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What post-Chevron financial regulation will look like
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Last month, the U.S. Supreme Court gave the financial industry an early Christmas present that radically changes the relationship between regulators and private industry. With the Supreme Court’s landmark decision in Loper Bright Enterprises v. Raimondocapsizing Chevron USA v. National Resources Defense Councilmuch of the rulemaking by the Federal Reserve Board, SEC, HUD, and other agencies is now open to attack.
The implications for the end of Chevron deference are far-reaching and profound. The decision affects nearly everything the federal government does—from health care, employment law, regulation of financial services, technology and telecommunications to taxes and tariffs. Any attempt by an agency expand its authority without specific instructions from Congress is now subject to challenge and possible reversal.
“When we saw that Chief Justice John Roberts had written the majority opinion in the Supreme Court’s 6-3 decision in Loper Bright and Relentless In these cases, we think that certainly the Chief would have added a subtle touch, a hint of nuance or some qualifiers to his opinion to mitigate its impact,” notes Jim Lucier of Capital Alpha Partners.
“No. It is a deep, broad, complete and total repeal of the Chevron doctrine – and one that sprinkles salt on the ruins of what remains, just as the Romans destroyed the city of Carthage.”
Every federal regulation and operating rule that does not have specific support in the relevant statute is now subject to challenge. This includes the entire Basel Agreementwhich has never been endorsed by Congress. Basel, lest we forget, was created by the Federal Reserve in the 1970s and consists entirely of private understandings among finance ministers in the Group of 10 nations. The Basel Accord has never been presented to the Senate for ratification.
Furthermore, banks and mortgage companies now face a completely changed relationship with their respective regulators. Agencies can no longer hide behind a legal presumption of deference from the courts. With the end of the federal judiciary’s forty-year practice of giving credence to agencies’ reasonable interpretations of ambiguous federal laws, financial companies now have a level playing field when challenging agency actions.
Thus, for example, when the Federal Housing Finance Agency uses irrelevant laws as a basis for conducting prudential examinations of non-bank mortgage companiesthe industry now has a powerful incentive to say “no.” When FHFA uses the issuer’s basic financial criteria as the basis for non-bank substitute floating capital rulesthe industry now has a strong incentive to say “no” and threaten legal action.
The fact that Loper The decision means that the general counsel of every federal agency in Washington is now on the defensive. When mortgage companies are in discussions with regulators, the leverage now resides with the issuer. That’s a big change.
With the Consumer Financial Protection Bureau, nearly every regulation issued by the CFPB is now subject to challenge and litigation. Monetary fines imposed by the CFPB can be challenged. All from CFPB new rules on mortgage services from limits on bank overdraft fees to regulations on Google’s use of consumer data can be challenged, and with a much greater likelihood of success than before the Supreme Court’s decision.
CFPB Director Rohit Chopra has been tapped to finalize a series of new regulations in 2024including rules that cut overdraft fees and allow customers to share their bank details with third parties. With the USSC decision and also the prospect of President Donald Trump won re-election in Novemberhowever, the CFPB is likely to be significantly reduced by 2025.
“While Chevron’s demise is significant 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 boundaries of its own authority,” it notes. Ballard Spahr in a comment.
Another example of the impact of the USSC decision is Ginnie Mae, where the agency has attempted to impose “risk-based capital requirements” on non-bank issuers. We noted in our previous commentary (“Ginnie Mae’s Risk-Based Capital Rule Is Unworkable“) that the agency is having difficulty with its proposal. But now government issuers can block Ginnie Mae’s capital proposal, which has no statutory basis, in federal court.
“The Roberts decision basically said that only courts interpret the law, and that the only correct reading of a statute is the one a court determines,” Lucier notes. “There is no range of possibilities from which federal regulators can pick and choose the one they prefer.”
As the full impact of the USSC decision on Loper Bright Enterprises v. Raimondo If this becomes better understood in the coming months, banks and mortgage lenders will have an opportunity to reverse years of aggressive regulation by agencies like the CFPB, HUD, and the FHFA. Every action taken by every federal agency that is not supported by specific instructions from Congress can be attacked and overturned in court.
“This decision overturns decades of administrative law precedent and will make it much easier to challenge agency regulations,” the Mortgage Bankers Association writes. “Notably, such challenges to the rules could come from industry groups as well as from groups or individuals who believe that certain rules may be too industry-friendly.”
MBA continues: “It could also change 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 drafted statutes.”
Ultimately, the biggest benefit to banks and lenders from the Supreme Court’s action will be to prevent federal regulators from wasting private companies’ time unnecessarily. If you don’t think an agency has a good legal basis for a rule or penalty, threaten to sue and see what happens. You may be pleasantly surprised at the response.