As we promised in our April 2017 Client Alert (Bank Leveraged Lending: Guideline or Rule?), we have been following the request made by Sen. Patrick Toomey, R-Pa., to the Government Accountability Office to determine if the Interagency Guidance on Leveraged Lending (Guidance) issued in 2013 by the Office of the Comptroller of the Currency, the Board of Governors of the Federal Reserve System and the Federal Deposit Insurance Corporation was a guidance (as it was titled) or a rule (as others suggested). As a guidance, its authors viewed it as exempt from the requirements of the Congressional Review Act (CRA). As a rule, it would be subject to the CRA, and therefore subject to review and possible rejection by Congress.

The GAO issued its findings on October 19, and determined that the Guidance is not a guidance after all, but, in fact, is a rule and therefore subject to the CRA.

This finding by the GAO will start the process of congressional scrutiny under the CRA, which contains requirements for submission of the rule by the agencies to Congress, along with certain other information. Congress will have 60 days after the rule is submitted to disapprove it by a joint resolution. If Congress rejects the Guidance, the disapproval will require the president’s signature to accomplish effective repeal of the rule.

The leveraged lending community has struggled with the Guidance since its initial announcement. While the full impact of compliance is difficult to assess, bank lenders have probably reduced overall exposure to leveraged lending assets (or changed how they have defined their exposure), and nonbank lenders have increased their participation.

We – and the industry – will continue to follow this drama as it plays itself out in the legislative arena.