[Congressional Record Volume 163, Number 169 (Thursday, October 19, 2017)]
[Senate]
[Pages S6636-S6637]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]




GAO OPINION LETTER RELATED TO INTERAGENCY GUIDANCE ON LEVERAGED LENDING

  Mr. TOOMEY. Mr. President, I ask unanimous consent to have printed in 
the Record the GAO opinion letter dated October 19, 2017, related to 
the Interagency Guidance on Leveraged Lending of March 22, 2013, 
Federal Register citation 78 FR 17766.
  There being no objection, the material was ordered to be printed in 
the Record, as follows:

                                                   U.S. Government


                                        Accountability Office,

                                 Washington, DC, October 19, 2017.
     Subject: Office of the Comptroller of the Currency, Board of 
         Governors of the Federal Reserve System, Federal Deposit 
         Insurance Corporation--Applicability of the Congressional 
         Review Act to Interagency Guidance on Leveraged Lending

     Hon. Pat Toomey,
     U.S. Senate.
       Dear Senator Toomey: You asked whether the final 
     Interagency Guidance on Leveraged Lending (Interagency 
     Guidance or Guidance), issued jointly on March 22, 2013, by 
     the Office of the Comptroller of the Currency (OCC), the 
     Board of Governors of the Federal Reserve System (the Board), 
     and the Federal Deposit Insurance Corporation (FDIC), is a 
     rule for purposes of the Congressional Review Act (CRA). CRA 
     establishes a process for congressional review of agency 
     rules and establishes special expedited procedures under 
     which Congress may pass a joint resolution of disapproval 
     that, if enacted into law, overturns the rule. Congressional 
     review is assisted by CRA's requirement that all federal 
     agencies, including independent regulatory agencies, submit 
     each rule to both Houses of Congress and to the Government 
     Accountability Office (GAO) before it can take effect. For 
     the reasons discussed below, we conclude that the Interagency 
     Guidance is a general statement of policy and is a rule under 
     the CRA.


                               BACKGROUND

                        Congressional Review Act

       CRA, enacted in 1996 to strengthen congressional oversight 
     of agency rulemaking, requires all federal agencies, 
     including independent regulatory agencies, to submit a report 
     on each new rule to both Houses of Congress and to the 
     Comptroller General 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. In addition, the agency must submit to the 
     Comptroller General a complete copy of the cost-benefit 
     analysis of the rule, if any, and information concerning the 
     agency's actions relevant to specific procedural rulemaking 
     requirements set forth in various statutes and executive 
     orders governing the regulatory process.
       CRA adopts the definition of rule under the Administrative 
     Procedure Act (APA), which states in relevant part 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.'' CRA excludes three categories of 
     rules from coverage: (1) rules of particular applicability; 
     (2) rules relating to agency management or personnel; and (3) 
     rules of agency organization, procedure, or practice that do 
     not substantially affect the rights or obligations of non-
     agency parties. The Agencies did not send a report on the 
     Interagency Guidance to Congress or the Comptroller General 
     because, as they stated in their letters to our Office, in 
     their opinion the Guidance is not a rule under the CRA.

               Interagency Guidance on Leveraged Lending

       On March 22, 2013, OCC, the Board, and FDIC (referred to 
     collectively as the Agencies) issued the Interagency 
     Guidance, which forms the basis of the Agencies' review of 
     the leveraged lending activities of supervised financial 
     institutions. Leveraged lending generally encompasses large 
     loans to corporate borrowers for the purposes of ``mergers 
     and acquisitions, business recapitalization and financing, 
     equity buyouts, and business . . . expansions.'' Leveraged 
     loans raise risk concerns because of the size of the loans 
     relative to the borrower's cash flow, and are generally used 
     to finance one-time business transactions rather than a 
     company's ordinary course of business activities. The 
     Guidance 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.
       The Interagency Guidance is ``designed to assist financial 
     institutions in providing leveraged lending to creditworthy 
     borrowers in a safe-and-sound manner.'' It does so by 
     describing expectations for the sound risk management of 
     leveraged lending activities and lists a number of 
     considerations for financial institutions: (1) the ratio of a 
     borrower's debt to the company's earnings before interest, 
     taxes, amortization and depreciation; (2) the ability of the 
     borrower to amortize its secured debt, and (3) the level of 
     due diligence performed in evaluating the loan. The Guidance 
     explains the types of actions that concern the Agencies and 
     that might motivate them to initiate a supervisory action 
     that would require an independent finding that an unsafe or 
     unsound action has occurred.


