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From Banking and Finance Law Daily, October 24, 2017

Guidance on leveraged lending subject to congressional review

By Katalina M. Bianco, J.D.

The Government Accountability Office has determined that the final Interagency Guidance on Leveraged Lending issued by the banking agencies on March 22, 2013, is a general statement of policy and is a rule for purposes of the Congressional Review Act. The GAO decision is in response to a request by Sen. Pat Tooney (R-Pa) that the GAO investigate the applicability of the guidance to the CRA.

Guidance. The banking agencies—Office of the Comptroller of the Currency, Federal Reserve Board, and Federal Deposit Insurance Corporation—issued the guidance after a review of leveraged lending activities by supervised institutions (see Banking and Finance Law Daily, March 21, 2013). The guidance, which revised supervisory guidance issued in 2001, outlines the agencies’ minimum expectations on a wide range of topics related to leveraged lending, including underwriting standards, valuation standards, the risk rating of leveraged loans, and problem credit management.

CRA. The CRA establishes a process for congressional review of agency rules and establishes procedures under which Congress may pass a joint resolution of disapproval that, if enacted into law, overturns the rule. The CRA requires that all federal agencies, including independent regulatory agencies, submit a report on each rule to both Houses of Congress and to the GAO before it can take effect. The report must contain a copy of the rule, "a concise general statement relating to the rule," and the rule’s proposed effective date. Each agency also must submit to the Comptroller General a cost-benefit analysis of the rule.

GAO reasoning. According to the GAO, the CRA states that "a rule is ‘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.’" The CRA excludes rules:

  1. of particular applicability;
  2. relating to agency management or personnel; and
  3. of agency organization, procedure, or practice that do not substantially affect the rights or obligations of non-agency parties.

The GAO notes that the agencies did not send a report on the guidance to Congress or the Comptroller because "their opinion the Guidance is not a rule under the CRA." The agencies argue that the guidance is a general statement of policy not subject to the CRA but rather a statement that explains how they will exercise their broad enforcement discretion. They assert that it does not establish legally binding standards, is not final or certain, and does not substantially affect the rights or obligations of non-agency parties.

According to the decision, the GAO agrees that guidance is a statement of policy. However, the office notes that it previously has held that statements of policy are rules under the CRA. The GAO states that its prior holdings cite to the legislative history of the CRA which confirms that rules subject to the CRA include general statements of policy. Legal commentators also have supported that conclusion, the GAO notes. In this case, the GAO finds that the guidance does not fall within the three exceptions listed in the CRA.

Toomey statement. Responding to the GAO’s decision, Toomey stated, "This is an important reminder that agencies have a responsibility to live up to their obligations under the Congressional Review Act. When they don't, Congress should hold them accountable."

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