The Regulatory Flexibility Act: An Overview

The Regulatory Flexibility Act: An Overview

August 16, 2021
The Regulatory Flexibility Act: An Overview
Congress enacted the Regulatory Flexibility Act (RFA ; 5
number of specific factors relating to the proposed rule’s
U.S.C. §§601-612) in 1980 to require federal agencies to
potential impact on small entities. Section 603 requires
consider the effects of their regulations on small businesses
agencies to include in each IRFA “(1) a description of the
and other small entities. If a regulation is expected to have a
reasons why action by the agency is being considered; (2) a
“significant economic impact on a substantial number of
succinct statement of the objectives of, and legal basis for,
small entities,” the RFA requires the issuing agency to
the proposed rule; (3) a description of and, where feasible,
consider regulatory impacts and alternatives, with the goal
an estimate of the number of small entities to which the
of minimizing significant economic impacts on small
proposed rule will apply; (4) a description of the projected
entities. In 1996, Congress amended the RFA in the Small
reporting, recordkeeping and other compliance
Business Regulatory Enforcement Fairness Act, adding
requirements of the proposed rule …; [and] (5) an
judicial review for some of the act’s provisions, a
identification, to the extent practicable, of all relevant
requirement for a limited number of agencies to hold small
federal rules which may duplicate, overlap or conflict with
business advocacy review panels, and a requirement for
the proposed rule.”
agencies to produce regulatory compliance guides.
IRFAs are also required to contain “a description of any
Overview of the Regulatory Flexibility
significant alternatives to the proposed rule which
Act
accomplish the stated objectives of applicable statutes and
The RFA requires federal agencies to assess the effects of
which minimize any significant economic impact of the
their regulations on small entities, which it defines as
proposed rule on small entities.”
including small businesses, small governmental
jurisdictions, and certain small nonprofit organizations.
Further, the agency must discuss different types of
flexibilities that could be included in the rule, such as “(1)
The RFA applies to all regulatory agencies, including
the establishment of differing compliance or reporting
Cabinet agencies and the statutorily designated
requirements or timetables that take into account the
“independent regulatory agencies,” which have sometimes
resources available to small entities; (2) the clarification,
been exempted from other procedural rulemaking
consolidation, or simplification of compliance and reporting
requirements.
requirements under the rule for such small entities; (3) the
use of performance rather than design standards; and (4) an
As noted above, the RFA is triggered if the head of the
exemption from coverage of the rule, or any part thereof,
issuing agency certifies that the rule will have a significant
for such small entities.”
economic impact on a substantial number of small entities.
This threshold determination is key: If an agency certifies
The IRFA, or a summary of the IRFA, must be published in
that this type of impact is not expected to occur, the RFA is
the Federal Register when the proposed rule is published.
not triggered. The RFA does not define significant
This allows the public an opportunity for input on the IRFA
economic impact or substantial number of small entities,
while the agency is already taking comment on the
however, and agencies generally have a fair amount of
proposed rule as required by the Administrative Procedure
discretion to determine its applicability. The lack of clarity
Act (APA).
of the specific meaning of these phrases, and the resulting
amount of discretion agencies have to determine when the
The RFA does not require agencies to choose any particular
act is triggered, have sometimes led to criticism over its
outcome based on an IRFA. Rather, it requires agencies to
implementation.
consider the impacts of a rule on small entities and whether
more flexible alternatives may be appropriate.
Regulatory Flexibility Analyses
The RFA may be viewed primarily as an analytical statute.
Final Regulatory Flexibility Analysis
When triggered by the criteria identified above, the agency
When an agency promulgates a final rule after having
is to conduct a specified regulatory impact analysis during
issued a covered proposed rule, it must conduct a FRFA
the proposed and final rule stages. These two analyses are
under Section 604 (unless the IRFA led the agency to
distinct and are referred to as the initial regulatory
determine that the rule will not have the requisite impact on
flexibility analysis (IRFA) and final regulatory flexibility
small entities). Whereas the IRFA requires the agency to
analysis (FRFA), respectively.
consider regulatory impacts and alternatives for small
entities, the FRFA requires that the agency justify its
Initial Regulatory Flexibility Analysis
actions and regulatory choices, including an explanation of
When issuing a proposed rule that triggers its analytical
why any more flexible regulatory alternatives were rejected.
requirements, the RFA requires an agency to analyze a
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The Regulatory Flexibility Act: An Overview
The FRFA must contain “(1) a statement of the need for,
Management and Budget’s Office of Information and
and objectives of, the rule; (2) a statement of the significant
Regulatory Affairs, and the Chief Counsel. The panel is to
issues raised by the public comments in response to the
review relevant materials the agency has collected
initial regulatory flexibility analysis, a statement of the
