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Theory to Practice: That One Strange Trick to Influence Federal Regulations

November 9, 2020 / Jamie McCall / Community Development, Economic Development, Public Comment, Public Policy, Theory to Practice

Theory to Practice is an occasional blog series that explores the intersection of economic development research and current issues of debate within the practitioner community. In this post, Jamie McCall (Vice President of Policy and Research) and Khaliid Scott (CSBDF Research Fellow) highlight the importance of contributing to the regulatory process through public comments. To view all of the the public comments submitted by CSBDF, see our research page.

It Sounds Boring, but Public Comments on Federal Regulation are Important

Federal agencies have a lot of power over how they implement laws made by elected officials. Most public policy is not specific about how a law should be and enforced, and that gives the various departments of the federal government a great deal of discretion. Admittedly, the process of crafting and updating federal regulations is not exactly what you would call “exciting,” but it provides one of the main paths citizens and organizations can use to give feedback on public policy. Under the Administrative Procedures Act of 1946, any federal agency that creates or changes a regulation must publish a proposal in the Federal Register. Government agencies are required to solicit feedback for their regulation proposals and respond to feedback received when writing final rules.

At a high level, there are three stages to federal rulemaking:

  1. Advanced Notice of Proposed Rulemaking (ANPR): At the early stages of crafting new legislation, federal agencies formally invite comments from stakeholders.   The amount of detail and specificity an agency may have around a new regulation can vary greatly at this stage. For example, in 2018 the Office of the Comptroller of the Currency (OCC) invited feedback on major changes to the Community Reinvestment Act, which CSBDF submitted comments on.
  2. Notice of Proposed Rulemaking (NPRM): Next, agencies publish a formal outline of how they plan to create a new or updated regulation. The NPRM specifically outlines the details of a new regulation and incorporates comments received from the ANPR. In 2020, the OCC in conjunction with Federal Deposit Insurance Corporation (FDIC) released the NPRM for Community Reinvestment Act changes. CSBDF also submitted comments on this proposal a few months ago.
  3. Final Rule: After comments are received for NPRMs, federal regulators have several options. They can choose implement the regulation as stated, implement the new regulation with changes, or terminate the proposed rulemaking. In the event regulation undergoes major changes after a NPRM, those changes are outlined through a supplemental proposed rule.

 The Federal Bureaucracy Does (Sometimes) Change Regulations Due to Comments

Federal agencies are required to respond to public comments when issuing NPRMs and final rules. They are not required to change or alter regulations due to public comments. The extent to which public comments shape federal rulemaking varies. Agencies seem less likely to make regulation changes when rulemaking involves highly controversial topics with a large volume of comments from the general public. Concurrently, regulation changes that are salient to smaller groups of interested parties seem to frequently change policy outputs.

That may seem somewhat paradoxical, but it does make sense if you think about it from the bureaucracy’s point of view. Agencies more likely to read and incorporate changes in response to interest groups/organizational comments because such parties are seen as being more informed on the topic (at least compared to the deluge of citizen comments made around controversial policy changes). When regulations are perceived by the agency as having a high level of potential economic impact, research shows they make changes based on comments in about 42% of cases.

 We Want to Help Shape Community Economic Development Policy for the Better

Being able to materially alter federal regulations in 4 out of 10 cases is, all things considered, pretty good odds. For that reason CSBDF frequently engages in submitting public comments on areas of policy related to community and economic development. Consistent with our general approach to research, we base our comments on what is supported by the peer-reviewed literature and scholarly consensus. We strongly believe development policy should be evidence-based, and our comments reflect our desire to remind agencies that small businesses are the cornerstone of economic growth.

We recently submitted comments to the Consumer Financial Protect Bureau (CFPB) on regulation changes* that would increase the types of data financial institutions must collect about their small business lending practices. We broadly support the CFPB’s implementation of these requirements because we need more information about this key area of economic development. At the same time, our comments reflect concerns that applying increased  reporting requirements to extremely small institutions could cause unintended harm to the entrepreneurial community.

Technically, the Bureau’s regulation changes on this topic are not federal rulemaking per say. When the CFPB makes rules that could have significant impact to the small business community, the Small Business Regulatory Enforcement Fairness Act requires them to create Small Business Review Panels. The panel process involves groups of small business stakeholders that meet about the CFPB’s rule changes. When the CFPB convenes a Small Business Review Panel, it invites comments about its proposed rulemaking from stakeholders in conjunction with the panel process.