How did you celebrate the 4th?
Like me on the Fourth of July, I'm sure you celebrated our annual homage to freedom by re-reading the U.S. Constitution.[1] Thanks to a flurry of administrative law related cases at the end of the Supreme Court’s term, this year, I was looking in particular to see what the Constitution says about administrative agencies[2]and especially what it says about (i) independent financial regulatory agencies like the CFPB, and (ii) the proper level of deference courts should apply to interpretations of laws and regulations by those agencies.
Funny thing was, I couldn’t find much of anything in the Constitution at all about independent administrative agencies or “deference” to their interpretations. Likewise, it would appear, neither could SCOTUS’s conservative justices in upending 3 or 4 decades[3]of assumptions about agency powers. The overturning of “Chevron deference” (and further emasculation of agency powers) was as unequivocal as it was predicted by almost everyone.[4]
Chevron Overruled
By now, your inboxes are probably full of lawyers’ commentaries about the overuling of the Chevron deference doctrine penned by Chief Justice Roberts in his Loper Bright[5] majority decision. For example, the attorneys at Ballard Spahr have done an excellent job of that as has Justin Wiseman and his team at MBA. So, I’m not going to summarize the case and parse the concurrences and dissent here. Besides, I promised my mom that I would write a Musing this time that anyone could understand.[6] So, instead, I give you Justice Roberts, in his own plainly understandable words, from the majority opinion’s penultimate paragraph,
“Chevron is overruled. Courts must exercise their independent judgment in deciding whether an agency has acted within its statutory authority, as the APA requires. Careful attention to the judgment of the Executive Branch may help inform that inquiry. And when a particular statute delegates authority to an agency consistent with constitutional limits, courts must respect the delegation, while ensuring that the agency acts within it. But courts need not and under the APA may not defer to an agency interpretation of the law simply because a statute is ambiguous.” [emphasis added]
With that reading of the Administrative Procedures Act (APA) serving as the tombstone to Chevron’s deference standard requested by Justice Gorsuch in a dissent from denial of certiorari in 2022, the SCOTUS majority returned statutory interpretation to the courts, eviscerating a power that CFPB and other agencies have used (and abused) for decades, but never should have had in the first place (constitutionally speaking).
No anarchy, but…
Meanwhile, I had thought that the CFPB funding case written by Justice Thomas seemed to be saying, “enough already” to the type of Federalist Society/5th Circuit efforts seeking to get rid of independent agencies entirely on (lack of) constitutional grounds. That funding case opinion caged the wild monkeys of anarchy for the financial services industry that could have escaped by eliminating the CFPB entirely. In hindsight, however, Thomas’s opinion in that funding case may prove to be the high-water mark for SCOTUS’s conservative wing’s tolerance of CFPB and administrative agency constitutional powers generally.[7]
Thomas and his 7-2 majority in the funding case didn’t use the Appropriations Clause argument to eliminate the CFPB entirely, but it is apparent that SCOTUS' 6-3 conservative majority is highly skeptical of adminstrative agency powers generally. That doesn't bode well for many of CFPB's expansive interpretations and aggressive enforcement beyond clear violations. In fact, my observation is that on "culture war" type issues the SCOTUS line-up is not reliably pigeon-holed into a 6-3 court. But the clearest 6-3 dividing line between the conservative and liberal justices can be found in thier views of administrative law cases demonstrated by the cases issued during the last week of the term. Without question, taken together, these cases are a major blow to the power of adminstrative agencies even if the majority concedes such agencies can exist.
Big picture
On a high level, the Loper Bright decision, along with the other decisions issued at the end of the term, reflect a muscular view of the basic separation of power underpinnings of the Constitution and the roles and duties of each branch of government. SCOTUS seems to be telling everyone to “stay in your lane” and also “do your job.” That is, Congress needs to do more in legislating both in the level of detail and the areas covered. Courts, meanwhile, have the exclusive authority to interpret the meaning of laws. Executive/administrative agencies can be looked at for expertise on subject matters and enforcement decisions, but not the meaning of words and laws. Implicit in all of these cases (especially the Trump immunity case) was “voters, you too have a job and that is to pick and vote for good political candidates (and to serve as a jury of your peers in certain instances)”. The alternative to doing your respective job is tyranny one way or another.
Marbury reinvigorated
According to Harvard Law Professor Noah Feldman, the Loper Bright decision was really just a restatement of Marbury v. Madison, the famous early Supreme Court decision that is the basis for all modern judicial review in which SCOTUS stated, “it is emphatically the province and duty of the judiciary to say what the law is.” Feldman further noted that,
“[A]gencies are part of the executive branch, not the judicial branch. So it was always a little anomalous for courts to defer to agencies’ statutory interpretations under Chevron, rather than deciding legal cases for themselves. But the modern administrative state is complex. Applying Congress’s vague directives can be a highly technical task, perhaps better done by subject matter experts than judges. Seen in that context, Chevron was one of the greatest statements of modesty in the history of US law.”
So, it would seem that the court’s power grab was huge and lacked judicial humility. But folks desiring a muscular judiciary in the Trump immunity case, however, were sorely disappointed by the power modestly ceded to the Executive there.[8] Again, the court is emphatically saying that each branch has a job and one cannot infringe on the other. The court is jealously guarding the judicial branch's right to interpret laws, even if complex questions are at issue.
Full Employment for Regulatory Lawyers?
The decisions issued at the end of this Supreme Court term[9]will have no immediate impact on the mortgage industry, but over the long haul, as a practical matter, they may prove to be as consequential as the Dodd Frank Act itself. While all of the regulations that apply to mortgage lending still apply, now whenever an agency like CFPB seeks to enforce or interpret something premised on a statutory ambiguity (or worse, ignores judge’s decisions or makes up something from whole cloth) lenders will have a much greater ability to challenge that regulatory position in court.[10]To be clear, this doesn’t mean agencies can’t interpret, only that that they won’t have the final say.
