Now What? What the End of Chevron Means for the CU Industry

In case you missed it, on Friday in a case called Loper Bright Enterprises Et Al. V. Raimondo, Secretary Of Commerce, Et Al the U.S. Supreme Court discarded the so-called Chevron Doctrine pursuant to which federal courts were required to defer to reasonable agency interpretations of ambiguous statutes.

This is, of course, a big deal.

It means that federal agencies, including the NCUA, and perhaps the CFPB have less flexibility (i.e. power) to interpret federal regulations in a way that fits their policy preferences. At the same time, unless you fish for a living, since this decision ostensibly dealt with regulation of the maritime industry, this major decision has no immediate impact on the way you go about your work today.

Just because its impact won’t be immediate doesn’t mean that its consequences won’t be hugely significant. In fact, when the dust settles in the months and years ahead, this decision will be recognized as a watershed moment that decreased the power of administrative agencies, opened up new fronts in the legal debates surrounding consumer protection and fair lending laws, and made it even more important for the credit union industry to work effectively with Congress.

Under Chevron, federal courts must follow a two-step process when considering the challenge to an agency’s interpretation of a regulation. First, the court must determine whether the precise issue being litigated has already been addressed by the federal statute. If it decides that it has not, then it goes to step two of Chevron pursuant to which courts are instructed to defer to an agency’s reasonable interpretation of the ambiguous statute even if the interpretation is one that the court itself would not have reached. In other words, in its purest form, Chevron presumes that agencies and not courts are best positioned to fill in the blanks of ambiguous statutes. Over the years, the application and reach has been chipped away at. For instance, under one interpretation, Chevron deference does not apply to regulations issued pursuant to a notice and comment period. However, the courts have not uniformly applied these exceptions.

In his ruling overturning Chevron, Justice Roberts held that while courts are free to consider and grant respect to an agency’s proposed interpretation of ambiguous statutes, courts are not required to defer to these agency interpretations. In fact, doing so is a violation of the Administrative Procedures Act. A part of the ruling that hasn’t gotten enough attention is that it still accords agencies enhanced authority to interpret federal statutes so long as the agencies are acting pursuant to explicit congressional delegations of such authority. In contrast, under the old Chevron Doctrine, Congress was presumed to draft legislation with the understanding that any ambiguities could be addressed by the primary regulator. Those days are over.

Against this backdrop, the most immediate impact of this ruling is that it further emboldens financial and other heavily regulated institutions to challenge agency interpretation of statutes. We are already seeing this more aggressive approach take shape as the financial industry challenges, among other things, the CFPB’s cap on credit card late fees. This decision gives opponents of regulatory interpretations an important piece of additional ammunition.

New administrations can frequently change legislative interpretations to fit their policy preferences, secure in the knowledge that Chevron gives them the flexibility to do so. Those days also appear to be over. In 2001, the U.S. Labor Department’s Wage and Hour Division issued letters opining that mortgage loan officers do not qualify as exempt employees. As anyone involved with the mortgage industry knows, this had huge implications since loan officers would frequently work in excess of eight hours to close loans. Not to worry, in 2006 the Department issued another letter concluding that loan officers were exempt employees after all. But wait, there’s more. In 2010, the Department withdrew its 2006 opinion letter meaning that as a matter of statutory interpretation mortgage loan originators were once again entitled to overtime. As can be seen from the above example, although Chevron may seem arcane, anyone in the mortgage industry knows that it can have extensive and confusing real-life consequences.

As with any case of this significance, it raises new complications even as it solves old ones.

There is no agency that has taken greater advantage of its authority to issue guidance interpreting existing law than the CFPB. The CFPB has issued several pronouncements declaring specific activities, such as allegedly improperly disclosed overdraft and non-sufficient funds fees, to be unfair, deceptive, abusive acts or practices. Two big questions raised by the court’s decision concern the extent to which Congress empowered the Bureau to crank out these announcements and if so, can this ruling be interpreted as narrowing the CFPB’s flexibility in interpreting regulations?

Then, of course, there is the NCUA. Notwithstanding the industry’s discontent with the Board’s overdraft actions, the credit union industry has relied heavily on the agency’s authority to interpret federal law. Most importantly, in upholding agency regulations providing an expansive definition of what constitutes a “well-defined, local community” the Court of Appeals for the D.C. Circuit relied on Chevron to uphold the agency’s authority against a challenge by the banker’s association. (We review the agency rule in accordance with the familiar Chevron doctrine, a two-prong test for determining whether an agency “has stayed within the bounds of its statutory authority” when issuing its action.)

The bottom line is that the NCUA and other regulators will be that much more reluctant to provide expansive interpretation of existing statutes, underscoring the need for Congress to act if the industry is going to continue to evolve as it heads toward its hundredth anniversary.

The end of Chevron’s deference may have its most divisive impact on the interpretation of fair lending laws. For example, the CFPB is currently appealing a district court ruling that the Equal Credit Opportunity Act (ECOA) does not apply to discriminatory acts committed by mortgage originators against individuals who have not yet applied for a loan.

Similarly, a simmering debate involves whether fair lending laws can ban actions that have a disparate impact on minority groups when the underlying statute only bans intentional discrimination.

As can be seen from these examples, there is no doubt that the Supreme Court’s decision is a game-changer, but its full effect will only be gleaned over the months and years ahead. What we know for sure is that all agencies, including the NCUA, have less power than they did when work started on Friday. Just how much less power, and who will ultimately fill the void remains to be seen.

Henry Meier is the former General Counsel of the New York Credit Union Association, where he authored the popular New York State of Mind blog. He now provides legal advice to credit unions on a broad range of legal, regulatory and legislative issues. He can be reached at (518) 223-5126 or via email at henrymeieresq@outlook.com.