The Short Answer

Before the FCPIAA, agencies did not have legal authority to adjust civil monetary penalties directly. Any such modification had to be made by the passage of new legislation. This sentence from the 2012 ACUS report on the Inflation Adjustment Act is the crux of it. Before 1990, there were no genuine non-legislative mechanisms for adjusting the level of civil penalties. What did exist were a handful of partial workarounds — none of which addressed the underlying structural problem.

What Options Existed

1. Ad hoc congressional amendment — the only real mechanism

The formal, correct answer to “how do you raise a civil penalty?” before 1990 was: you go back to Congress and get the statute amended. Due to the slow pace of amendments of agency organic statutes in recent years, substantial periods of time could elapse between specific statutory adjustments of civil monetary penalty amounts, and the deterrent effect of the penalties could be diminished by the effects of inflation in the interim period. This was the problem Congress was explicitly trying to solve with the FCPIAA.

2. Agency discretion within statutory maximums

Agencies did have discretion over how much to assess within the floor and ceiling set by statute. In theory, an agency could push assessed penalties toward the statutory maximum — effectively getting more deterrent value without changing the ceiling itself. But this was a blunt instrument: it offered no relief once the ceiling itself had eroded, and it was inconsistent across agencies and cases.

Experience has shown that agencies play a crucial role and exercise broad discretion in the administration of civil penalty programs. Agencies possessing such authority have found it efficient to try to resolve cases before the formal hearing stage through settlement and negotiation. Indeed, agencies settle well over 90 percent of their cases by means of compromise, remission, or mitigation. That settlement discretion ran almost entirely in the downward direction — agencies were softening penalties case by case, not inflating them upward.

3. ACUS recommendations to Congress

The Administrative Conference of the United States (ACUS) — a federal advisory body — repeatedly flagged the problem and pushed for structural fixes. In Recommendation 84-7, Administrative Settlement of Tort and Other Monetary Claims Against the Government, the Conference encouraged Congress to “systematically raise ceilings on all agency authority to settle claims where inflation has rendered obsolete the present levels.” ACUS Recommendation 79-3, issued in 1979, examined agency penalty assessment and mitigation practices more broadly. These recommendations were advisory only — they had no legal force and required Congress to act, which it was slow to do.

4. Penalty matrices and assessment standards

ACUS Recommendation 79-3 also urged agencies to develop structured penalty schedules and formulas for individual case assessment. Agencies enforcing regulatory statutes should establish standards for determining appropriate penalty amounts for individual cases — specifying the factors to be considered in determining the appropriate penalty amount in a particular case. A well-designed matrix could incorporate economic conditions as a factor — but this operated only within the statutory ceiling and could not solve the ceiling’s erosion over time.

How Effective Were These Options?

Not very, and the record shows it clearly. Congressional amendment was the only mechanism with legal force, and it was slow, sporadic, and dependent on legislative bandwidth. Many penalty amounts went unchanged for decades. By the time the FCPIAA was being debated, some penalties had been set in statutes from the 1950s, 1960s, and early 1970s, accumulating inflation gaps that ran to several hundred percent — as GAO-03-409 data showed (FAA gaps as high as 418%).

Agency discretion and settlement practices were structurally incapable of solving an inflation problem: you can negotiate a penalty down within the cap, but you cannot negotiate it above the statutory maximum. And ACUS’s advisory recommendations, however well-reasoned, simply waited on congressional action that was chronically delayed.

The consistent conclusion in the legislative history — reflected in Senator Levin’s 1988 Senate hearing statement, the OMB Deputy Director’s testimony, and the ACUS record — was that the pre-1990 system had no effective self-correcting mechanism. The FCPIAA was the first attempt to build one in, though as discussed in the previous post, it took the 2015 reforms to make it work properly.