We already have published a short blog about the Supreme Court’s opinion issued on Friday, July 28 in Loper Bright Enterprises et al v. Raimondo, Secretary of Commerce, et al, No. 22-451. We have now had an opportunity to more thoroughly read the majority opinion by Chief Justice Roberts, two concurring opinions by Justices Thomas and Gorsuch and the dissenting opinion by Justice Kagan (which Justices Sotomayor and Jackson joined). The purpose of our blog today is primarily to consider the implications and potential impact of the opinion on the consumer financial services industry, the CFPB and other federal agencies that have rulemaking authority over the industry, consumers, the Judiciary and the plaintiffs’ bar.
The Majority Opinion
By a 6-3 majority, the Chevron Doctrine (named after the 1984 opinion of the Supreme Court in Chevron U.S.A. Inc. v. National Resources Defense Council, Inc., 467 U.S. 837) has been overturned. Under the Chevron Doctrine courts had to apply a two part test in assessing the actions of federal agencies. If the statute adopted by Congress was clear on the issue before the court, the court had to follow congressional intent. However, if the statute was ambiguous on, or simply did not address, the issue before the court, the court had to defer to the agency’s interpretation as long as it was reasonable, even though the court would have reached a different interpretation. With the overruling of the Chevron Doctrine, going forward, generally courts should no longer give mandatory deference to a regulation (either an existing regulation or one promulgated in the future) by a federal agency empowered by Congress to issue regulations under a federal statute.
The opinion is based entirely on Section 7 of the Administrative Procedure Act (the “APA”). Section 7 specifies that courts, not agencies, will decide “all relevant questions of law” arising on review of an agency regulation. Justice Thomas elaborated as follows:
“..Section 706 directs that ‘[t]o the extent necessary to decision and when presented, the reviewing court shall decide all relevant questions of law, interpret constitutional and statutory provisions, and determine the meaning or applicability of the terms of an agency action.’ 5 U.S.C. Section 706. It further requires courts to hold ‘unlawful and set aside agency action, findings, and conclusions found to be …not in accordance with law.’ Section 706(2(A).
“The APA thus codifies for agency cases the unremarkable, yet elemental proposition, dating back to Marbury: that courts, not agencies, will decide ‘all relevant questions of law” arising on review of agency action…even those involving ambiguous laws — and set aside any such action inconsistent with the law as they interpret it. And it prescribes no deferential standard for courts to employ in answering those legal questions. That omission is telling, because section 706 does mandate that judicial review of agency policymaking and fact finding be deferential. See Section 706(2)(A) (agency action to be set aside if “arbitrary, capricious, [or] an abuse of discretion); Section 706(2)(E) (agency fact finding in formal proceedings to be set aside if ‘unsupported by substantial evidence’).”
Does that mean that courts should give no deference to a regulation issued by a federal agency?
No. In addition to the conditional deference to be accorded to agency policymaking and fact finding referenced above, Justice Roberts confirmed the continued viability of the Supreme Court opinion in Skidmore v. Swift & Co., 323 U.S. 134 (1944). Justice Roberts explained:
“The APA, in short, incorporates, the traditional understanding of the judicial function, under which courts must exercise independent judgment in determining the meaning of statutory provisions. In exercising judgment, though, courts may — as they have from the start— seek aid from the interpretations of those responsible for implementing particular statutes. Such interpretations ‘Constitute a body of experience and informed judgment to which courts and litigators may properly resort for guidance’ consistent with the APA. Skidmore, 323 U.S., at 140. And interpretations issued contemporaneously with the statute at issue, and which have remained consistent over time, may be especially useful in determining the statute’s meaning. See ibid, American Trucking Assns., 320 U.S., at 549”
Under Skidmore, the deference an agency receives depends on how persuasive its interpretation is. In making that assessment, a court looks at the thoroughness of the agency’s investigation of the issues, the validity of its reasoning, the consistency of its interpretation over time, and “other persuasive powers” of the agency.
