Since the Supreme Court issued its decision in Loper Bright Ent. V. Raimondo on June 28, attorneys and regulated entities have been buzzing with discussion of the implications. The Loper decision overturned the Chevron doctrine, which, for the past 40 years, set rules for how the federal courts reviewed agency regulations.
What was the Chevron Doctrine?
The Chevron doctrine was originally set out in the Supreme Court’s 1984 decision Chevron v. Natural Resources Defense Council. At its simplest, Chevron required the federal courts to defer to regulator interpretations of statutes where there was ambiguity in the statute and the regulator’s proffered interpretation was reasonable. Because statutory ambiguity is the basis of a significant number of challenges to federal regulations, Chevron has been cited in thousands of decisions over the years. Chevron has been applied to the interpretation of everything from “interest” in the National Bank Act to an “exchange” for purposes of the Affordable Care Act.
What did the Court decide in Loper?
The Court determined that no special amount of deference is due to an agency’s interpretation of a statute. It therefore overruled the Chevron doctrine, while also stating that it was not overruling any particular cases that had applied the Chevron doctrine, including the Chevron case itself. Courts will therefore no longer give special deference to an agency’s interpretation of a statute.
Why did the Court overrule Chevron?
The Court’s decision was based on three central arguments.
First, the Court considered separation of powers. It stated that the interpretation of the law is the province of the Judiciary branch and that it would be improper for the judiciary to defer to the interpretations of agencies, which are part of the Executive branch, in this regard. Under Loper, Congress may still delegate authority to an agency to interpret or apply a requirement, but that authority must be granted explicitly by Congress and may not be inferred from ambiguity in a statute.
Second, the Court stated that Chevron is incompatible with the Administrative Procedures Act (APA), which requires the court to decide all relevant questions of law and interpret relevant statutory provisions when reviewing regulatory action. Loper states that the APA’s requirement does not allow a court to defer to an agency’s interpretation. Because courts are routinely required to resolve statutory ambiguity in other areas of law, the Court determined that for courts to refrain from resolving ambiguity in this limited sphere would be both unreasonable and in conflict with the requirements of the APA.
Finally, the Court stated that Chevron has not been applied consistently by lower courts nor applied with any frequency by the Supreme Court. The Loper opinion notes tweaks and modifications that were made to the Chevron doctrine over time in what it characterizes as an effort to reconcile Chevron with the APA and the Constitution, concluding that the revisions to the Chevron doctrine have complicated it to the point that it is not functional in many instances, even though it still has not achieved the necessary reconciliation with statutory and constitutional requirements. Ultimately, the Court determined that Chevron was fatally flawed.
How will the federal courts review regulations after Chevron?
The Court overruled Chevron. So how will courts decide challenges to regulations going forward? It appears, based on the Court’s precedents and the language in the Loper opinion itself, that the standard going forward will be Skidmore v. Swift & Co., a 1944 case that gave some deference to the agency’s interpretation of a statute, although it was not as deferential as Chevron.
Under Skidmore, furthermore, the extent of the Court’s deference may be case specific, as the level of deference “will depend upon the thoroughness evident in [the agency’s] consideration, the validity of its reasoning, its consistency with earlier and later pronouncements, and all those factors which give it power to persuade…” Ultimately, then, it appears that post-Chevron deference will be less extensive, not automatic, and ultimately depend on the persuasiveness of the agency’s reasoning. It is likely that future cases will develop the analysis in Skidmore further to provide more concrete guidance on the interpretation of ambiguity in regulatory statutes.
What does this mean for banks?
The Loper case involved a regulation that does not affect banking, so this case will not have any immediate, identifiable consequences for the banking industry. Pending and future legal challenges to banking regulations, however, will likely be reviewed under the Skidmore test rather than Chevron, potentially lowering the bar that a challenger must clear to obtain a ruling overturning a regulation. Current challenges to various regulations, such as the new CRA rule or the Section 1071 rule, will be decided based on which interpretation the Court finds more persuasive. Although the persuasiveness of the agency’s argument may be substantial based on its expertise, research, and arguments, the challenger will not necessarily be required to show that the agency’s interpretation is unreasonable or exceeds the authority granted by Congress. In summary, it appears that the Loper ruling will increase the chances of federal courts rolling back regulations based on the court’s interpretation of the statutes authorizing those regulations. Compliance Hub will continue monitoring and provide updates as they become available.