Report: System for small business review of rule making flawed

Regulatory advocacy groups say small businesses are being left out of the federal rule-making process due to a faulty review system. 

The Regulatory Enforcement Fairness Act of 1996 requires the Environmental Protection Agency (EPA), the Occupational Safety and Health Administration (OSHA) and the Consumer Financial Protection Bureau (CFPB) to convene a Small Business Advocacy Review panel any time its agency plans to issue a rule that will significantly impact a substantial number of small businesses.


The Small Business Administration's Office of Advocacy sits on the panel and is expected to consult a group of small business representatives. But according to a report released by the watchdog Center for Effective Government on Wednesday, members of that group are often lawyers, lobbyists and consultants of industry-wide trade associations.

The report, Gaming the Rules: How Big Business Hijacks the Small Business Review Process to Weaken Public Protections, blames EPA, OSHA and CFPB for not having a formal procedure in place to verify that a prospective small business adviser does in fact represent a small business entity.

“Why are these trade associations, specifically those representing big business, allowed to have so much say meant for small business,” said David Levine, president of the American Sustainable Business Council. “For too long policy makers have thought of the business community as monolithic — if one business representative spoke, they spoke for all business.”

But Levine, whose advocacy group represents over 200,000 businesses, said that notion couldn’t be farther from the truth. 

“Our businesses are mostly small, like the bulk of businesses in the country, and they are not anti-regulation.”

Center for Effective Government’s report also found that the Small Business Administration’s Office of Advocacy, created to represent the views and interest of small businesses, not only helps identify small businesses to advise the panels, it participated in meetings with selected representatives and helped craft comments.

To show how this impacts the rule-making process, CEG’s report pointed to the EPA's Waters of the U.S. rule, which was designed to better protect the nation’s waterways from pollution. The Office of Advocacy asked the EPA to throw it out.

“My organization, the American Sustainable Business Council, commissioned an independent poll of over 550 small businesses with fewer than 100 employees and found that 80 percent of them supported the rule,” Levine was quoted as saying in the report.  

CEG wants the agencies to develop written eligibility criteria for the small business representatives advising review panels, publicly post the names and affiliations of advisers a month before a panel convenes and only consider changes to a rule that specifically address the impacts on genuinely small businesses.

As for the Office of Advocacy, CEG has recommended it help agencies identify qualified small business owners and staff to advise panels instead of recruiting trade association representatives. 

"These three regulatory agencies were created to protect American workers from workplace and environmental hazards and to safeguard consumers from abusive lending practices," CEG’s CEO Katherine McFate said in a news release.

"If the small business review process was working the way it's supposed to, agencies and small businesses would be working together to ensure that we have the most effective public protections possible. Unfortunately, this process is just delaying the implementation of laws that Congress already passed."