                                ANALYSIS

       As an initial matter, one argument raised by the Agencies 
     is that since the Guidance explicitly states that it is not a 
     rule or a rulemaking action, it should not be considered a 
     rule under CRA. However, although an agency's 
     characterization should be considered in deciding whether its 
     action is a rule under APA (and whether, for example, it is 
     subject to notice and comment rulemaking requirements), ``an 
     agency's own label . . . is not dispositive.'' Similarly, an 
     agency's characterization is not determinative of whether it 
     is a rule under CRA.
       The focus of the arguments made by the Agencies is that the 
     Interagency Guidance is a general statement of policy and is 
     not subject to the CRA. They assert that the Guidance is a 
     statement that explains how they will exercise their broad 
     enforcement discretion. They maintain that it does not 
     establish legally binding standards, is not certain or final, 
     and does not substantially affect the rights or obligations 
     of third parties. As a result, they claim, the Interagency 
     Guidance is not a rule under CRA.
       The Supreme Court has described ``general statements of 
     policy'' as ``statements issued by an agency to advise the 
     public prospectively of the manner in which the agency 
     proposes to exercise a discretionary power.'' In other words, 
     a statement of policy announces the agency's tentative 
     intentions for the future:
       ``A general statement of policy . . . does not establish a 
     'binding norm.' It is not finally determinative of the issues 
     or rights to which it is addressed. The agency cannot apply 
     or rely upon a general statement of policy as law because a 
     general statement of policy only announces what the agency 
     seeks to establish as policy.''
       The Interagency Guidance provides information on the manner 
     in which the Agencies

[[Page S6637]]