pertaining to the rule’s anticipated impacts on small entities
assessment of the agency of such issues, and a statement of
and collect advice and recommendations of the small entity
any changes made in the proposed rule as a result of such
representatives on issues related to components of the
comments; (3) the response of the agency to any comments
IRFA. Within 60 days, the panel is to report on the
filed by the Chief Counsel for Advocacy of the Small
comments it received and its findings and make the report
Business Administration [SBA] in response to the proposed
public as part of the rulemaking record. The RFA then
rule, and a detailed statement of any change made to the
directs the agency to modify the proposed rule and the
proposed rule in the final rule as a result of the comments;
IRFA as appropriate.
(4) a description of and an estimate of the number of small
entities to which the rule will apply or an explanation of
Retrospective Review of Rules
why no such estimate is available; (5) a description of the
Section 610 requires agencies to establish a plan for
projected reporting, recordkeeping and other compliance
reviewing rules that have or will have a significant
requirements of the rule ...; (6) a description of the steps the
economic impact on a substantial number of small entities.
agency has taken to minimize the significant economic
The purpose of the review is to determine whether any
impact on small entities consistent with the stated
modifications to each rule are necessary to minimize
objectives of applicable statutes, including a statement of
impacts on small entities. The agency is to review the rule
the factual, policy, and legal reasons for selecting the
within 10 years of issuance of the rule, but the completion
alternative adopted in the final rule and why each one of the
of the review may be extended by one year at a time for up
other significant alternatives to the rule considered by the
to five additional years.
agency which affect the impact on small entities was
rejected; and (7) for [the Consumer Financial Protection
The RFA specifies five factors agencies are to consider in
Bureau (CFPB)], a description of the steps the agency has
these retrospective reviews: (1) the continued need for the
taken to minimize any additional cost of credit for small
rule; (2) the nature of any public feedback on the rule; (3)
entities.”
the complexity of the rule; (4) the extent to which the rule
overlaps or conflicts with other federal, state, or local rules;
Notably, the requirements for an IRFA and a FRFA are
and (5) the length of time since the rule has been evaluated
triggered only in rules where the agency is required to issue
or the degree to which technology, economic conditions, or
a proposed rule under the APA. The APA contains several
other relevant factors have changed.
exemptions for its requirement for an agency to issue a
proposed rule, including when an agency invokes “good
Small Entity Compliance Guides
cause” to forgo notice and comment. As a practical matter,
The RFA also requires agencies to publish one or more
this has led to some criticism of the RFA’s implementation,
“small entity compliance guides” to assist small entities in
as a significant number of final rules are issued without first
complying with rules covered by the act. The guides are to
having had a proposed rule. A 2012 Government
be posted in an “easily identified location” on the agency’s
Accountability Office study found over a third of rules
website and distributed to industry contacts.
issued from 2003 through 2010 were not preceded by
proposed rules.
Regulatory Agenda
Section 602 requires that all agencies publish semiannual
Agencies’ IRFAs and FRFAs are often conducted in
regulatory agendas in the Federal Register describing
conjunction with other regulatory impact analyses, most
regulatory actions that they are developing that may have a
notably the requirements for cost-benefit analysis of
significant economic impact on a substantial number of
economically significant rules under Executive Order
small entities. The RFA also requires that agencies
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“endeavor to provide notice” of the regulatory agendas to
small entities and “invite comments upon each subject area
Small Business Review Panels
on the agenda.” These regulatory agendas are published
Prior to issuing rules subject to the RFA, agencies must
each fall and spring as part of the Unified Agenda of
notify the Chief Counsel for Advocacy of the SBA
Federal Regulatory and Deregulatory Actions.
(hereinafter, Chief Counsel) for possible comment. In
addition, Section 609 requires three agencies—the
Annual Reports on Compliance
Environmental Protection Agency, the CFPB, and the
Section 612 requires the Chief Counsel to monitor agency
Occupational Safety and Health Administration in the
compliance with the RFA and to provide an annual report to
Department of Labor—to hold small business advocacy
Congress and the President. Those reports are available on
review panels, which are a supplemental means for
the SBA’s Office of Advocacy’s website.
obtaining input on the proposed rule and IRFA.
Section 612 also authorizes the Chief Counsel to appear as
Within 15 days of receiving that notification from these
amicus curiae (i.e., “friend of the court”) in the case of
three agencies, the Chief Counsel is to identify individuals
judicial review of a rule.
that are representative of affected small entities. The agency
is then to convene a “review panel” for the rule consisting
Maeve P. Carey, Specialist in Government Organization
of employees from the rulemaking agency, the Office of
and Management
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The Regulatory Flexibility Act: An Overview

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