The Congressional Review Act and the Leveraged Lending Guidance Questions and Answers May 23, 2017 On March 31, 2017, Senator Pat Toomey (R-Pa.) sent a letter to the Comptroller General of the U.S. General Accounting Office (GAO) asking whether the Interagency Guidance on Leveraged Lending constitutes a rule for purposes of the Congressional Review Act (CRA). The CRA applies to agency rules (as defined in the CRA) and provides an expedited mechanism for Congress to invalidate rules that it disapproves. Senator Toomey has requested a response from the GAO by June 1, 2017. To provide its members with background on the CRA and the possible implications of Sen. Toomey s request, the LSTA has worked with Sidley Austin to compile this series of questions and answers on the CRA and the Leveraged Lending Guidance. What is the Interagency Guidance on Leveraged Lending? As most of you know, the Interagency Guidance on Leveraged Lending ( Guidance ) was issued by the Office of the Comptroller of the Currency (OCC), the Board of Governors of the Federal Reserve System, and the Federal Deposit Insurance Corporation (FDIC) with an effective date of March 22, 2013 and a compliance date of May 21, 2013. 1 The Guidance applies to all financial institutions supervised by the OCC, Board, and FDIC that engage in leveraged lending activities, and outlines for [those] institutions high-level principles related to safe-and-sound leveraged lending activities, including underwriting considerations, assessing and documenting enterprise value, risk management expectations for credits awaiting distribution, stress-testing expectations, pipeline portfolio management, and risk management expectations for exposures held by the institution. 2 The Guidance replaced the prior guidance from 2001 and forms the basis of the agencies supervisory focus and review of supervised financial institutions. 3 Importantly for purposes of whether the CRA processes might apply, the agencies did not submit the 2013 Guidance to Congress. What is the Congressional Review Act (CRA)? The Congressional Review Act (CRA), 5 U.S.C. 801 et seq., was enacted in 1996 to creat[e] a special mechanism for Congress to review new rules issued by federal agencies... before they go into effect and to disapprove any rule to which Congress objects. 4 The CRA establishes expedited procedures under which the House and Senate can jointly disapprove, and thereby invalidate, agency rules. 1 78 Fed. Reg. 17766 (Mar. 22, 2013). 2 Id. 3 Id. at 17771. 4 Statement for the Record by Senators Nickels, Reid, and Stevens, 142 Cong. Rec. 8197 (Apr. 18, 1996). 1
How often has the CRA been used to invalidate a rule? From its enactment in 1996 through last year, the CRA had only been successfully used once to invalidate a rule (although multiple unsuccessful attempts were made over the years). 5 Since the start of the Trump administration, by contrast, 13 rules have been overturned under the CRA. 6 How does the CRA work? Under the CRA, before an agency rule can go into effect, it must be submitted to the GAO and Congress for review. The CRA process is fairly complex, but in broad strokes, Congress has a limited time period to initiate disapproval of a rule under the CRA, starting from the date the agency submits the rule to Congress. Members of Congress can initiate the process by submitting a joint resolution of disapproval within the time limit. Consideration of a joint resolution is subject to a separate time limit on the Senate side, which is triggered by the date of the rule s submission to Congress or publication in the Federal Register, whichever is later. The CRA provides certain expedited procedures for Senate consideration, which in practice include treating motions to consider a disapproval resolution as not subject to filibuster. To successfully invalidate a rule under the CRA, both houses of Congress must pass an identical joint resolution of disapproval, which is then submitted to the President for signature or veto (which Congress may override). Disapproval under the CRA applies only to rules in their entirety; Congress cannot designate certain parts of a rule for invalidation while leaving the rest of the rule in place. As noted below, if a rule is disapproved, it is treated as though it had never been issued, and the agency cannot replace it with a rule that is substantially the same without express authorization by Congress. 7 What rules are subject to the CRA? The CRA adopts, with three exceptions, the Administrative Procedure Act s broad definition of rule : the whole or a part of an agency statement of general or particular applicability and future effect designed to implement, interpret, or prescribe law or policy or describing the organization, procedure, or practice requirements of an agency and includes the approval or prescription for the future of rates, wages, corporate or financial structures or reorganizations thereof, prices, facilities, appliances, services or allowances therefore or of valuations, costs, or accounting, or practices bearing on any of the foregoing. 8 The CRA carves out three exceptions from this definition: 5 See Congressional Research Service, The Congressional Review Act: Frequently Asked Questions ( FAQs ) (Apr. 17, 2015) (describing disapproval of the Department of Labor s November 2000 ergonomics standards rule). 6 See U.S. General Accounting Office Congressional Review Act FAQs at 5 (April 17, 2015), available at https://www.gao.gov/legal/congressional-review-act/faq. 7 5 U.S.C. 801, 802. 8 5 U.S.C. 551(4); see 5 U.S.C. 804(3) (adopting definition set forth at 5 U.S.C. 551). 2