     will exercise their enforcement authority regarding leveraged 
     lending activities, does not establish a ``binding norm,'' 
     and does not determine the outcome of any Agency examination 
     of a financial institution. Rather, the Guidance expresses 
     the regulators' expectations regarding the sound risk 
     management of leveraged lending activities. We agree with the 
     Agencies that the Guidance is a general statement of policy. 
     However, the issue presented here is whether this general 
     statement of policy is a rule under CRA.
       GAO has previously held that general statements of policy 
     are rules under CRA. For example, in B-287557, May 14, 2001, 
     we decided whether a ``record of decision'' (ROD) issued by 
     the Fish and Wildlife Service in connection with a federal 
     irrigation project was a rule under CRA. We found that the 
     ROD was a general statement of policy regarding water flow 
     and ecosystems issues in both the Trinity and Sacramento 
     Rivers. The ROD modified prior policy in an attempt, in part, 
     to restore fish habitat.
       We cited to the APA definition of ``rule,'' which includes 
     ``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.'' This definition includes three 
     key components: (1) an agency statement, (2) of future 
     effect, and (3) designed to implement, interpret, or 
     prescribe law or policy. We stated that this definition is 
     broad, and includes both rules requiring notice and comment 
     rulemaking and those that do not, such as general statements 
     of policy.
       We noted that, since CRA adopts the definition of ``rule'' 
     from APA, it too covers both those requiring notice and 
     comment and general statements of policy, which do not. We 
     decided that the ROD fell squarely within CRA as an agency 
     action that constituted a ``statement of general . . . 
     applicability and future effect designed to implement, 
     interpret or prescribe law or policy.'' We also noted that 
     Congress intended CRA to cover, not only formal rulemaking, 
     but also rules requiring notice and comment under 5 U.S.C. 
     553(c), rules that are not subject to notice and comment 
     requirements, including rules that must be published in the 
     Federal Register before taking effect (5 U S C. 552(a)(1) and 
     (2)), and other guidance documents. Since a general statement 
     of policy is specifically included among the types of agency 
     actions subject to the requirements of Sections 552(a)(1) (D) 
     and (a)(2)(B), it is clear that CRA covers general statements 
     of policy.
       Additionally, in B-316048, April 17, 2008, we considered 
     whether a letter issued by the Centers for Medicare and 
     Medicaid Services (CMS) to state health officials concerning 
     the State Children's Health Insurance Program (SCHIP) was a 
     rule under CRA. We concluded that the letter was subject to 
     CRA because it was, in fact, a rule subject to notice and 
     comment rulemaking requirements. However, in that decision we 
     also discussed general statements of policy under CRA. CMS 
     had argued that the letter was a general statement of policy 
     ``announcing the course which the agency intends to follow'' 
     in future adjudications, i.e., what the agency seeks to 
     establish as policy. We explained that the definition of 
     ``rule'' under both APA and CRA includes ``a statement of 
     general or particular applicability and future effect 
     designed to implement, interpret, or prescribe law or 
     policy.'' As 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, we noted that a 
     general statement of policy would appear to fit squarely 
     within this definition of a rule subject to CRA.
       In deciding that a general statement of policy is a rule 
     for CRA purposes, our prior decisions cite to the legislative 
     history of CRA, which confirms that rules subject to CRA 
     requirements include general statements of policy. A 
     principal sponsor of the legislation that became CRA made 
     clear that general statements of policy are covered by CRA, 
     stating that ``[t]he committees intend [CRA] to be 
     interpreted broadly with regard to the type and scope of 
     rules that are subject to congressional review.'' The sponsor 
     added that documents covered by CRA include ``statements of 
     general policy, interpretations of general applicability, and 
     administrative staff manuals and instructions to staff that 
     affect a member of the public.''
       Additionally, in a floor statement during final 
     consideration of the bill that became CRA, another principal 
     sponsor of the legislation pointed out that rules subject to 
     CRA include agency general statements of policy.
       ``Although agency interpretive rules, general statements of 
     policy, guideline documents, and agency policy and procedure 
     manuals may not be subject to the notice and comment 
     provisions of section 553(c) of title 5, United States Code, 
     these types of documents are covered under the congressional 
     review provisions of the new chapter 8 of title 5.
       ``Under section 801(a) [CRA], covered rules, with very few 
     exceptions, may not go into effect until the relevant agency 
     submits a copy of the rule and an accompanying report to both 
     Houses of Congress. Interpretive rules, general statements of 
     policy, and analogous agency policy guidelines are covered 
     without qualification because they meet the definition of a 
     'rule' borrowed from section 551 of title 5, and are not 
     excluded from the definition of a rule.''
       We note that legal commentators also support the conclusion 
     that CRA's requirements are applicable to general statements 
     of policy. They have pointed out that federal agency actions 
     fitting CRA's definition of a rule include ``such items as . 
     . . general statements of policy,'' and that ``the 
     legislative history of the Act . . . makes clear that this 
     scope was understood and intended.''
       Nonetheless, the Agencies assert that because the Guidance 
     does not establish legally binding standards, is not certain 
     or final, and does not substantially affect the rights or 
     obligations of third parties, it is not a rule under CRA. 
     They cite to our decisions in which we found that agency 
     actions that imposed binding requirements that were ``both 
     certain and final'' were rules for CRA purposes. However, 
     while our decisions recognize those characteristics as 
     indicative of certain types of rules subject to CRA 
     requirements, they do not suggest that the absence of those 
     characteristics requires a determination that an agency 
     action is not a rule under CRA. Moreover, when GAO has 
     examined the issue whether an agency's action substantially 
     affects the rights or obligations of third parties, it has 
     been in the context of analyzing whether the action falls 
     within the CRA exception for agency rules of practice or 
     procedure, not in deciding whether it meets the definition of 
     rule.
       The Agencies also cite to language in certain court 
     decisions to suggest that policy statements are not rules 
     under APA. However, those decisions do not support such a 
     conclusion. Indeed, the Supreme Court has recognized that 
     rules under the APA include ``'substantive [legislative] 
     rules' on the one hand'' as well as ``general statements of 
     policy'' and other non-legislative rules on the other.
       We can readily conclude that the Guidance does not fall 
     within any of the three exceptions in CRA. We note here that 
     the Interagency Guidance is of general and not particular 
     applicability, does not relate to agency management or 
     personnel, and is not a rule of agency organization, 
     procedure, or practice.


                               CONCLUSION

       The Interagency Guidance is a general statement of policy 
     designed to assist financial institutions in providing 
     leveraged lending to creditworthy borrowers in a sound 
     manner. As such, it is a rule subject to the requirements of 
     CRA.
           Sincerely yours,
                                                  Susan A. Poling,
     General Counsel.

                          ____________________