The initial step in assessing whether to give Skidmore deference to a federal agency is to ascertain whether Congress intended to provide the agency with the authority to promulgate the regulation that it promulgated. Justice Roberts explained how a court should make that assessment:
“In a case involving an agency, of course, the statute’s meaning may well be that the agency is authorized to exercise a degree of discretion. Congress has often enacted such statutes. For example, some statutes expressly delegate to an agency the authority to give meaning to a particular term. Others empower an agency to prescribe rules to ‘fill up the details’ of a statutory scheme, or to regulate subject to the limits imposed by a term or phrase that leaves agencies with flexibility, such as ‘appropriate’ or ‘reasonable.’ When the best reading of a statute is that it delegates discretionary authority to an agency, the role of the reviewing court under the APA is, as always, to independently interpret the statute and effectuate the will of Congress subject to constitutional limits. The court fulfills that role by recognizing constitutional delegations, ‘fix[ing] the boundaries of delegated authority,’ H. Monaghan, Marbury and the Administrative State, 83 Colum. L. Rev. 1, 27 (1983), and ensuring the agency has engaged in ‘reasoned decisionmaking’ within those boundaries. By doing so, a court upholds the traditional conception of the judicial function that the APA adopts.”
Some pundits are already arguing that, while the Chevron Doctrine has been overruled, the Court has substituted a new doctrine which will result in it giving deference to agency regulations issued pursuant to a statute that cabins the type of regulation it can issue and uses words like “appropriate” and “reasonable.” See A. Vermeule, Chevron by Any Other Name, The New Digest (June 28, 2024) (available online):
The majority in Loper Bright argued, on the one hand, that ‘Chevron cannot be reconciled with the APA by presuming that statutory ambiguities are implicit delegations to agencies.’ But with its other hand, the majority almost immediately took that all back. The Loper Bright opinion contains an enormous … loophole through which most if not all of the Chevron regime can easily fit. Here is the critical passage, reproduced without internal citations — except for one especially significant citation to a law review article:
‘In a case involving an agency, of course, the statute’s meaning may well be that the agency is authorized to exercise a degree of discretion. Congress has often enacted such statutes. For example, some statutes expressly delegate to an agency the authority to give meaning to a particular term. Others empower an agency to prescribe rules to ‘fill up the details’ of a statutory scheme, or to regulate subject to the limits imposed by a term or phrase that leaves agencies with flexibility, such as ‘appropriate’ or ‘reasonable.’ When the best reading of a statute is that it delegates discretionary authority to an agency, the role of the reviewing court under the APA is, as always, to independently interpret the statute and effectuate the will of Congress subject to constitutional limits. The court fulfills that role by recognizing constitutional delegations, ‘fix[ing] the boundaries of [the] delegated authority,’ H. Monaghan, Marbury and the Administrative State, 83 Colum. L. Rev. 1, 27 (1983), and ensuring the agency has engaged in ‘reasoned decisionmaking’ within those boundaries. By doing so, a court upholds the traditional conception of the judicial function that the APA adopts.”
What this means is that many, most or even all of the cases that were previously called “Chevron deference” cases can now be relabeled as “Loper Bright delegation” cases. A concrete example may be useful. In her characteristically clear-minded dissent, Justice Kagan listed a series of statutory problems, drawn from real statutory schemes, that courts confront. To shoplift one of her examples:
“Congress directed the Department of the Interior and the Federal Aviation Administration to reduce noise from aircraft flying over Grand Canyon National Park—specifically, to ‘provide for substantial restoration of the natural quiet.’ How much noise is consistent with ‘the natural quiet’? And how much of the park, for how many hours a day, must be that quiet for the ‘substantial restoration’ requirement to be met?”
It should be obvious that a Chevron approach to this statutory problem can proceed almost exactly as before, just with different labeling. Interpreting the statute independently, the judges will now say that the best reading itself is that Congress has (in the majority’s terms) “authorized the agency to exercise a degree of discretion” in giving necessary specification and concretization to “substantial restoration,” and so forth.
Put differently, in the terms familiar under the pre-existing and now defunct Chevron regime, all Chevron step two cases could always have been re-labeled as Chevron step one cases – er, I mean, Loper Bright delegation cases. That is, cases that used to be labeled as “deference to reasonable agency interpretations of ambiguous statutes” will now be called “independent judicial interpretation that identifies a single best answer, an answer that consists of a delegation of discretionary authority to agencies within a given range.” But that relabeling changes rather little. It’s as though Chevron really only ever had one step, so that everything that was done under Chevron can also be done under the rubric of independent judicial interpretation.
To be sure, one might say (as I said in the indulgent self-quotation above) that the resulting regime represents a retail rather than wholesale version of Chevron. Whereas Chevron was said to rest on a general presumption that gaps and ambiguities represented a delegation to agencies, judges will now have to decide, statute by statute and problem by problem, whether a Loper Bright delegation is the best reading of the statute. But it is also true that Chevron was always already a retail regime, in the sense that judges always had to decide, statute by statute and problem by problem, what decision Congress had made about the issue at hand. At most, the Loper Bright majority and dissent disagree over whether agency authorization to fill in gaps and ambiguities should be understood as a general guiding presumption, or instead as a case-by-case conclusion. But as general presumptions have always had to be applied at retail in cases, it’s hard to see that the wholesale-to-retail transition will make any major difference, legally or substantively. Even if Loper Bright delegation is best understood as a retail version of Chevron, a relabeled version of Chevron it remains.”