- any rule of particular applicability, including a rule that approves or prescribes for the future rates, wages, prices, services, or allowances therefor, corporate or financial structures, reorganizations, mergers, or acquisitions thereof, or accounting practices or disclosures bearing on any of the foregoing - any rule relating to agency management or personnel ; and - any rule of agency organization, procedure, or practice that does not substantially affect the rights or obligations of non-agency parties. 9 This definition is broader than the category of rules subject to notice and comment rulemaking. 10 In addition, the CRA does not apply to rules that concern monetary policy proposed or implemented by the Board of Governors of the Federal Reserve System or the Federal Open Market Committee. 11 What is the GAO s role in determining whether an agency statement is a rule under the CRA? The GAO does not have a formal role provided under the CRA in determining whether a particular agency statement or action qualifies as a rule that should be submitted to Congress for review. In practice, however, Congress has on multiple occasions asked for, and the GAO has provided, the GAO s opinion on whether a given agency action is a rule for purposes of the CRA. 12 Congress has thereafter treated a GAO determination that an agency action is a rule as establishing that the CRA applies. Has the GAO ever determined that a guidance document is a rule under the CRA? On at least two occasions, the GAO has determined that a guidance document is a rule under the CRA. In 1999, the GAO opined that interim guidance issued by the Environmental Protection Agency was a rule for purposes of the CRA. 13 And in 2012, the Comptroller General determined that an Information Memorandum concerning the Temporary Assistance for Needy Families program issued by the Department of Health and Human Services was a rule for CRA purposes, rejecting HHS s position that guidance documents are not rules for purposes of the CRA. 14 The GAO reasoned that the definition of rule in the CRA is very broad and covers a wide range of rules, not only rules that must be promulgated through notice and 9 5 U.S.C. 804(3)(A) (C). 10 FAQs at 6. 11 5 U.S.C. 807. 12 FAQs Appendix (listing 11 GAO opinions); Comptroller General letter to Congressional Requesters re: GAO s Role and Responsibilities Under the Congressional Review Act, B-325553 at 7 (May 29, 2014). 13 GAO letter to Hon. McIntosh, B-281575 (Jan. 20, 1999). 14 Comptroller General, Letter to Sen. Hatch and Rep. Camp, B-323772 (Sept. 2, 2012). 3
comment rulemaking under the APA. 15 The GAO also noted that the legislative history of the CRA specifically includes guidance documents as an example of an agency pronouncement subject to the CRA. 16 Separately, the GAO has opined that a general statement of policy would appear to fit squarely within the CRA definition of rule because it is a device that provides information on the manner in which an agency will exercise its authority or what the agency will seek to propose as policy and the definition of rule includes a statement of general or particular applicability and future effect designed to implement, interpret, or prescribe law or policy. 17 If the GAO determines that the Guidance meets the CRA definition of a rule, does the CRA still apply given that the Guidance was issued in 2013? Whether the CRA would still apply to the Guidance which was issued more than four years ago is subject to some uncertainty. The time period for initiating action under the CRA is triggered by submission of the rule to Congress, and the time period for Senate action on a joint resolution is triggered by the later of the date of submission to Congress or publication of the rule in the Federal Register. 18 Because the Guidance has not yet been submitted to Congress, a strong argument exists that the time period for initiating CRA proceedings has not yet started to run. Instead, the review and disallowance period would begin when an agency reported the rule to Congress (or if, as has occurred previously, Congress has proceeded as though the GAO letter or associated publication of the rule in the Congressional Record constitutes the report of the rule). The issue has not been completely resolved, however, because all the rules invalidated under the CRA to date were submitted to Congress under the CRA shortly after issuance. On the other hand, on at least two occasions, Congress has commenced the CRA process after the GAO determined that an agency statement that had not been submitted to Congress was a rule subject to the CRA. 19 In neither instance, however, was the rule ultimately invalidated. Ultimately, because the CRA addresses Congress s own internal rules and processes, Congress may have significant leeway to interpret its requirements. Moreover, the CRA bars judicial review of any determination, finding, action, or omission under its provisions, which would insulate any such Congressional interpretation from challenge. 20 Courts have construed that non-review provision broadly. 21 15 Id. 16 Id. 17 Comptroller General, Letter to Sen. Rockefeller and Sen. Snowe re: Applicability of the Congressional Review Act to Letter on State Children s Health Insurance Program, B-316048 at Enc. 10 (April 17, 2008). 18 5 U.S.C. 802. 19 FAQs at 12. 20 5 U.S.C. 805. 21 E.g., Montanans For Multiple Use v. Barbouletos, 568 F.3d 225, 229 (D.C. Cir. 2009) (5 U.S.C. 805 is unequivocal and denies courts the power to void rules on the basis of agency noncompliance with the Act. ). 4
What happens if Congress disapproves a rule under the CRA? If Congress disapproves a rule under the CRA, the rule shall not take effect (or continue. 22 If the rule is already in effect when the joint resolution of disapproval is enacted (as would be the case with the Guidance), the rule shall be treated as though [it] had never taken effect. 23 The Congressional Research Service has explained that [t]he intent seems to be that, in these cases, any consequences the rule had already had would be undone retroactively. 24 In the banking examination and enforcement context, however, there may be difficult issues regarding the effect of prior examiner determinations that officials could have made in the absence of the Guidance. In addition, once a rule is invalidated under the CRA, the agency may not reissue the rule in substantially the same form, and may not issue a new rule that is substantially the same without specific legislative authorization. 25 22 5 U.S.C. 801(b). 23 5 U.S.C. 801(f). 24 Congressional Research Service, Disapproval of Regulations by Congress: Procedure Under the Congressional Review Act 7 (Oct. 10, 2001). 25 5 U.S.C. 801(b)(2). 5