I know exactly how it works. In this case I think they are making it up, although there's some grey area.
Like I said, the underlying rationale is reasonable but there's not enough regulatory meat to justify where they took it.
FAA should simply amend the reg in this case, rather than jam through enforcement. Bad precedent. I'd like to know, in writing, what my regulatory boundaries are, and not have to guess. Example: "Good Moral Character"... they could have a real field day with that one. And BHM FSDO would apply it quite differently than OAK FSDO.