Regulatory Flexibility Act

August 16, 2021

The Regulatory Flexibility Act: An Overview
Congress enacted the Regulatory Flexibility Act (RFA; 5
U.S.C. §§601-612) in 1980 to require federal agencies to
consider the effects of their regulations on small businesses
and other small entities. If a regulation is expected to have a
“significant economic impact on a substantial number of
small entities,” the RFA requires the issuing agency to
consider regulatory impacts and alternatives, with the goal
of minimizing significant economic impacts on small
entities. In 1996, Congress amended the RFA in the Small
Business Regulatory Enforcement Fairness Act, adding
judicial review for some of the act’s provisions, a
requirement for a limited number of agencies to hold small
business advocacy review panels, and a requirement for
agencies to produce regulatory compliance guides.

Overview of the Regulatory Flexibility
Act
The RFA requires federal agencies to assess the effects of
their regulations on small entities, which it defines as
including small businesses, small governmental
jurisdictions, and certain small nonprofit organizations.
The RFA applies to all regulatory agencies, including
Cabinet agencies and the statutorily designated
“independent regulatory agencies,” which have sometimes
been exempted from other procedural rulemaking
requirements.
As noted above, the RFA is triggered if the head of the
issuing agency certifies that the rule will have a significant
economic impact on a substantial number of small entities.
This threshold determination is key: If an agency certifies
that this type of impact is not expected to occur, the RFA is
not triggered. The RFA does not define significant
economic impact or substantial number of small entities,
however, and agencies generally have a fair amount of
discretion to determine its applicability. The lack of clarity
of the specific meaning of these phrases, and the resulting
amount of discretion agencies have to determine when the
act is triggered, have sometimes led to criticism over its
implementation.

Regulatory Flexibility Analyses
The RFA may be viewed primarily as an analytical statute.
When triggered by the criteria identified above, the agency
is to conduct a specified regulatory impact analysis during
the proposed and final rule stages. These two analyses are
distinct and are referred to as the initial regulatory
flexibility analysis (IRFA) and final regulatory flexibility
analysis (FRFA), respectively.
Initial Regulatory Flexibility Analysis
When issuing a proposed rule that triggers its analytical
requirements, the RFA requires an agency to analyze a

number of specific factors relating to the proposed rule’s
potential impact on small entities. Section 603 requires
agencies to include in each IRFA “(1) a description of the
reasons why action by the agency is being considered; (2) a
succinct statement of the objectives of, and legal basis for,
the proposed rule; (3) a description of and, where feasible,
an estimate of the number of small entities to which the
proposed rule will apply; (4) a description of the projected
reporting, recordkeeping and other compliance
requirements of the proposed rule …; [and] (5) an
identification, to the extent practicable, of all relevant
federal rules which may duplicate, overlap or conflict with
the proposed rule.”
IRFAs are also required to contain “a description of any
significant alternatives to the proposed rule which
accomplish the stated objectives of applicable statutes and
which minimize any significant economic impact of the
proposed rule on small entities.”
Further, the agency must discuss different types of
flexibilities that could be included in the rule, such as “(1)
the establishment of differing compliance or reporting
requirements or timetables that take into account the
resources available to small entities; (2) the clarification,
consolidation, or simplification of compliance and reporting
requirements under the rule for such small entities; (3) the
use of performance rather than design standards; and (4) an
exemption from coverage of the rule, or any part thereof,
for such small entities.”
The IRFA, or a summary of the IRFA, must be published in
the Federal Register when the proposed rule is published.
This allows the public an opportunity for input on the IRFA
while the agency is already taking comment on the
proposed rule as required by the Administrative Procedure
Act (APA).
The RFA does not require agencies to choose any particular
outcome based on an IRFA. Rather, it requires agencies to
consider the impacts of a rule on small entities and whether
more flexible alternatives may be appropriate.
Final Regulatory Flexibility Analysis
When an agency promulgates a final rule after having
issued a covered proposed rule, it must conduct a FRFA
under Section 604 (unless the IRFA led the agency to
determine that the rule will not have the requisite impact on
small entities). Whereas the IRFA requires the agency to
consider regulatory impacts and alternatives for small
entities, the FRFA requires that the agency justify its
actions and regulatory choices, including an explanation of
why any more flexible regulatory alternatives were rejected.

