
189 Mich. App. 530 (1991)
473 N.W.2d 765
PALOZOLO
v.
DEPARTMENT OF SOCIAL SERVICES
Docket No. 119133.
Michigan Court of Appeals.
Decided May 21, 1991, at 9:55 A.M.
Michigan Legal Services (By Susan K. McParland and Kathleen A. Gmeiner), for petitioner.
Frank J. Kelley, Attorney General, Gay Secor Hardy, Solicitor General, and Robert S. Welliver, Assistant Attorney General, for respondent.
Before: NEFF, P.J., and SHEPHERD and McDONALD, JJ.
PER CURIAM.
Petitioner appeals as of right from a June 26, 1989, circuit court order affirming a decision of the hearing referee which upheld the Department of Social Services' reduction of petitioner's Aid to Families with Dependent Children grant and found the DSS was entitled to recoupment of shelter allowances paid to petitioner. We reverse.
On July 13, 1987, petitioner and her minor children moved into an apartment. Petitioner received an AFDC grant for herself and her children that included a $185 monthly shelter allowance. However, in March 1988, the DSS discovered that petitioner's landlord was the father of one of her children.
The DSS Program Eligibility Manual item 515 (PEM 515), states:
The Shelter allowance is included for only one location. The location must be in Michigan. The expense amount must be verified. No part of a *532 shelter expense paid to a responsible relative of a group member is allowed.
Hence, PEM 515 denies shelter allowances to AFDC families when the landlord is a responsible relative. The parent of a child under age eighteen is considered a responsible relative pursuant to the Program Reference Manual. Under the Program Administrative Manual, item 705, all over-issuances discovered after October 1, 1981, may be recouped or returned to the inspector general. Accordingly, the DSS requested petitioner to repay $1,480 in shelter allowances paid to her between August 1987 and March 1988. Removing the shelter allowance reduced her AFDC grant by $185 a month.
On July 29, 1988, an administrative hearing was held pursuant to MCL 400.9; MSA 16.409 and MCL 400.37; MSA 16.437. On August 15, 1988, the hearing referee upheld the DSS' removal of petitioner's shelter allowance and requested recoupment.
On appeal, petitioner contends PEM 515 should be declared invalid on the grounds it violates federal law regarding AFDC funds, the Fourteenth Amendment, and the rule-making requirements of the Administrative Procedures Act, MCL 24.201 et seq.; MSA 3.560(101) et seq.
We agree that the DSS' failure to promulgate PEM 515 pursuant to the rule-making procedures set forth in the APA renders it invalid, and thus do not address petitioner's remaining claims.
When promulgating rules, an agency must follow specified statutory procedures that include various notice and public hearing requirements. Failure to substantially comply with the procedural requirements renders the rule invalid. MCL 24.231-24.264; MSA 3.560(131)-3.560(164), Pyke v *533 Dep't of Social Services, 182 Mich App 619; 453 NW2d 274 (1990).
Section 7 of the APA provides in part:
"Rule" means an agency regulation, statement, standard, policy, ruling, or instruction of general applicability that implements or applies law enforced or administered by the agency, or that prescribes the organization, procedure, or practice of the agency, including the amendment, suspension, or rescission thereof, but does not include any of the following:

* * *
(j) A decision by an agency to exercise or not to exercise a permissive statutory power, although private rights or interests are affected. [MCL 24.207; MSA 3.560(107).]
Neither party denies that the contested agency policy was not promulgated pursuant to the APA statutory procedures. However, respondent argues, as it did in Pyke, that PEM 515 was established pursuant to its "permissive statutory powers" and therefore is not subject to the rule-making requirements of the APA. Respondent asserts that panels of this Court in Hinderer v Dep't of Social Services, 95 Mich App 716; 291 NW2d 672 (1980), and Pyke have concluded that when establishing eligibility and financial standards for all forms of general public relief, respondent is exercising permissive statutory powers and may act without rule promulgation. Respondent urges us to follow this precedent. We decline to do so for the reasons set forth in Judge SHEPHERD'S dissent in Pyke.[1] Here, as in Pyke, the policy deprives not only this petitioner *534 but an entire class of people benefits to which they would otherwise be eligible on the basis of an internal policy of the agency without benefit of the protection afforded by the rule-making requirements.
Reversed and remanded.
NOTES
[1]  Pyke was decided before November 1, 1990. Accordingly this opinion is binding on all trial courts, administrative tribunals, and on all panels of the Court of Appeals under Administrative Order No. 1990-6, 436 Mich lxxxiv, until reversed according to the methods stated in the order.
