Editor’s Note: The solution to backdoor regulation is the Data Quality Act.
From: Mercatus Center/George Mason University
The traditional method of regulating under the Administrative Procedure Act (APA)—the law that governs regulatory agency rulemaking—requires a notice-and-comment process, where the regulating agency informs the public of its proposed rule, seeks feedback from the public and interested parties, and performs a benefit-cost analysis of the proposed rule. These requirements boost public confidence in the regulatory process and allow regulated businesses to prepare for and understand new rules, which leads to better compliance.
In recent years, many federal agencies—including the Commodity Futures Trading Commission (CFTC)—have sought to regulate through less formal and rigorous options, such as guidance documents, staff letters, and settlement agreements with businesses targeted under enforcement actions. These “backdoor rulemaking” methods rarely seek feedback from the public and interested parties, are subject to change with little notice, and may even violate the APA because their requirements often bind industries to make mandatory changes or risk agency enforcement actions against them.
