The FFP rules in League One & League Two went under the title of the Salary Cost Management Protocol (SCMP).
www.efl.com
What it said was that a club’s Player Related Expenditure could not exceed 60% of the club's relevant turnover plus 100% of the club's "Football Fortune" income.
Relevant Turnover is basically TV/Prize money + Matchday income + Commercial income.
Football Fortune income is basically cup runs + transfer income + cash injections from the owner (although the latter is barred from being interest bearing and can't be repayable i.e. it's a gift, not a loan).
Honestly, I think the main issue is loopholes. Things like commercial income are so broadly defined that clubs can find creative ways to make loans from their owners show up on their books that way. I believe Fleetwood, for example, takes this route.
Either that, or the EFL just didn't attempt to enforce the rules at all (I don't know how Bury, for example, got around SCMP when they were spending multiples of their income for a couple of years).
But yeah, why the EFL didn't decide to tighten and actually enforce these rules, rather than institute a flat cap.....
.....I think it's partly because a flat cap is just simpler to enforce. And partly because a majority of the League One and League Two clubs actually wanted to enforce an arbitrary leveling of the competitive playing field.