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Laws vs. Regulations vs. Guidance: What's the Difference?

2 min read
Sep 13, 2018

Ever wonder whether guidance was a suggestion or mandate? The federal banking agencies have answered this long-pondered question definitively.

“Supervisory guidance does not have the force and effect of law, and the agencies do not take enforcement actions based on supervisory guidance,” according to an interagency statement later codified as a final rule from the Federal Reserve (OCC) the Federal Deposit Insurance Corporation (FDIC), the National Credit Union Administration (NCUA), the Office of the Comptroller of the Currency (OCC) and the Consumer Financial Protection Bureau (CFPB).

Instead, guidance highlights “supervisory expectations or priorities and articulates the agencies’ general views regarding appropriate practices for a given subject area.”

The statement also said the agencies will try to avoid using numerical thresholds in guidance and limit the number of guidance documents on a single topic.

The Difference Between Laws, Regulation, Rules, Guidance and Policies

With a fresh answer to this age-old guidance question, I thought this would be a great time for a quick primer on the difference between laws, regulation, rules, guidance and policies.

Laws. Laws are passed by both houses of the U.S. Congress and then signed by the president. (i.e. that old Schoolhouse Rock video of 'How a Bill Becomes a Law').  Examples include the Truth in Lending Act, the Gramm-Leach-Bliley Act and the Dodd-Frank Wall Street Reform and Consumer Protection Act.

Regulations. Agencies are tasked with implementing laws by drafting regulation. They take the broad ideas of the bill and fill in the details of what needs to be done and how it will be enforced. Examples include the Truth in Lending Act implemented as Reg Z and the Equal Opportunity Act implemented at Reg B.

Regulation is created by a rule-making process, including a notice of proposed rule-making and a public comment period. Once a final rule is issued, it has the force of law because it is implementing a law.

Rules. While regulations cover a topic broadly, rules get into the nitty-gritty. A regulation may be comprised of many individual rules. For example, Dodd-Frank included nearly 400 rule mandates. As part of a regulation, they have the force of law.

Guidance. Guidance is supplemental material published by an agency that helps clarify existing rules. These include interagency statements, advisories, bulletins, policy statements, questions and answers and frequently asked questions. It is not subject to rule-making procedures, so there is no proposal or comment period. Guidance can be helpful, but it is not binding. Financial institutions can’t be subject to an enforcement action for failing to follow guidance. Even if an agency seeks public comment on a guidance, it still doesn’t have the force of law.

While an institution can’t “violate” a guidance, examiners can mention them as examples of best practices for complying with laws and regulations if deficiencies are noted.

Policy. A policy is how your institution interprets and implements regulations. There can be many different ways to properly execute a regulation, depending on an institution’s size, complexity, location and other factors. While it isn’t against the law to not follow policy, failing to follow policy can result in breaking the law.

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