the full text.