A core question in the study of administrative agencies is how, if at all, organizational structure impacts agency decisionmaking. To put that broad question into a more readily testable hypothesis: does the extent of an agency’s independence from political control affect the choice of instrument by which it regulates? This fundamental question can be informed by a comparative analysis, examining whether the more insulated an agency is from accountability to elected representatives, the more frequently it will implement policy by means of an instrument that does not require responsiveness to public input and that is not likely to be reviewed by courts – that is, by action other than notice-and-comment rulemaking, thereby sidestepping procedures that facilitate legislators’ ability to monitor administrative action. Such administrative behavior attenuates the nexus between elected officials and administrative policymaking, and therefore is likely to affect policy outcomes where preferences of administrators and officeholders diverge. The issue, then, goes to the core of the administrative state’s democratic legitimacy.
To address these issues, my research design seeks to identify empirically a connection between agency structure and rulemaking process by comparing the regulatory activity of the Consumer Financial Protection Bureau (CFPB) with that of three other agencies with broadly similar regulatory objectives— the Commodity Futures Trading Commission, the Consumer Product Safety Commission (CPSC), and the Securities and Exchange Commission (SEC). The CFPB was established by the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank), Congress’s response to the recent global financial crisis, and was provided with an anomalous, politically independent structure that has generated considerable controversy. Moreover, the ongoing dispute over the agency’s structure, years after its establishment, suggests a need for examining empirically whether the dispute over its organization is consequential and whether the current organizational setup is for the better. The three other agencies investigated have more conventional commission structures and funding, which provide, in principle, for tighter mechanisms of political accountability.
The key empirical finding is that the agency that was structured, by a wide margin, to be the most insulated from congressional control, the CFPB, uses significantly less frequently the most publicly accountable regulatory instrument, the notice-and-comment rulemaking process, as established by the Administrative Procedure Act (APA) and elaborated by courts. The statute establishes a process by which agencies must provide advance notice of proposed rules, solicit public comments, and respond to those comments when finalizing the proposed rules. It further provides individuals aggrieved by a rule a right to judicial review. This administrative process has been emphasized in the literature as facilitating Congress’s ability to exercise control over agencies both through information it obtains from the mandated written record as well as through an early warning system provided by constituents’ exercise of the right to judicial review or commissioner dissents in multimember agencies regarding rules adopted by notice and comment.
The finding of a significant divergence in choice of regulatory instrument by the agency that is the most independent from political accountability is robust across a variety of comparisons, including controlling for rulemaking required by Dodd-Frank and subject to implementation deadlines, and agency resources. It is therefore consistent with the contention that agency design matters for the choice of instrument an agency uses in decisionmaking. Establishing such a relationship robustly has eluded the empirical literature, as it consists in the main of single agency studies, while the few multiagency studies of agency design have not addressed the question, as they do not analyze the relation between organizational design and a broad array of instrument choices.
The research design does have a limitation beyond the small number of agencies under study—the number being restricted by the need to compare agencies with broadly cognate regulatory authority—namely, that the statistical analysis cannot provide an answer to a further question: whether the instrument through which regulation is adopted affects substantive regulatory content. However, there is a literature examining agencies’ problematic regulation by guidance through which they can obtain outcomes that would not be available had they used a notice-and-comment rulemaking process, and the CFPB has engaged in a number of such questionable regulatory actions. Those case studies provide an interpretive context for the empirical analysis, supporting the contention suggested by the analysis: that agency design matters, that instrument choice matters, and that both matter importantly.
The findings do not imply that every time the CFPB uses an alternative instrument it is acting strategically to evade legislative constraints, nor that the three other agencies never engage in problematic regulatory decisions to avoid scrutiny. Furthermore, no claim is made, let alone suggested, regarding an optimal level of notice-and-comment rulemaking. Rather, the point is a far more modest, nuanced one that, on the margin, the more insulated an agency, the less likely it is to use the more politically accountable regulatory instrument, and from the perspective of democratic accountability, informed by a principal-agent framework between Congress and the administrative agencies it creates, that should be a worrisome outcome.
Roberta Romano is a Sterling Professor of Law and Director of the Center for the Study of Corporate Law at Yale Law School. This post is based on an article in the latest print edition of the Yale Journal on Regulation.