Professor Jeff Sovern has explained how this new framework might be applied with respect to the CFPB’s rulemaking authority. Does Loper-Bright Limit the CFPB’s Power, Consumer Law & Policy Blog (June 30, 2024).
We strongly disagree with Professors Vermeule and Sovern. While Courts should always examine the statutory authority for agency rulemaking and compare that to the agency rule itself in deciding whether to give Skidmore deference to the rule, the court is not required to defer to it and, as emphasized throughout Justice Roberts’s opinion (including the language that Professor Vermeule claims is a loophole), the Court must make an independent judgment about the validity of the regulation. In other words, unlike Chevron, deference is not mandatory and the Court is free to ignore it if it reads the statute differently. The Court might, for example, apply the “major questions doctrine” in deciding that the agency’s regulation is not appropriate and/or not reasonable. The major questions doctrine is a principle of statutory interpretation applied in United States administrative law cases which states that courts will presume that Congress does not delegate to executive agencies issues of major political or economic significance. See FDA v. Brown & Williamson Tobacco Corp., 529 U.S. 120 (2000). This doctrine was used again in the 2022 decision in West Virginia v. EPA to strike down an EPA rule limiting carbon dioxide emissions from certain power plants in the absence of clear Congressional authorization for it to take such action. In addition to no longer being entitled to deference, federal agencies also will need to point to clear Congressional authorization for significant actions taken.
What impact will the opinion have on the CFPB, the FTC, and the federal prudential banking agencies?
Clearly, the opinion will jeopardize the ability of agencies to promulgate regulations that will likely be upheld by the courts. It is more likely that, going forward, regulations will be challenged either directly in an action against the agency under the APA or collaterally in a private lawsuit against a defendant whose defense is that it relied on and complied with an agency regulation. The opinion will apply to all non-final cases in which the legality of agency regulations are being challenged and to all lawsuits initiated in the future against any regulations whose legality is in question.
Congress is not always clear in the statutes that it adopts, and also cannot predict every issue that may arise. As a result, a statute is often ambiguous or silent. In the past, that would have triggered Chevron and a court would have to defer to a reasonable agency interpretation. Because of the Chevron Doctrine, in many cases when an agency action was challenged, the playing field was not level. The agency had a distinct advantage in having its interpretation upheld. A 2017 study found that agencies won 77.4% under Chevron, 66.4% when no regime was selected, 56% under Skidmore, and 38.5% under de novo review. Barnett and Walker, Chevron in the Circuit Courts, 116 Mich. L. Rev. 1, 30 (fig. 1) (2017).
While the demise of Chevron is important for all federal agency actions, the CFPB may face more consequences than many other agencies, given its aggressiveness in interpreting federal statutes and pushing the envelope with respect to its own authority. The CFPB v. Townstone case may be telling in this area. The lower court did not go past step one of Chevron, finding that ECOA clearly applied only to applicants and not to prospective applicants. In its appeal to the Seventh Circuit, the CFPB argued that under the Chevron Doctrine, the court should defer to its interpretation (as set forth in Regulation B) that ECOA applies to prospective applicants as well as applicants. We are still waiting for a decision, and potentially the Seventh Circuit has been waiting for the Supreme Court to decide the fate of Chevron before rendering its decision. Clearly, the CFPB’s argument for the court under Chevron to defer to its interpretation of ECOA (as reflected in Regulation B) that ECOA applies to prospective applicants is no longer a sustainable argument.
The overruling of Chevron also will affect how the Fifth Circuit assesses the pending challenge to the CFPB’s interpretation that its UDAAP authority encompasses discrimination beyond any specific anti-discrimination laws, and also challenges to the CFPB’s small business lending data collection and reporting rule, credit card late fee rule and the payday lending rule. The latter rule, among other things, requires written contemporaneous consent in order for a lender to initiate additional payment transfers from a consumer’s account after a lender has twice unsuccessfully presented the borrower’s check or other device for payment (colloquially referred to as the “2-strike” rule). The odds have now increased that these CFPB regulations (which were already in great jeopardy of being invalidated) will be invalidated or modified by the courts. Other rules that have been finalized are likely to suffer the same fate. Those include the Buy-Now, Pay-Later interpretive regulation and the regulation establishing a non-bank registry of judgments and consent orders. The same can be said for proposed regulations (overdraft fees, NSF fees, open banking, larger participant rule for payment providers, and the FCRA amendment dealing with the reporting of medical debt).