Accordingly, scuttling Chevron deference will be a gold mine for financial service lawyers as long as regulators like the CFPB keep aggressively interpreting the laws it enforces. I guess this means that instead of just sinisterly lobbying regulators behind the scenes, regulatory lawyers can now jump on a new “gravy train” and make lawyer money the old-fashioned way: fighting for clients in adversarial procedings. Previously with Chevron deference, when issuing an enforcement action the CFPB could say, “Sure you can have your day in court, but that’s how we interpret the law, and the court is bound to give our view deference. That is, you will lose.” Now in those discussions it is much more plausible for a defendant to say, “well, I’ll see what the judge has to say about your interpretation.”
SCOTUS has leveled the playing field against the CFPB and other regulators for anyone willing to fight.[11] Judges will have the final say on statutory ambiguities through the common law process, not bureaucrats by fiat. This seems right to me but will also create headaches for compliance professionals who are unaccustomed to having the ability to challenge agency actions[12]. Meanwhile, the volume of new cases could overwhelm the federal courts.
Skid (more)
What remains a little less clear is how courts will, in fact, view agency interpretations. In his case summary, former CFPB attorney, Rich Horn mentioned that the Court highlighted Skidmore v. Swift & Co., in which the Court stated that it would give “weight” to agency interpretations dependent upon the “thoroughness evident in its consideration, the validity of its reasoning, its consistency with earlier and later pronouncements, and all those factors which give it power to persuade, if lacking power to control” (known as the doctrine of Skidmore deference, or weight).[13] So, even if Congress grants the agency the authority to interpret, Skidmore says that interpretation is still subject to judicial second guessing and the court has the final say. At a minimum, the nature of rulemaking and enforcement authority will change requiring an agency to "show its work" and might make them pause before doing something as arrogant as citing thier own consent orders as precedential authority for interpretative guidance.
In future Musings, I will probably speculate on how these changes to the administrative law environment will impact interpretation and enforcement of specific laws and regulations affecting the mortgage industry such as RESPA. Stay tuned.
[1] Isn’t that what everyone does? Ok, I also had some drinks, cheeseburgers and won an all-star water balloon toss competition.
[2]For other topical news related reasons I also paused momentarily on Section 4 of the Twenty-Fifth Amendment.
[3]This is basically the entirety of my legal career.
[4]I’m fairly certain I’m the only one who combined that prediction with an homage to Gordon Lightfoot.
[5]It’s unclear to me if future legal commentators will refer to the “Loper Bright doctrine” now or will continue to just say Chevron deference is a dead letter or some other moniker will attach to this principle. Since the Chevron doctrine almost was named after Neil Gorsuch’s mother, it would be interesting for the new doctrine to be named after Gina Raimondo who, is often discussed as a rising Democratic politician. So far, that doesn't seem likely.
[6] I so often disappoint my mom. 😊
[7]Some legal minds who I respect tremendously, like Ballard’s Alan Kaplinsky, are now focusing on the Fed’s “earnings” question for CFPB’s funding authority. CFPB is supposed to be funded out of the Fed’s earnings, but it would seem the Fed has been losing money the past few years. In using the term “earnings” in this context, however, Kaplinsky and others apply a traditional GAAP/SEC accounting perspective which may not apply to the Federal Reserve since unlike any other company, they can print their own money. That’s why I still think the “earnings” argument is a longshot. I also don’t think any of the conservative judges will want to look too closely at the palm of the hand of the Federal Reserve’s constitutionality either- see footnote 16 of Alito’s dissent in the CFPB funding case. Again, they have already dealt several major blows to administrative agency power in this term.
[8]For my money, that immunity decision was a reminder to Congress that impeachment (and the threat thereof) is the primary Constitutionally recognized means of controlling the President. There should be at least a dozen Republican Senators (and former Senators) who wish they could have a do-over on that now. That, and you may also see a “between the lines” rebuke and reminder to voters who might not like what a President could do with wide immunity to not to vote for someone who is prone to indulge in abuse of power.
[9]While preserving precedent under prior uses of Chevron deference by agencies, SCOTUS’s Corner Post case, issued on July 1, 2024, greatly expands the ability of plaintiffs to challenge administrative agency action years after it is taken (the statute of limitations is based on when the plaintiff was injured, not when the action was taken by the agency). Coupled with Loper Bright’s elimination of Chevron deference and Jarkesy’slimits on administrative law judges, these 3 cases go a long way to level the field against imperious agency action.
[10] I’m keeping an eye on the Townstone case appeal at the 7th Circuit to see this issue in action in the fair lending context.
[11] Willing and able. Litigating against the government isn’t getting any cheaper.
[12]Many compliance people do not distinguish between the law and regulatory pronouncements about the law. This will require a change in mindset for many.
[13]The Skidmore deference reference led one intrepid, if not very frustrated financial services attorney and Musing reader to comment to me,”Given the way CFPB operates, I do not see much “thoroughness of consideration, valid reasoning, and the only consistency” is mostly with earlier self-servicing press releases – so as far as Skidmore is concerned, I see CFPB’s airship of state skidding right off the runway - it will skid some, and then skid some more.”
Brian Levy is an attorney with Katten & Temple, LLP licensed in Illinois and Wisconsin who writes the free Levy’s Mortgage Musings blog available at www.mortgagemusings.com. Mr. Levy can be reached by email at blevy@kattentemple.com. Mr. Levy’s blog is copyrighted and presented by Chrisman Commentary with permission. All rights are reserved.