Ten Frequently Asked Questions about the Regulatory Flexibility Act

The Small Business Advocate, October/November 2010 | Go to article overview

Ten Frequently Asked Questions about the Regulatory Flexibility Act


The following questions repeatedly arise during RFA training. They address some of the more challenging parts of rule analysis, as well as areas that are commonly misunderstood. Many continue to pose problems for agency regulators. In the following article, Acting Deputy Chief Counsel Claudia Rodgers answers them. The list first appeared in the May 2004 issue of The Small Business Advocate.

1. What is the difference between direct and indirect impact?

A regulation imposes a direct impact on a business it regulates. Those compliance costs associated with the rule are an example of direct economic impacts of the rule on those businesses. However, a regulation may also have an economic impact on businesses that are not subject to the rule and its requirements. As a result of the regulation, those other businesses may also incur costs. For example, a rule that regulates car manufacturers may indirectly affect car rental agencies which must purchase those cars for use in their business.

Courts have held that the RFA requires an agency to perform a regulatory flexibility analysis of small enitity impacts only when a rule directly regulates them. This issue was first decided in Mid-Tex Electric Cooperative, Inc., v. Federal Energy Regulatory Commission (FERC)J In that case, FERC stated that "the RFA does not require the Commission to consider the effect of this rule, a federal rate standard, on nonjurisdictional entities whose rates are not subject to the rule." The court agreed, reasoning that "Congress did not intend to require that every agency consider every indirect effect that any regulation might have on small businesses in any stratum of the national economy." The court concluded that "an agency may properly certify that no regulatory flexibility analysis is necessary when it determines that the rule will not have a significant economic impact on a substantial number of small entities that are subject to the requirements of the rule." Although Mid-Tex occurred before passage of the Small Business Regulatory Enforcement Fairness Act of 1996, courts have upheld this reasoning since then. The court in Cement Kiln Recycling Coalition v. EPA2 reasoned that "requiring an agency to assess the impact on all of the nation's small businesses possibly affected by a rule would be to convert every rulemaking process into a massive exercise in economic modeling, an approach we have already rejected."

Although it is not required by the RFA, the Office of Advocacy believes that it is good public policy for agencies to include reasonably foreseeable indirect impacts in the regulatory flexibility analysis.

2. Define "substantial number" and "significant economic impact."

An agency's second RFA step in a threshold analysis is to determine whether there is a significant economic impact on a substantial number of small entities. The RFA does not define "significant" or "substantial." In the absence of statutory specificity, what is significant or substantial will vary depending on the problem being addressed, the rule's requirements, and the preliminary assessment of the rule's impact.

The agency is in the best position to gauge the small entity impacts of its regulations. Significance should not be viewed in absolute terms, but should be seen as relative to the size of the business, business profitability, regional economics, and other factors. One measure for determining economic impact is the percentage of revenues or percentage of profits affected. Other measures may be used. For instance, the impact could be significant if the cost of the proposed regulation (a) eliminates more than 10 percent of the businesses' profits; (b) exceeds 1 percent of the gross revenues of the entities in a particular sector, or (c) exceeds 5 percent of the labor costs of the entities in the sector.

The absence of a particularized definition of either "significant" or "substantial" does not mean that Congress left the terms completely ambiguous or open to unreasonable interpretations.

The rest of this article is only available to active members of Questia

Sign up now for a free, 1-day trial and receive full access to:

  • Questia's entire collection
  • Automatic bibliography creation
  • More helpful research tools like notes, citations, and highlights
  • Ad-free environment

Already a member? Log in now.

Notes for this article

Add a new note
If you are trying to select text to create highlights or citations, remember that you must now click or tap on the first word, and then click or tap on the last word.
One moment ...
Project items

Items saved from this article

This article has been saved
Highlights (0)
Some of your highlights are legacy items.

Highlights saved before July 30, 2012 will not be displayed on their respective source pages.

You can easily re-create the highlights by opening the book page or article, selecting the text, and clicking “Highlight.”

Citations (0)
Some of your citations are legacy items.

Any citation created before July 30, 2012 will labeled as a “Cited page.” New citations will be saved as cited passages, pages or articles.

We also added the ability to view new citations from your projects or the book or article where you created them.

Notes (0)
Bookmarks (0)

You have no saved items from this article

Project items include:
  • Saved book/article
  • Highlights
  • Quotes/citations
  • Notes
  • Bookmarks
Notes
Cite this article

Cited article

Style
Citations are available only to our active members.
Sign up now to cite pages or passages in MLA, APA and Chicago citation styles.

(Einhorn, 1992, p. 25)

(Einhorn 25)

1

1. Lois J. Einhorn, Abraham Lincoln, the Orator: Penetrating the Lincoln Legend (Westport, CT: Greenwood Press, 1992), 25, http://www.questia.com/read/27419298.

Cited article

Ten Frequently Asked Questions about the Regulatory Flexibility Act
Settings

Settings

Typeface
Text size Smaller Larger
Search within

Search within this article

Look up

Look up a word

  • Dictionary
  • Thesaurus
Please submit a word or phrase above.
Print this page

Print this page

Why can't I print more than one page at a time?

Full screen

matching results for page

Cited passage

Style
Citations are available only to our active members.
Sign up now to cite pages or passages in MLA, APA and Chicago citation styles.

"Portraying himself as an honest, ordinary person helped Lincoln identify with his audiences." (Einhorn, 1992, p. 25).

"Portraying himself as an honest, ordinary person helped Lincoln identify with his audiences." (Einhorn 25)

"Portraying himself as an honest, ordinary person helped Lincoln identify with his audiences."1

1. Lois J. Einhorn, Abraham Lincoln, the Orator: Penetrating the Lincoln Legend (Westport, CT: Greenwood Press, 1992), 25, http://www.questia.com/read/27419298.

Cited passage

Welcome to the new Questia Reader

The Questia Reader has been updated to provide you with an even better online reading experience.  It is now 100% Responsive, which means you can read our books and articles on any sized device you wish.  All of your favorite tools like notes, highlights, and citations are still here, but the way you select text has been updated to be easier to use, especially on touchscreen devices.  Here's how:

1. Click or tap the first word you want to select.
2. Click or tap the last word you want to select.

OK, got it!

Thanks for trying Questia!

Please continue trying out our research tools, but please note, full functionality is available only to our active members.

Your work will be lost once you leave this Web page.

For full access in an ad-free environment, sign up now for a FREE, 1-day trial.

Already a member? Log in now.