Imagine the following scenario: You run a small, heavily regulated company with a skeleton staff. One of your employees has gotten pretty adept at tracking new regulations as they are proposed and finalized. She even submits comments on proposed rules that would be particularly unworkable or costly for your firm. Much to her consternation, the agency adds to and modifies these regulatory mandates through letters, "frequently asked questions," and other guidance documents that sporadically pop up on random parts of the agency's website. Any one of these documents — perhaps one produced in response to a request by a big competitor — could contain a mandate that is wholly incompatible with your company's business model. Your employee is at wit's end, because once one of these documents shows up, there is nothing she can do about it.

This scenario plays itself out across many industries and countless regulatory agencies. But things are not supposed to work this way. The Administrative Procedure Act requires agencies that are imposing new requirements on the public to conduct their rule-making in a transparent manner and to seek public input. For agency lawyers and economists, the rule-making process is cumbersome, difficult, frustrating and long. The process includes framing the problem the rule is supposed to solve, analyzing the alternative solutions, conducting economic analysis, soliciting and considering public comments, attempting to minimize the rule's unintended consequences, and clearly explaining rule mandates.

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As hard as the rule-making process is, its component parts are fundamental to an agency's effectiveness and the public's ability to hold the agency accountable. The process is transparent and open. People who have to comply with a rule or people whose interest a rule is designed to protect can bring their wealth of knowledge and experience to the rule-making process. Mandates that are adopted through such an extensive, transparent, deliberate process are more likely to work than are rules adopted by agency lawyers in a vacuum.

Congress, which holds agencies accountable for fulfilling their statutory mandates, can monitor the rule-making process by reviewing the rule proposal, comments and the final rule. Once a rule is final, a person who will suffer adverse consequences from the rule can take the agency to court. And, importantly, once a rule makes it through the rule-making process, it is published in the government's official rulebooks, which people can read to determine their compliance obligations.

Too often, however, agencies opt for short-cuts. Rather than bothering with the burdensome rule-making process, they use faster and more flexible means of imposing mandates. To avoid running afoul of the letter of the Administrative Procedure Act, these mandates are often couched in tentative, temporary or voluntary terms. Regardless of the language and the format, the effect is the same for regulated entities. The agency suggests that you do something — even if it says that it might suggest something different later — and you do it.

In my new working paper published through the Mercatus Center, I detail how one regulatory agency — the Commodity Futures Trading Commission (CFTC) — has compromised its effectiveness and accountability by resorting to backroom rule-making. The CFTC, working under Dodd-Frank mandates, has imposed many new mandates on Main Street and Wall Street companies over the last four years. In adopting many rules, the CFTC has followed — albeit not with complete fidelity — the rule-making procedures set forth in the Administrative Procedure Act and the agency's own organic statute.

In many other instances, however, the CFTC has employed backdoor rule-making methods. The CFTC's methods include an 80-page, 600-footnote "policy statement," hundreds of staff letters and advisories, frequently asked questions, and enforcement actions. The result is a confusing, hard-to-track and ever-changing array of mandates. Some are significant enough to make or break a business model. Yet the agency's staff often generates these mandates in its back rooms, far from public view, and devoid of the input of anyone other than — perhaps — a company or trade association with whom the staff chooses to negotiate. Sometimes the agency's own commissioners don't even get a heads up about these mandates. The agency's backdoor rule-making approach makes the already difficult task of learning and complying with the agency's rules much harder.

The CFTC is by no means alone in its departure from good rule-making practices, but its frequent use of backdoor rule-making in recent years has raised eyebrows from the agency's commissioners and members of the public. To stop other agencies from following the CFTC's bad example, Congress should take more care in crafting directives to agencies and should hold agencies accountable for actions taken outside the formal rule-making process. Courts should be less forgiving to agencies that shirk their procedural obligations. The agencies that make and enforce the law ought to comply with the law when they do so.

Peirce is a senior research fellow with the Mercatus Center at George Mason University and author of a new working paper, "Regulating Through the Back Door at the Commodity Futures Trading Commission."