As the financial industry ponders how the Supreme Court’s 6-3 decision striking down the 1984 ruling in Chevron U.S.A., Inc. v. Natural Resources Defense Council could impact the regulatory landscape, legal experts point to evidence that the writing was on the wall.
The court ruling stated, “The Administrative Procedure Act requires courts to exercise their independent judgment in deciding whether an agency has acted within its statutory authority, and courts may not defer to an agency interpretation of the law simply because a statute is ambiguous; Chevron is overruled.”
Dodd Frank Update reached out to industry insiders and trade organizations to get a sense of how the decision is being received. One expert we spoke with, a former Consumer Financial Protection Bureau (CFPB) attorney, said while the decision is definitely “a big deal,” it isn’t necessarily a major shock, noting the Supreme Court has not cited Chevron deference in a ruling since 2016.
“The precedent has seemed ‘at risk’ for many years by all accounts, even though some lower courts still relied on the opinion,” Husch Blackwell Partner Mike G. Silver told Dodd Frank Update. “Therefore, for the majority of the CFPB’s lifespan, the Supreme Court has been signaling its distaste for Chevron. In essence, the possibility of Chevron being overruled may already be baked into the CFPB’s rule formulation and legal risk calculations.”
Courts in several high-profile CFPB litigation matters have addressed questions about the CFPB’s statutory authority without considering or giving Chevron deference, he noted. One such example Silver pointed to was the Fifth Circuit’s 2022 decision in CFPB v. Community Financial Services Association of America, which questioned the validity of the bureau’s 2017 payday lending rule, a precursor to the recent Supreme Court opinion upholding the CFPB’s constitutionality.
“The Fifth Circuit did not once cite Chevron and came to its own conclusion based on typical tools of statutory interpretation and analyzing the rulemaking record,” Silver said. “To the extent CFPB is challenged on its exercise of statutory authority, courts have been, and will continue to use, other canons of construction to resolve statutory authority questions.”
Silver was not the only one to make note of the high court’s apparent aversion to invoking Chevron in recent years. The Mortgage Bankers Association (MBA) also pointed to that fact in an email to Dodd Frank Update.
“While the Supreme Court had been weakening Chevron and increasingly skeptical of agency interpretations in recent years, especially for so-called ‘major questions,’ this is a very significant development,” MBA said. “Going forward, courts must apply their independent interpretation of ambiguous statutory language.”
Regulatory bodies, including the CFPB, will still be entitled to some deference, Silver noted, recalling key considerations taken from the cases of Loper Bright Enterprises v. Raimondo and Skidmore v. Swift.
“Loper makes clear that courts still should give deference to agency expertise and agency interpretations to the extent they have ‘the power to persuade,’ citing the Skidmore case from 1944,” Silver said. “From my perspective, a large part of my job at the CFPB in the Office of Regulations was to do just that – assemble a factual record and legal reasoning to support agency policy judgments and draft the regulations and accompanying commentary and preamble in a way that was persuasive to a court. That task doesn’t change in the presence or absence of Chevron. The court also doesn’t appear to have overruled the concept of ‘Auer deference’ – that the agency is entitled to deference for reasonable interpretations of its own ambiguous regulations.”
With that being said, the overruling of Chevron could be an impediment to the CFPB’s aggressive rulemaking regimen, given it is still subject to the major-questions doctrine, which the U.S. District Court for the Eastern District of Texas relied on in issuing its decision regarding the use of the “unfairness” prong of the CFPB’s authority to regulate unfair, deceptive or abusive acts or practices (UDAAP), which is defined by Sec. 1031 of the Dodd-Frank Act.
“The CFPB needs to be careful about how it uses its abusiveness authority,” Silver asserted. “Loper makes it less likely they will get deference for a ‘reasonable’ interpretation of Dodd-Frank Sec. 1031 in a rulemaking.”
Silver further contended the Seventh Circuit’s decision in CFPB v. Townstone “will be a window into what a post-Chevron landscape will look like” for the bureau.
“The district court found that Regulation B’s discouragement provision was beyond the ECOA [Equal Credit Opportunity Act] statutory authority,” he explained. “Regulation B has been around for decades, but the district court found that at Chevron step one, the statute was unambiguous and only covered ‘applicants,’ not ‘prospective applicants.’ Depending on the outcome, it could portend other challenges to longstanding regulations where there is not clear case law that deferred to agency interpretations.”
MBA stated it anticipates a shift in how regulators approach rulemaking, knowing new rules are likely to undergo more scrutiny.
“This may also change the incentives and discourage administrative agencies from engaging in the costly and time-consuming process of writing notice-and-comment regulations – regulations that our industry sometimes relies on to make sense of poorly-worded statutes,” MBA said.
Consumer Bankers Association (CBA) President and CEO Lindsey Johnson said the full impact of the decision will not be known for some time.
“Today’s historic decision will take years to unfold across not just the financial regulatory landscape, but every area where executive agencies impact regulated entities and American consumers,” Johnson said. “What is clear, though, is that we would not be at this point today if government agencies were more prudent and consistent about staying within their statutory authorities, grounding their rulemakings in empirical facts, and heeding appropriate procedural safeguards. Instead, too frequently, our regulators appear to be chasing headlines and short-term political wins.
“As the retail banking industry adjusts to this new environment, the Consumer Bankers Association remains committed to working productively with our regulators towards incremental, fact-based, and deliberate policymaking.”
The Supreme Court granted writ of certiorari for two cases on the matter during the October 2023 term: Loper Bright Enterprises v. Raimondo, No. 22-451 and Relentless, Inc. v. Department of Commerce, No. 22-1219. October Research Chief Knowledge Officer Mary Schuster attended the oral arguments heard in January.