Our country’s system of standards and safeguards protects us from unseen threats that no individual or community can address on their own. Our system is supposed to ensure that consumers can trust the products on the market, that all companies in an industry follow the same health and safety standards, and that the risks of air pollution and water and soil contamination are minimized. But for the regulatory system to work in the public interest, agencies must be able to fulfill their statutory missions thoughtfully and effectively – i.e., they must be allowed to issue rules to implement the laws passed by Congress.
Unfortunately, our regulatory system is frequently subject to undue influence from regulated industries during the development and review of standards and rules. The overuse and abuse of the judicial review process can mire rules in litigation for years. White House review of agency rules can slow the process further, despite executive orders requiring that reviews be completed in 90 days. The result is the excessive delay of updated standards and new safeguards required by law. More than 120 rules are stalled at the White House’s Office of Information and Regulatory Affairs (OIRA); others are stalled at federal agencies or obstructed by legal challenges.
This report presents eight examples of the human consequences of delayed rules. These commonsense rules would make Americans safer and the United States economy fairer and stronger.
The rules are:
The installation of rearview cameras to prevent children from being backed over by vehicles
Protection from silica dust to prevent respiratory damage among construction and manufacturing workers
More oversight of imported food to ensure its safety
The extension of minimum wage and overtime rules to home care workers
The improvement of coal ash waste site safety rules to better protect communities and the environment
Better energy efficiency standards to save consumers and businesses money and reduce energy usage
The establishment of professional standards that prevent financial advisors from taking advantage of investors
New controls to prevent Wall Street traders from artificially driving up energy costs through speculation
To address these problems, the coalition recommends regulatory reforms that would improve transparency, lessen undue industry influence over the rulemaking process, impose more control over the revolving door, reduce inappropriate judicial review of regulations, improve enforcement of rules and increase penalties for corporate wrongdoing.
The Obama administration has the authority to act on six of these rules immediately. It should do so.
In addition, Congress should enact reforms that:
America's regulatory system protects us from health, safety and environmental risks. It ensures all businesses in a particular industry are playing by the same rules and following basic labor standards. It assures parents that the food, medicine and toys they buy for their children are safe. Auto and highway safety standards have reduced fatality rates dramatically, saving tens of thousands of lives annually. Standards implemented under the Clean Air Act have vastly reduced the toxic pollutants that factories and refineries spew into the air, saving lives and preventing respiratory disease. The Clean Water Act has increased the health of our waterways.
Although there is much to be celebrated, new threats and hazards continually emerge – due to development of new chemicals, processes and products; better scientific understanding of risks; and the increased interdependence and flow of goods from globalization. Unfortunately, our regulatory system is not as responsive in the face of new knowledge and new risks as the American public has a right to expect. Instead, it is plagued by a number of problems that make it difficult for federal regulatory agencies to react to identifiable hazards in a timely, proactive fashion.
Industry influence: The regulatory system is frequently subject to undue industry influence during the development and review of standards and safeguards. One example is a rule that would offer construction and manufacturing workers protection from silica dust. Since the rule was sent to the White House Office of Information and Regulatory Affairs (OIRA) for review in February 2011, the office has hosted 11 meetings with outside groups to discuss the rule. Nine of those meetings were with industry groups that oppose the rule. In some industries, the relationship between agency staff and industry lobbyists has created a sort of “revolving door” – lobbyists from a regulated industry are involved in developing and reviewing rules that will impact that industry, and public officials leave the government to work in the regulated industry.
Judicial review: Overuse and abuse of the judicial review process can mire rules in litigation for years. In one striking instance, the U.S. District Court for the District of Columbia in 2012 struck down a Wall Street speculation rule designed to prevent energy price spikes, asserting at the behest of industry opponents that Congress never required the Commodity Futures Trading Commission to develop the rule, even though the Dodd-Frank financial protection law clearly requires just such a standard.
