The problem with the current regulatory scheme

The state legislature has determined that there are a variety of businesses and professions whose activities substantially affect the public interest, requiring that all actions of those professionals and businesses be actuated in good faith.  Licensees must abstain from deception and practice honesty and equity in all matters relating to their profession or business.  Accordingly, the legislature has established a system of licensure in addition to rules of practice and conduct in order to promote honesty and fair dealing with citizens and to preserve public confidence.  Professions and businesses associated with real estate sales, residential loan origination and modification, escrow services, groceries, medical service providers, assisted living facilities, day cares, insurance agencies, accountancy, tow truck companies, car sales, cosmetology, and many more are so licensed and regulated through the state.No one can argue with the mandate of the legislature to protect the public and ensure fair dealing by businesses providing important services.  However, those who are regulated are also members of the public and their legitimate interests should also be accounted for by the agencies that oversee them.  Those agencies, such as the Department of Financial Institutions, Department of Licensing, Department of Health, Office of Insurance Commissioner, and Department of Social and Health Services, should exist to serve the public as a whole. That means reaching out beyond their regulatory or policing role to assist and educate the businesses and professionals that they oversee.All too often regulatory agencies see their role as a prosecutorial one.  They see the justification for their existence as being one of obtaining convictions.  Such an attitude often ignores the absence of consumer harm and the irreparable damage caused to the business they “punish.”  Technical violations are often met with large fines and prohibitions.  For example:

• An escrow service provider intended to do everything right and to the letter of the law.  For eight years his was a model business.  The business had never had a negative finding against them.  Then, he decided to have some minor administrative functions provided at a satellite office.  He did not believe that he was violating the law.  The Department of Financial Institutions conducted a routine audit and the business owner explained the functions of the branch office.  DFI felt that represented an unlicensed office.  Rather than ask the business owner to license the business or shut it down, they filed a statement of charges asking for $50,000 in fines.  That fine was in no way connected with any consumer harm – there was no allegation of any. It was simply imposed because, in the words of the Department, because he could afford it.  Further, the Department insisted on a 90 day suspension of services. That meant that the business had to shut down and lay off all of its employees.  Clearly, public policy was not furthered by this agency action.
• A real estate agency had operated for close to twenty years.  There was no history of prior discipline. The Department of Licensing felt that they had not done their due diligence in contacting potential buyers in one transaction.  The Department did not allege that the agency profited in any way by this mistake.  They attempted to shut the agency down for a year, throwing all the employees out of work.
• A company conducted residential loan modification services.  They hired an attorney to represent the clients with the lenders. They believed that they were following the letter of the law, as did the attorney they employed.  The regulatory authority came to the conclusion that the relationship between the attorney and the company that employed him was not structured correctly.  Instead of advising the business to correct the problem, they shut it down and have tried to impose tens of thousands of dollars in fines.  There was no suggestion of consumer harm. Dozens of employees lost their jobs.
• A medical clinic needed a temporary physician to fill in after their prior doctor left. There were hundreds of patients who needed assistance.  They found a doctor in Phoenix, Arizona who was willing to fill in on a temporary basis.  He obtained his Washington medical license.  He had a DEA license for Arizona – he was told he could use that on a temporary basis in Washington.  The doctor came up and assisted the patients, only to find that he in fact needed a Washington DEA number. Instead of allowing the doctor to correct something that was a minor administrative task, the U.S. Attorney’s Office has sued him, leading to the closing of the clinic and the loss of jobs.
• A local grocery serving the Somali community was overpaid in the WIC program. There was no suggestion of fraud.  The grocery was willing to pay the money back.  The regulatory agency would not stop at that and has put them out of business.  The local Somali community now has to travel to obtain the specialty foods their diet requires.

These and other stories have a common theme. Well-meaning business men and professionals attempt to navigate a very complex regulatory landscape.  Instead of assisting these businesses to get into compliance, regulatory agencies often simply punish them without thought of the loss of jobs and destroyed lives that result from that approach.  Absent meaningful consumer harm, businesses should be given a chance to come into compliance before being shut down. And regulatory agencies should adopt a role of partnering with the businesses they regulate to get them there.