Trading Nonenforcement

• Jurisdiction: United States,Federal
• Citation: Vol. 39 No. 3
• Publication year: 2023

TRADING NONENFORCEMENT

Ryan Snyder^*

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ABSTRACT

In recent years, federal agencies have increasingly used nonenforcement as a bargaining chip—promising not to enforce a legal requirement in exchange for a regulated party's promise to do something else that the law doesn't require. This Article takes an in-depth look at how these nonenforcement trades work, why agencies and regulated parties make them, and the effects they have on social policy. The Article argues that these trades pose serious risks: Agencies often use trading to evade procedural and substantive limits on their power. The trades themselves present fairness problems, both because they tend to reward large, well-connected firms and because they often coerce regulated parties that lack bargaining power. Moreover, the agency's nonenforcement promises aren't binding—thus, even if a regulated party upholds its end of the bargain, the agency can always renege on the deal. The Article concludes by identifying several possible solutions that might discourage agencies from trading nonenforcement.

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CONTENTS

Introduction.................................................................................780

I. How Nonenforcement Trades Work....................................785

A. Trading in Action...............................................................786

1. The EPA's Project XL..................................................786
2. The CFPB's Regulation of the Auto Loan Industry.....787
3. OSHA's Voluntary Protection Programs.....................789
4. The FDA's Regulation of Flavored E-Cigarettes........790
5. DHS's DACA andDAPA Programs............................792

B. Breaking Down the Trade..................................................794

1. The Parties Involved in the Trade................................ 794
2. The Agency's Nonenforcement Promise ...................... 795

a. Backward-Looking v. Forward-Looking Promises 796
b. The Agency's Enforcement Power ......................... 797
c. The Agency's Nonenforcement Power ................... 798
d. Nonenforcement v. Underenforcement..................799

3. The Regulated Party's Promise...................................800

a. Who Is Being Regulated?.......................................800
b. Relation to the Agency's Regulatory Power .......... 801
c. Relation to the Agency's Regulatory Purposes ...... 803

4. After the Trade.............................................................804

II. What Drives Nonenforcement Trades...............................807

A. Agencies' Incentives .......................................................... 807

1. Overall Mission............................................................807
2. Statutory Goals............................................................808
3. Day-to-Day Challenges................................................812
4. Personal Motives..........................................................814
5. Constituent Pressure....................................................816

B. Regulated Parties' Incentives............................................817
C. Bargaining Power.............................................................820

1. The Agency's Alternatives............................................821
2. Regulated Parties' Alternatives.........................................822

III. The Need for Constraints...................................................825

A. The Absence of Constraints...............................................825
B. Potential Advantages.........................................................827

1. Expertise.......................................................................827
2. Flexibility.....................................................................828
3. Collaboration ............................................................... 829
4. Coping with Limited Resources ................................... 830

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C. Risks...................................................................................830

1. Deliberation.................................................................831
2. Rationality....................................................................833
3. Fundamental Fairness.................................................834
4. Accountability..............................................................835
5. Feedback Effects..........................................................837

IV. The Need For Express Delegation.....................................838

A. Implicit Delegation and Relational Agency.......................839
B. The Constitution and Implicit Delegation.........................842

1. The Faithful Execution Clause.....................................843
2. The Necessary and Proper Clause and the Legislative Process.........................................................................846

C. Regulatory Statutes and Implicit Delegation....................848

V. Reestablishing Constraints................................................851

Conclusion....................................................................................853

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Introduction

In recent years, federal agencies have increasingly tried to use nonenforcement to achieve policy goals.¹ This practice spans multiple administrations, both major political parties, and topics as diverse as air pollution, healthcare, and immigration.² This use of nonenforcement has received much scholarly attention: for example, scholars have debated the limits of the nonenforcement power,³ how to enforce those limits,⁴ and to a lesser extent, how nonenforcement works in practice.⁵

These debates tend to assume, however, that agencies use nonenforcement only to deregulate—allowing regulated parties to do something that the law prohibits or excusing them from doing something that the law requires.⁶ But agencies also use nonenforcement to regulate—effectively imposing new rules that govern regulated parties' actions.

To achieve this counterintuitive result, agencies use a combination of offers and threats. First, the agency offers not to enforce a legal

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requirement if the regulated party agrees to do something that the agency wants. Second, the agency makes a threat: if the regulated party fails to uphold its end of the bargain, the agency will reverse course and enforce the legal requirement. If the regulated party accepts such an offer—and they often do—the resulting trade effectively changes the law on the ground without amending the law on the books.

To be sure, nonenforcement trades don't formally have the force of law. And on the surface, they might look like voluntary transactions between two parties. In many cases, however, such trades are "the practical equivalent of a rule that obliges [regulated parties] to comply or to suffer the consequences."⁷ Once the deal is done, regulated parties have only two choices: comply with the trade's terms or face legal sanctions. Thus, from a regulatory party's perspective, nonenforcement trades can be just as binding as any other type of regulation.⁸

This Article argues that nonenforcement trades are normatively and legally problematic. In theory, such trades could enable agencies to promote values that undergird the administrative state. For example, nonenforcement trades could make it easier for agencies to use their expertise to solve complex problems. They could also give agencies maximum flexibility to tailor their solutions to the problem at hand. And they could empower agencies to work collaboratively with regulated parties, potentially leading to better policy.⁹

At the same time, however, nonenforcement trades pose serious risks. Administrative law rests on the presumption that constraints—such as notice-and-comment procedures and judicial review—can improve agencies' decisions and enhance their legitimacy. But nonenforcement trades allow agencies to sidestep those constraints and

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exercise virtually unfettered discretion.¹⁰ As a result, these trades increase the odds of "lawlessness, carelessness, overzealous regulatory controls, and inadequate regulatory protection."¹¹

For example, when agencies trade nonenforcement, they are less likely to practice the type of deliberative democracy that leads to good social policy. The rulemaking process strongly encourages agencies to seek out diverse perspectives from experts throughout the executive branch, as well as from the public. It also requires agencies to reflect on the information that they receive and give reasoned explanations for their choices. When agencies trade nonenforcement, however, they don't need to do any of these things—they can act on their own, without input from anyone, without careful reflection, and without explaining their decisions.

Nonenforcement trades also place regulated parties in a precarious position. Unlike formal waivers, nonenforcement promises don't erase legal liability.¹² As a result, even if regulated parties uphold their end of the bargain, agencies can always decide later to enforce the law. Although agencies don't appear to renege often, some have—and the results have been deeply troubling.¹³

Moreover, nonenforcement trades rest on a shaky legal foundation. Administrative law views agencies as agents that have a responsibility to follow their principals' instructions.¹⁴ But nonenforcement trades allow agencies "to go beyond, and perhaps even against, orders made by the principal."¹⁵ To be sure, some principals give agents that power.¹⁶ Yet neither the Constitution nor regulatory statutes do so

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explicitly. And in most (if not all) cases, they don't do so implicitly either.

Two parts of the Constitution strongly suggest that agencies don't have an implicit power to trade nonenforcement. The first is the Faithful Execution Clause, which provides that the President "shall take Care that the Laws be faithfully executed."¹⁷ This clause imposes a duty on agencies to...