Lack of transparency: OIRA, located in the Office of Management and Budget (OMB), reviews any agency rule that it considers significant. This extra review typically adds months to the rulemaking process and is a mechanism by which political influence can be exerted over agency decisions. Despite executive orders requiring that OIRA disclose its reasons for delaying or revising rules, rules can be held at the office for long periods with no explanation. An example is the rearview visibility rule for vehicles, designed to save lives and prevent injuries. This standard has been stuck at OIRA since November 2011 with no explanation for the delay or disclosures about any revisions to the rule that OIRA may have requested of the Department of Transportation. Energy efficiency rules have also been held up by the White House with no reasons given to the public, despite the president’s stated commitment to increasing the nation’s efficient use of energy.
Missing deadlines set by Congress and executive orders: Undue industry influence, abuse of the judicial review process and a lack of transparency in the rule review process leads to excessive delay of many rules in violation of a 90-day review deadline set out by the White House itself. In many cases, delays result in agencies missing statutory deadlines, putting the agency in violation of federal law. Currently, more than 120 rules are under OIRA review, and 70 of those have been at the White House beyond the standard 90-day review deadline established by executive order. Some of those rules, including three discussed here, have been under review for more than 120 days. Some have been at OIRA for years.
This report, by the Coalition for Sensible Safeguards (CSS), presents eight examples of the consequences of delay: increased risks of injury, disease, death, environmental contamination, price-gouging and other economic risks. Unreasonable delay has left five of the eight stuck in the “rabbit hole” of prolonged review at OIRA. This report illustrates why this happens and how protections are stalled or blocked as major industries and their allies use their considerable resources to influence the process at every stage, including during OIRA’s rule reviews.
All of this regulatory delay has significant consequences. Stalling or blocking rules means that lives are needlessly lost, injuries suffered, environmental harm permitted and consumer rip-offs extended as the American people wait for agencies and OIRA to act. And perhaps ironically, lengthy delays in finalizing new rules create the very regulatory uncertainty that many industry spokespeople denounce in their campaigns against sensible standards and safeguards.
This report recommends regulatory reforms that would improve transparency, lessen undue industry influence over the rulemaking process, exert greater control over the revolving door, address inappropriate judicial review of regulations, and increase and improve enforcement of rules, including by stiffening penalties for corporate wrongdoing.
The Federal Rulemaking Process
After Congress passes a law, federal agencies begin to develop rules and standards to implement the legislation. The statutes typically give the responsible federal agencies guidance about the content and timing of the regulations that will implement the law, and agencies gather detailed information on the issue, develop ideas about appropriate standards, examine scientific studies, consult with groups that would be affected by the law, draft proposed rules, conduct cost and benefit analyses of those rules, and solicit public comment on them. It takes months or even years for these regulations to become final and for the impact of the law to actually be felt in the world. (As an extreme example, the Government Accountability Office (GAO) has reported that, on average, it now takes the Occupational Safety and Health Administration (OSHA) more than seven years to publish a final worker safety standard.)
The public first learns of a planned rule when an agency lists a rule in the semi-annual Unified Regulatory Agenda. Later, a notice of proposed rulemaking is published in the Federal Register. This notice invites the public, industry and fellow agencies to comment on a proposed rule and the potential effects it may have. Agencies then take these comments, revise the proposed rule, respond to the comments they have received, and publish a final rule in the Federal Register. A final rule has the same effect as a law and can be enforced with penalties.
When the Office of Information and Regulatory Affairs (OIRA) determines that a rule is a “significant regulatory action,” it reviews the rule to determine if its estimated benefits outweigh its estimated costs. An executive order directs agencies generally to move forward with rules only upon OIRA approval. OIRA reviews both proposed and final rules before they are published. Under Executive Orders 12866 and 13563, OIRA review is not supposed to take more than 90 days (with the option of a 30-day extension), but in practice, reviews often take much longer. When OIRA is involved, the rulemaking process becomes complicated and multiple opportunities for delay are created, as demonstrated by Figure 1 below.