This opinion also jeopardizes the likelihood of regulations of other agencies being upheld by the courts. Cases in point would be the new regulations issued by the federal prudential banking agencies (The Federal Reserve Board, OCC and FDIC) under the Community Reinvestment Act, being challenged in federal district court in Texas, as well as the FTC regulations pertaining to car dealer practices, being challenged in the DC Circuit Court of Appeals. In March, the federal district court in Texas issued a preliminary injunction against the agencies to prohibit them from enforcing the new CRA rules while that litigation is pending. The FTC case in the DC Circuit has been fully briefed and is awaiting oral argument.
We would be remiss if we did not comment on what this means for the Cantero v. Bank of America case. In that case, the Supreme Court reversed the Second Circuit and remanded the case so that the Second Circuit could apply the National Bank Act preemption provision in Dodd-Frank, which requires that the court apply the holding in the Barnett Bank case (state law is preempted only if it prevents or significantly interferes with the exercise of a national bank power). Dodd Frank also expressly states that no Chevron deference can be given to the Comptroller of the Currency with respect to regulations it promulgated pertaining to preemption of state laws. The Loper opinion basically says that no Chevron deference can be given to any regulations issued by any agency. Thus, we do not think that the Loper opinion adds anything more to the inquiry that the Supreme Court in Cantero requested the Second Circuit to make regarding deference. It seems to us that the Second Circuit can only give Skidmore deference to the OCC regulations, and that will probably not carry the day.
What about final judgements of the Supreme Court and other lower COURTS validating regulations based exclusively on the Chevron Doctrine?
Fortunately, Justice Roberts addressed this issue head-on even though it was not germane to the Loper case itself.
“.. [W]e do not call into question prior cases that relied on the Chevron framework. The holdings of those cases that specific agency actions are lawful. .. are still subject to stare decisis despite our change in interpretive methodology. C. CBOCS West, Inc v. Humphries, 553 U.S. 442, 5457 (2008). Mere reliance on Chevron cannot constitute a ‘special justification’ for overruling such a holding, because to say a precedent relied on Chevron is, best, “just an argument that the precedent was wrongly decided. That is not enough to justify overruling a statutory precedent.”
Thus, there should not be any concern about the continued viability of the Supreme Court opinion in Smiley v Citibank where the court held that a credit card late fee constitutes “interest” within the meaning of section 85 of the National Bank Act, even though the opinion relied exclusively on the Chevron Doctrine because of a regulation promulgated by the Comptroller of the Currency defining “interest “to include late fees. Stare decisis will apply.
But, what about opinions of lower courts that validated regulations based exclusively on Chevron? Such cases include District Court summary judgments in favor of the OCC and FDIC with respect to their “valid when made” regulations which were intended to override the Second Circuit opinion in Madden v. Midland Funding. In that case, the court held that the transfer of credit card receivables by Chase to a debt buyer did not carry with it the favorable interest rate permitted to be charged by a national bank in Delaware. Those lower court opinions will also continue to be binding precedent.
Is this a good result for industry and consumers?
While the conventional wisdom may be that the industry likes the idea of Chevron being discarded, we believe the overturning of Chevron presents concerns for the industry. It is true that industry is more likely to oppose regulations issued during a Democratic administration, and like regulations issued during a Republican administration. But the industry needs certainty in conducting business. Even if a company disagrees with a particular regulation, there is comfort in knowing that the likelihood of the regulation being validated was fairly high under the Chevron Doctrine. As a result, a company would have confidence that it could move forward to implement the regulation, and it would know that its competitors would also have to comply with the same regulation. Now, however, there will be much greater uncertainty about what a court will do. That makes it much harder to conduct business.
One final point that needs to be made. There is no question that overriding Chevron, combined with the opinion in the Corner Post case handed down yesterday by the Supreme Court (holding that the six-year statute of limitations under the Administrative Procedure Act runs from when the plaintiff is injured by the regulation and not from when the regulation became final) will lead to an avalanche of lawsuits, challenging agency regulations directly or indirectly through private lawsuits. Unfortunately that means that regulations that do not go as far as consumer advocates would like, or that are at all favorable to the industry, will be the subject of litigation by plaintiffs’ lawyers.
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