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The Regulatory Flexibility Act: An Overview

The FRFA must contain “(1) a statement of the need for,
and objectives of, the rule; (2) a statement of the significant
issues raised by the public comments in response to the
initial regulatory flexibility analysis, a statement of the
assessment of the agency of such issues, and a statement of
any changes made in the proposed rule as a result of such
comments; (3) the response of the agency to any comments
filed by the Chief Counsel for Advocacy of the Small
Business Administration [SBA] in response to the proposed
rule, and a detailed statement of any change made to the
proposed rule in the final rule as a result of the comments;
(4) a description of and an estimate of the number of small
entities to which the rule will apply or an explanation of
why no such estimate is available; (5) a description of the
projected reporting, recordkeeping and other compliance
requirements of the rule ...; (6) a description of the steps the
agency has taken to minimize the significant economic
impact on small entities consistent with the stated
objectives of applicable statutes, including a statement of
the factual, policy, and legal reasons for selecting the
alternative adopted in the final rule and why each one of the
other significant alternatives to the rule considered by the
agency which affect the impact on small entities was
rejected; and (7) for [the Consumer Financial Protection
Bureau (CFPB)], a description of the steps the agency has
taken to minimize any additional cost of credit for small
entities.”
Notably, the requirements for an IRFA and a FRFA are
triggered only in rules where the agency is required to issue
a proposed rule under the APA. The APA contains several
exemptions for its requirement for an agency to issue a
proposed rule, including when an agency invokes “good
cause” to forgo notice and comment. As a practical matter,
this has led to some criticism of the RFA’s implementation,
as a significant number of final rules are issued without first
having had a proposed rule. A 2012 Government
Accountability Office study found over a third of rules
issued from 2003 through 2010 were not preceded by
proposed rules.
Agencies’ IRFAs and FRFAs are often conducted in
conjunction with other regulatory impact analyses, most
notably the requirements for cost-benefit analysis of
economically significant rules under Executive Order
12866.

Small Business Review Panels
Prior to issuing rules subject to the RFA, agencies must
notify the Chief Counsel for Advocacy of the SBA
(hereinafter, Chief Counsel) for possible comment. In
addition, Section 609 requires three agencies—the
Environmental Protection Agency, the CFPB, and the
Occupational Safety and Health Administration in the
Department of Labor—to hold small business advocacy
review panels, which are a supplemental means for
obtaining input on the proposed rule and IRFA.
Within 15 days of receiving that notification from these
three agencies, the Chief Counsel is to identify individuals
that are representative of affected small entities. The agency
is then to convene a “review panel” for the rule consisting
of employees from the rulemaking agency, the Office of

Management and Budget’s Office of Information and
Regulatory Affairs, and the Chief Counsel. The panel is to
review relevant materials the agency has collected
pertaining to the rule’s anticipated impacts on small entities
and collect advice and recommendations of the small entity
representatives on issues related to components of the
IRFA. Within 60 days, the panel is to report on the
comments it received and its findings and make the report
public as part of the rulemaking record. The RFA then
directs the agency to modify the proposed rule and the
IRFA as appropriate.

Retrospective Review of Rules
Section 610 requires agencies to establish a plan for
reviewing rules that have or will have a significant
economic impact on a substantial number of small entities.
The purpose of the review is to determine whether any
modifications to each rule are necessary to minimize
impacts on small entities. The agency is to review the rule
within 10 years of issuance of the rule, but the completion
of the review may be extended by one year at a time for up
to five additional years.
The RFA specifies five factors agencies are to consider in
these retrospective reviews: (1) the continued need for the
rule; (2) the nature of any public feedback on the rule; (3)
the complexity of the rule; (4) the extent to which the rule
overlaps or conflicts with other federal, state, or local rules;
and (5) the length of time since the rule has been evaluated
or the degree to which technology, economic conditions, or
other relevant factors have changed.

Small Entity Compliance Guides
The RFA also requires agencies to publish one or more
“small entity compliance guides” to assist small entities in
complying with rules covered by the act. The guides are to
be posted in an “easily identified location” on the agency’s
website and distributed to industry contacts.

Regulatory Agenda
Section 602 requires that all agencies publish semiannual
regulatory agendas in the Federal Register describing
regulatory actions that they are developing that may have a
significant economic impact on a substantial number of
small entities. The RFA also requires that agencies
“endeavor to provide notice” of the regulatory agendas to
small entities and “invite comments upon each subject area
on the agenda.” These regulatory agendas are published
each fall and spring as part of the Unified Agenda of
Federal Regulatory and Deregulatory Actions.

Annual Reports on Compliance
Section 612 requires the Chief Counsel to monitor agency
compliance with the RFA and to provide an annual report to
Congress and the President. Those reports are available on
the SBA’s Office of Advocacy’s website.
Section 612 also authorizes the Chief Counsel to appear as
amicus curiae (i.e., “friend of the court”) in the case of
judicial review of a rule.
Maeve P. Carey, Specialist in Government Organization
and Management

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The Regulatory Flexibility Act: An Overview
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