Figure 1. Federal Rulemaking Process
Two-year-old Cameron Gulbransen stayed inside as he always had done in the past when his father, pediatrician Dr. Greg Gulbransen, went to move the family SUV from the street into the driveway for the evening. Moments later and unbeknownst to Dr. Gulbransen, Cameron ventured out to the driveway. “While driving into the driveway, I choose to back into the driveway because each morning the street is filled with children and people walking dogs,” Dr. Gulbransen said. “As always, I used both side view mirrors and the rear view mirror, as well as looked over my shoulder in an attempt to avoid hitting anything. Suddenly I noted a small bump with the front wheel and wasn't sure what it could have been. I knew I was too far from the curb to have hit that; and that there was no newspaper in the driveway. Quickly, I jumped from the vehicle and saw the most devastating scene of my life.”
Cameron was killed because he was too small for his father to see him behind the SUV and the vehicle did not have additional mirrors, back-up cameras, sensors or other safety technologies specified by the rearview mirror rule.
Rear Visibility Safety Rule Efforts
2008: President George W. Bush signs the Cameron Gulbransen Kids Transportation Safety Act into law.
2009: NHTSA releases an advanced notice of proposed rulemaking.
2010: NHTSA issues proposed version of the rear visibility rule and opens rule to public
November 2011: NHTSA submits draft of the final rulemaking to OIRA for the allotted 120 days of review.
Stuck In OIRA’s Blind Spot
The law set a Feb. 28, 2011, deadline to finalize a new rearview safety rule, but Congress afforded the secretary of the Department of Transportation the authority to extend the deadline. U.S. Transportation Secretary Ray LaHood extended the deadline twice during his tenure, most recently to Dec. 31, 2012. Today, NHTSA is waiting for OIRA to release the final rule.
FDA inspects only about two percent of all imported food into the United States.
In 2008, 1,442 people in 43 states were sickened by salmonella-contaminated peppersgrown in Mexico.
- The CDC examined 39 foodborne illness outbreaks (2005-2010) and found that nearly half of those outbreaks occurred in 2009 and 2010. The CDC also found that 45 percent of imported food that caused outbreaks originated in Asia.
10-Month-Old Beck Christoferson—One of Millions Sickened Annually
Portland, Ore., mother Chrissy Christoferson always looks for healthy foods for her children, and that included corn-and-rice snacks with some vegetable flavoring. “We never imagined something that seemed so wholesome would make our child so sick,” Christoferson said.
At age 10 months, Christoferson’s son, Beck, suddenly suffered a severe bout of diarrhea. Christoferson assumed it was the flu. When she took Beck to the doctor three days later, Salmonella wandsworth, an uncommon bacteria that infects mostly children, was found in his digestive system. Beck was sick for 10 more days and may face health problems in the future. A month after the episode, the public health department informed Christoferson her son’s illness had been caused by a vegetable seasoning mix produced in China—an ingredient of the corn- and-rice snack he had eaten. Across the country, 55 other people had been infected in the same outbreak. The average age of the victims was just 16 months.
“People assume that if it’s being sold on the shelves, it’s fine and there must be some inspector out there taking care of it, when in reality things are always slipping through the cracks without necessarily being recalled,” Christoferson said.
Foreign Supplier Verification Program Efforts
January 2011: President Barack Obama signs the Food Safety Modernization Act into law, specifically mandating the FDA to issue regulations including the FSVP rule.
November 2011: The FDA sends its draft proposed rule to OIRA.
January 2012: The FDA is required by law to issue the final rule, but the deadline passes
with the proposed rule still at OIRA.
August 2012: The Center for Food Safety and the Center for Environmental Health sue the FDA and the White House for failing to meet rulemaking deadlines under the FSMA.
April 2013: A U.S. District Court rules that several FSMA rules, including the FSVP, have been “unlawfully withheld”—and orders the FDA to present to the court a new timeline for the rules’ completion.
