	Background

		Regulatory Flexibility Act

RFA requires that federal agencies, including financial regulators,  engaged in substantive rulemaking analyze the impact of proposed and  final regulations on small entities. Section 610 of RFA requires agencies to review, within 10 years of a final  rule’s publication, those rules assessed as having a significant economic  impact on a substantial number of small entities to determine if they  should be continued without change, amended, or rescinded (consistent  with statutory objectives) to minimize any significant economic impact on  small entities. Economic Growth and Regulatory Paperwork Reduction Act of 1996

Under EGRPRA, the Federal Reserve, FDIC, and OCC are to categorize  their regulations by type and provide notice and solicit public comment on  all regulations for which they have regulatory authority to identify areas of  the regulations that are outdated, unnecessary, or unduly burdensome. Institution representatives told us they found these regulations were time- consuming and costly to comply with because the requirements were  complex, required individual reports that had to be reviewed for accuracy,  or mandated actions within specific timeframes. The Consumer Financial Protection Bureau (CFPB) has taken steps to  reduce the burdens for community banks and credit unions associated  with the HMDA and TRID regulations. However, we found several weaknesses with the  RFA analyses, policies, and procedures of six financial regulators— Federal Reserve, OCC, FDIC, Securities and Exchange Commission  (SEC), Commodity Futures Trading Commission (CFTC), and CFPB— that could undermine the goal of RFA and limit transparency and public  accountability. The most important  components include the assessment of a rule’s potential economic effects  on small entities—such as compliance costs—and the identification and  evaluation of alternative regulatory approaches that may minimize  significant economic effects while achieving statutory objectives. However, the regulators  generally have not developed comprehensive policies and procedures to  assist staff in complying with RFA, which may contribute to the  weaknesses we identified in some certifications and regulatory flexibility  analyses. But the guidance generally did not include procedures  for evaluating a rule’s potential economic impact on small entities;  identifying and assessing regulatory alternatives that could minimize  economic impact on small entities; disclosing methodology and data  sources; and creating and maintaining documentation that supports  findings. CFPB Was Not Included in 2017 Review and Significant Mortgage Regulations Were Not Assessed

One of the limitations in the EGRPRA process is that the statute  mandating the process does not include CFPB and thus the significant  mortgage-related regulations and other regulations that it administers— regulations that banks and credit unions generally must follow—were not  included in the most recent EGRPRA review. In our February 2018 report, we recommended that CFPB issue public  information on its plans for reviewing regulations, including information on  the scope of regulations, timing and frequency of reviews, and the extent  to which the reviews will be coordinated with the other regulators as part  of the EGRPRA reviews. Conducting quantitative analysis for retrospective reviews could serve as  a best practice for the depository institution regulators. In addition, FDIC stated it would continue to monitor the  cumulative effects of regulation; for example, through a review of  community and quarterly banking studies and community bank Call  Report data. Regulators’ Approach to RFA-Required Retrospective Reviews Varied, Including the Extent to Which They Developed Policies

Financial regulators took varying approaches to performing retrospective  reviews for RFA; additionally, some regulators had not yet developed  policies and procedures for conducting and reporting reviews. Federal Banking Regulators Relied on Other Retrospective Reviews to Meet RFA Section 610 Requirements

We assessed section 610 reviews and found that the Federal Reserve,  FDIC, and OCC conducted retrospective reviews that did not fully align  with RFA’s requirements. But the requirements of the EGRPRA reviews differ from those of the  RFA-required section 610 reviews. In our January 2018 report, we recommended that the Federal Reserve,  FDIC, and OCC coordinate with the Office of Advocacy to determine  whether the EGRPRA review process satisfies the requirements of  section 610 and, if not, what steps should be taken to align the process  with section 610 requirements. SEC generally agreed with the recommendation.
Why GAO Did This Study

Federal financial regulators must comply with various rulemaking and review requirements, including those in RFA and EGRPRA. These statutes require analyses relating to regulatory burden, small entities, or both. RFA requires analyses of a rule's impact on small entities and alternatives that may minimize any significant economic impact. It also requires agencies to review rules (within 10 years) to determine if the rules should be amended or rescinded. EGRPRA directs specified regulators to review regulations at least every 10 years and identify areas that are outdated, unnecessary, or unduly burdensome on insured depository institutions.
This statement is based on findings from GAO's January 2018 report on RFA implementation ( GAO-18-256 ) and February 2018 report on regulatory burden on community banks and credit unions ( GAO-18-213 ). GAO discusses regulatory burdens and how financial regulators address regulatory burdens through the rulemaking process and retrospective reviews. For those reports, GAO's work included reviewing Federal Register notices; regulators' workpapers, policies and procedures; and reports to Congress on EGRPRA reviews. GAO also interviewed more than 60 community banks and credit unions.

What GAO Found

More than 60 smaller depository institutions told GAO that regulations for reporting mortgage characteristics; reviewing transactions for potentially illicit activity; and disclosing fees, conditions, and mortgage terms to consumers were the most burdensome. Institution representatives said these regulations were time-consuming and costly because the requirements were complex and required reporting that had to be reviewed for accuracy. Financial regulators and others noted these regulations provide various benefits as well, such as preventing lending discrimination or use of the banking system for illicit activity.
The Regulatory Flexibility Act (RFA) requires federal agencies to analyze the impact of their regulations on small entities. GAO found several weaknesses with the analyses of six financial regulators—Board of Governors of the Federal Reserve System (Federal Reserve), Office of the Comptroller of the Currency (OCC), Federal Deposit Insurance Corporation (FDIC), Securities and Exchange Commission, Commodity Futures Trading Commission, and Consumer Financial Protection Bureau (CFPB)—that could undermine the goal of RFA and limit transparency and public accountability. For example, some analyses lacked important information, such as data sources, methodologies, and consideration of broad economic impacts. Evaluations of potential economic effects and alternative regulatory approaches also were limited. Finally, regulators generally lacked comprehensive policies and procedures for RFA implementation. By not developing such policies and procedures, regulators' ability to consistently and effectively meet RFA objectives may be limited.
The Economic Growth and Regulatory Paperwork Reduction Act of 1996 (EGRPRA) and RFA require regulators to conduct retrospective reviews, and GAO found weaknesses.
EGRPRA. GAO found limitations in activities regulators undertook for retrospective reviews under EGRPRA. CFPB, which has regulatory authority for a number of consumer financial laws, was not included in the most recent review process. Moreover, as part of their EGRPRA reviews, the Federal Reserve, OCC, FDIC, and the National Credit Union Administration had not conducted and reported analyses of quantitative data nor had these regulators assessed the cumulative effect of regulations. Addressing these limitations in the EGRPRA processes likely would make the analyses they perform more transparent, and potentially result in additional burden reduction.
RFA. The issues GAO identified with RFA retrospective reviews (section 610 reviews) included some regulators using the EGRPRA process to fulfill RFA requirements and gaps or weaknesses in analysis and documentation. But EGRPRA requirements do not fully align with RFA's, and it is not clear if the EGRPRA process satisfies the requirements of section 610. Also, regulators generally have not developed policies and procedures for section 610 reviews. By meeting section 610 review requirements, regulators will be in a better position to minimize any significant economic impact of a rule on a substantial number of small entities, as the statute seeks to ensure.

What GAO Recommends

GAO made a total of 20 recommendations to the financial regulators in the two reports to improve their policies and procedures and analysis under RFA and in retrospective reviews. The regulators generally agreed with the recommendations.