Coal Ash Regulatory Efforts
1980: Congress directs the EPA to study coal ash waste and decide how best to regulate coal ash—as a hazardous waste subject to strict standards, or as a non-hazardous waste (i.e., like household garbage) subject to weak standards with weak state oversight.
1980s-1990s: The EPA equivocates over how to treat coal ash.
2001-2009: George W. Bush administration declines to address issue.
2009: The EPA submits draft proposal to OIRA for regulatory review.
2010: OIRA completes review, and EPA issues “co-proposal”; initial public comment period begins and ends followed by several supplemental comment periods.
2011-2012: The EPA opens supplemental comment periods.
June 2013: EPA is well into its second year of processing public comments on theproposal; a final rule isn’t likely to be issued until 2014 or later.
Health and Safety of Entire Communities Depend on Coal Ash Rule
Each year, U.S. coal-fired electric utility plants produce about 140 million tons of highly hazardous coal ash waste. The majority of this waste gets piled into colossal dump sites, including wet “surface impoundments” (a term for man-made pits in the ground that hold coal ash mixed with water, often behind massive dams) and dry landfills. The poor design and maintenance of these dumpsites has already yielded catastrophic consequences. These dumpsites commonly leak their toxic stews into adjacent rivers, wetlands and groundwater, contaminating drinking water and harming human, animal and plant life. Earthjustice estimates that there have been 203 cases of contamination and spills linked to faulty coal ash disposal sites across 37 states. A recent study by researchers at Duke University confirmed concerns about the hazards posed by disposal sites, finding elevated levels of arsenic, selenium and other toxic pollutants in lakes and rivers located downstream from a large North Carolina coal ash disposal pond. In several cases, the contamination levels exceeded existing EPA environmental and health standards.
Families and Environment Suffer From Regulatory Inaction
Residents of communities located near the human-made waste disposal lake of Little Blue Run located near the convergence of Ohio, Pennsylvania and West Virginia have witnessed firsthand the risks posed by an improperly managed coal ash waste. The lake collects waste from a nearby coal-fired power plant. In satellite photos, the pond has an otherworldly turquoise blue color. It is unlined and therefore allows toxic constituents to escape into neighboring rivers, groundwater and drinking water supplies. The contents of the pond are partly held back by a dam that the EPA has classified as “high hazard,” meaning that a breach could cause the loss of life or significant property damage. Many of the families living close to the dam, including that of Debbie Havens of Lawrenceville, W.Va., have reported an alarming history of health problems. Her doctors have discovered three benign tumors in her breast and have identified possible thyroid cancer; her husband has been diagnosed and treated for thyroid cancer. Other residents have shared stories of the devastation caused in their community, and many fear for their lives and homes.
EPA’s rulemaking page for the coal ash rule: Standards for the Management of Coal Combustion Residuals Generated by Commercial Electric Power Producers (http://yosemite.epa.gov/opei/RuleGate.nsf/(LookupRIN)/2050-AE81)
Earthjustice: Coal Ash Contaminates Our Lives (http://earthjustice.org/our_work/campaigns/coal-ash-contaminates-our-lives)
Center for Progressive Reform: Two Years After Tennessee Disaster, U.S. Effort to Prevent the Next Coal Ash Catastrophe Faces Uncertain Future; Eye on OIRA, Coal Ash Edition: Putting Lipstick on a Not-so-cute Little Pig (http://www.progressivereform.org/CPRBlog.cfm?idBlog=12CDDDC3-D6EF-C19D- B8A744EF1F92460D)
Center for Effective Government: No Movement on Coal Ash Protections Despite Mounting Evidence of Danger (http://www.foreffectivegov.org/no-movement-on-coal-ash- despite-danger)
Higher Costs for Consumers, Businesses and the Environment While New Energy Efficiency Standards Are Delayed
Loophole Lets Brokers Legally Dupe Investors
Many investors believe that the person they purchase investments from is legally forbidden from taking advantage of them. Unfortunately, that’s not always the case. Even in the wake of the global financial crisis, which should have opened our eyes to the problems with allowing self- interested Wall Street operatives to run our financial system, only limited restrictions are in place against self-dealing by brokers advising individual investors. They may literally take actions that harm their clients to benefit themselves, without breaking the law. Given that Americans have $10.3 trillion dollars invested in IRAs and 401(k) type plans as of 2012, this is no small issue.
The Dodd-Frank Wall Street Reform and Consumer Protection Act gave the Securities and Exchange Commission (SEC) the authority to require that all professionals who advise investors be held to a higher standard of conduct, a fiduciary duty, which would legally require them to put the interests of their clients ahead of their own. Nearly three years after the passage of Dodd- Frank, the SEC has not proposed, let alone finalized these rules.
SEC Made Initial Progress, but Rule Now Severely Delayed
The Dodd-Frank Act required the SEC to study whether there should be a uniform high standard for those who provide advice to investors, instead of the current system in which there are different standards for professionals who are technically “financial advisors” as opposed to “brokers.” The SEC completed its study in January 2011 and concluded that there should be a uniform standard. The SEC originally said it would propose a rule in the second half of 2011. Now, more than two years after its study was completed, there is still no rule in sight. Instead, the agency put out a request for information on March 1 of this year to help inform a cost-benefit analysis for a new rule. This means that a new rule is probably at least a year away.
The rule is delayed both because industry opposition is forcing the agency to conduct time- consuming, unnecessary analysis before proposing it and because the SEC has a large Dodd- Frank-related workload and limited resources; the act requires the SEC to undertake more than 100 rulemakings.
Why We Need the Fiduciary Standard
At one time, only a small elite invested. However, the past few decades have seen the birth of discount brokers who market their services to a larger swath of Americans. Studies have shown, though, that average investors are quite naïve about the investments they make and how brokers are compensated. A 2010 survey by AARP found that 71 percent of 401 (k) account holders did not even know they were paying fees.
Furthermore, investors mistakenly believe that the professionals they buy investment products from are required to operate in their clients’ best interest. A 2011 SEC report found that average investors generally are not aware of the distinction between investment advisors who are required to act in the best interest of clients and broker-dealers who are not.
Dealer-brokers, who sell investments to individuals, are required by law only to meet a much lower standard of conduct. The investments they sell must be “suitable” for the consumer. However, they are often paid through commissions on individual deals, setting up a conflict of interest with their clients. They are paid more when their clients invest in financial products that pay higher commissions, but high commissions mean that clients are receiving a lower return on their investment. Today, a broker can recommend a five percent front-loaded mutual fund with back-end fees, even if there are similar funds without fees, and regulators can’t do anything about it, because no rule has been broken. All that matters for the brokers to comply with the existing rules is that the specific fund they recommended—a balanced mutual fund for example—is an appropriate investment for that particular client. Whether or not the client is getting gouged with commissions is not important, legally speaking.
Americans seeking to save for retirement or their children’s college education deserve a system in which they can rely on trusted advisors who are prohibited from self-dealing. They need the SEC to create a rule that requires all financial professionals who sell products to individual investors to operate in the best interest of their clients and to disclose any conflicts of interest.
Fiduciary Standard Regulatory Efforts
July 2010: President Barack Obama signs the Dodd-Frank Wall Street Reform and Consumer Protection Act, which authorizes the SEC to require professionals who advise investors to put their clients’ interests ahead of their own.
January 2011: The SEC completes study, concludes that there should be a uniform fiduciary standard.
March 1, 2013: The SEC issues a request for information to inform a cost-benefit analysis for a new rule.
Wall Street banks lobbied the CFTC relentlessly to not issue the rule. They claimed, remarkably, that the Dodd-Frank law had not actually instructed the CFTC to issue a rule, but rather had given the CFTC the option to issue a rule if certain conditions were met. In fact, while an early version of the bill in the House had said CFTC “may” issue the limits, the language was deliberately changed to “shall” – the language that was included in the final law.
In October 2011, the agency issued the final rule, affecting 28 commodities. It was billed as a compromise: Traders were limited somewhat in the bets they could hold, but not as limited as public interest experts said was necessary. Still, it was incremental progress.
The banks promptly challenged the rule, and in September 2012, the D.C. District Court overturned the rule. The judge said that Dodd-Frank had not required the rule but rather made it possible if certain conditions were met. The CFTC would have to prove that those conditions―excessive speculation―existed, the judge said. What was once a laughing-stock reading of congressional intent had now become a real obstacle.
Two months later, the CFTC announced that it would appeal to the D.C. Circuit Court of Appeals, where the case is pending today. In April, 19 senators filed an amicus brief with the appeals court urging it to overturn the lower court decision. “Dodd-Frank was designed and intended to make position limits mandatory,” the senators wrote.
In May, CFTC Commissioner Scott O’Malia said that he expected the agency would issue a new proposed rule in June; that proposal is expected to demonstrate the excessive speculation the court had said needed to be shown. Should the CFTC’s original rule fail on appeal, the new proposed rule would be the vehicle for eventually issuing the protection.
Rule Hangs in the Balance; Public Loses in the Meantime
Even traders and analysts working in the oil industry largely agree: 73 percent of those polled by Reuters said speculation had raised prices above levels dictated by supply and demand.
The public has waited long enough for progress. Three years after Congress passed the law that was to finally mitigate the problem, the rule is in limbo.
If the appeals court overturns the lower court, the rule could finally go into place, but only after a moderate delay. If the appeals court sides with the lower court, the delay could be months or years longer, as the CFTC issues a proposed and then final rule that includes the elaborate documentation to prove the existence of price speculation―something that Congress had already long identified as a problem.
Recommendations for the Obama Administration:
Finalize the rules discussed in this report.
The Obama administration has the authority and ability to issue six of the eight rules discussed in this report and should do so promptly.
Three of the rules discussed here have been delayed even beyond legal deadlines set by Congress. The FDA’s foreign supplier verification rule, NHTSA’s rear visibility rule and most of the DOE’s stalled energy efficiency rules are all held at OIRA, in direct violation of deadlines passed by Congress and signed by Presidents Obama or George W. Bush.
The administration should move to promptly finalize those three rules and the DOL’s home care worker rule, the EPA’s coal ash rule and the DOL’s silica exposure rule.
Recommendations for the U.S. Congress:
Enact reforms to reduce lobbyists’ ability to block public protections.
Industry influence in the regulatory process flourishes outside of public scrutiny. Today, White House regulatory review—overseen by the Office of Information and Regulatory Affairs (OIRA)—is the most hidden part of the rulemaking process—and where big business lobbyists often exert their biggest influence. An executive order signed by President Bill Clinton and reaffirmed by President Obama stipulates a series of transparency requirements for OIRA, but OIRA regularly ignores these requirements. Increasing transparency would reduce the ability of corporate and industry interests to block rules at the White House.
Congress should require the OIRA administrator to release all documents exchanged between OIRA and rulemaking agencies, and records of all communication, shortly after a proposed or final rule is issued.
Congress should require OIRA to identify all substantive changes made to a rule and indicate which White House offices or executive branch agencies, or outside parties, requested the changes. The public deserves to know how and why a draft rule was modified, making OIRA as transparent as the agencies they oversee.
Congress should require OIRA to ensure that all documents it receives, including comments from any government agencies that may have a self-interest in weakening a protection, are made public.
Enact reforms to reduce unnecessary delays at OIRA and avert OIRA interference in matters that are strictly agencies’ domain.
The Clinton executive order stipulates a 120-day limit (90 days plus a 30-day extension) on OIRA review of rules. This requirement is regularly ignored, delaying public protections.
- Congress should clarify that if OIRA review extends beyond 90 days, agencies may issue the proposed or final rule.
- •Congress should empower the public to dislodge rules that are stuck at OIRA beyond the 120-day limit.