In the summer of 1984, the United States Supreme Court passed down the influential Chevron decision, which held that courts should defer to an executive agency’s reasonable interpretation of otherwise ambiguous statutes that the agency is tasked to implement. In the summer of 2024, forty years later, in a dramatic shift, the United States Supreme Court overturned and upended Chevron, now holding that the judiciary must adjudicate, rather than abdicate its constitutional responsibilities under Article III to say what the law is.While prior decisions that relied on Chevron are not automatically overturned, their precedential value is of paramount concern, requiring attorneys to question how to navigate this new legal landscape.
When Congress enacts a statute, it cannot possibly address or conceive of every potential interpretation or application of its text. Congress’ statutory silence or ambiguity, whether unintentional or not, can create highly technical questions such as: “When does an alpha amino acid polymer qualify as a ‘protein’? How distinct is ‘distinct’ for squirrel populations? What size ‘geographic area’ will ensure appropriate hospital reimbursement? As between two equally feasible understandings of ‘stationary source,’ should one choose the one more protective of the environment or the one more favorable to economic growth?” Despite lacking the subject matter expertise to resolve these types of questions, Article III of the United States Constitution assigns the judicial branch the responsibility of providing final interpretation of the laws. Rather than leaving the interpretation of its statutes to the courts, Congress can explicitly empower an agency to interpret a statute through rulemaking authority. For example, Congress gave the Director of the Consumer Financial Protection Bureau (CFPB) the authority to “prescribe rules and issue orders and guidance, as may be necessary or appropriate to enable the Bureau to administer and carry out the purposes and objectives of the Federal consumer financial laws”.If Congress explicitly left a gap for the agency to fill, that is an express delegation of authority to the agency to clarify a specific statutory provision by regulation, and the court must give controlling weight to these regulations unless “arbitrary, capricious, or manifestly contrary to the statute”. With Chevron, the United States Supreme Court set the standard for affording the responsible executive agency deference in interpreting the statutes that the agency implements. The application of Chevron deference became colloquially known as the “Chevron two-step”. In step one, the court applied its ordinary tools of statutory construction to determine whether Congress directly spoke to the precise question at issue. If Congress’ intent was clear, that ended the matter; the court and agency had to give effect to the unambiguous intent expressed by Congress. If the court determines that the statute is silent or ambiguous as to the specific issue, step two is defer to the agency’s reasonable, permissible interpretation of the agency-administered statute. As United States Supreme Court Justice Roberts notes, “[b]ecause Chevron in its original, two-step form was so indeterminate and sweeping, we have instead been forced to clarify the doctrine again and again. Our attempts to do so have only added to Chevron’s unworkability, transforming the original two-step into a dizzying breakdance.”In Justice Kagan’s dissent, however, she wittily criticizes that “the exceptions that so upset the majority require merely a rote, check-the-box inquiry. If that is the majority’s idea of a ‘dizzying breakdance’ . . . the majority needs to get out more.” In a six-to-three decision, the United States Supreme Court in Loper Bright Enters. v. Raimondo overruled Chevron, holding that the Administrative Procedure Act (the “APA”) requires courts to exercise their independent judgment in deciding whether an agency has acted within its statutory authority, and courts “may not defer to an agency interpretation of the law simply because a statute is ambiguous.” The APA prescribes no deferential standard, specifying that courts, not agencies, will decide “all relevant questions of law” arising on review of agency action, even those involving ambiguous laws. Agency interpretations of statutes, like agency interpretations of the Constitution, are not entitled to deference. Chevron required courts to set aside traditional interpretive tools and defer to an agency’s “permissible construction of the statute,” even if not “the reading the court would have reached if the question initially had arisen in a judicial proceeding”, but “[i]n the business of statutory interpretation, if it is not the best, it is not permissible.” Although the Judiciary can respect the subject matter expertise of the Executive Branch’s agencies’ interpretations of a statute, especially when made contemporaneous to enactment and consistent over time, the views of the Executive Branch cannot “supersede” the judgment of the Judiciary. The overruling of Chevron revives the doctrine of Skidmore deference, where the weight the Judiciary should give agency interpretations depends on “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.” Justice Kagan cautions, however, that “[i]f the majority thinks that the same judges who argue today about where ‘ambiguity’ resides are not going to argue tomorrow about what ‘respect’ requires, I fear it will be gravely disappointed.” Despite the drastic shift in the agency deference paradigm, individual cases decided under Chevron remain good law. The holdings of prior cases that relied on the Chevron framework are subject to stare decisis; mere reliance on Chevron cannot constitute a “special justification” for overruling prior holdings. Through this holding, the Supreme Court punts all agency action challenges for future courts to decide. Further, Loper Bright might practically operate the same as Chevron, with courts relying on agency expertise even if not affording blind deference. Although courts are now free to rule otherwise, it is possible that courts will rule the same way on agency actions as they had under Chevron. And agencies with broad enabling statutes may not have to worry about the paradigm shift at all. The CFPB, for example, will likely retain much of the authority it enjoyed during the Chevron era. There have already been cases decided in the wake of Loper Bright where the court still deferred to the CFPB’s interpretation of the statutes the agency is responsible for. In Consumer Fin. Prot. Bureau v. Townstone Fin., Inc., for example, the Seventh Circuit, acknowledging that it must review the case de novo in a post-Chevron world, still deferred to the CFPB’s interpretation of Regulation B, reversing the lower court’s decision that the CFPB had acted outside of the statutory bounds of the Equal Credit Opportunity Act (“ECOA”). Rather than blind deference, however, the Seventh Circuit reasoned that the CFPB’s interpretation accorded with the plain text and purposes of the ECOA, when taken as a whole. In 2010, Congress transferred all consumer financial protection functions from the Federal Reserve, OCC, OTS, FDIC, FTC, NCUA, and HUD to the CFPB. Congress granted the CFPB the authority “to establish the general policies of the Bureau with respect to all executive and administrative functions, including . . . implementing the Federal consumer financial laws through rules, orders, guidance, interpretations, statements of policy, examinations, and enforcement actions.” And as previously mentioned, Congress explicitly granted broad rulemaking authority to the CFPB: “The Director may prescribe rules and issue orders and guidance, as may be necessary or appropriate to enable the Bureau to administer and carry out the purposes and objectives of the Federal consumer financial laws, and to prevent evasions thereof.” Further, where the authority of the CFPB and another agency to prescribe rules under the federal consumer financial laws overlap, the CFPB has “the exclusive authority to prescribe rules.” “[T]he deference that a court affords to the Bureau with respect to a determination by the Bureau regarding the meaning or interpretation of any provision of a Federal consumer financial law shall be applied as if the Bureau were the only agency authorized to apply, enforce, interpret, or administer the provisions of such Federal consumer financial law.” The CFPB, therefore, maintains extensive express authority regardless of the state of the judicial doctrine of agency deference. Courts have found that 12 U.S.C. § 5512(b)(4) is enough to explicitly grant the CFPB authority to fill in gaps left in federal consumer financial laws. And further, courts have found that the CFPB’s commentary, which provides official interpretations of its regulations, is “highly persuasive” even if not binding. In White v. First Step Grp. LLC, the court held that while unpromulgated proposed rules are not entitled to Chevron deference, the CFPB’s pronouncements therein are persuasive under Skidmore deference. Thus, even under the returning Skidmore standard, courts are likely to afford substantial deference to the CFPB’s reasonable interpretations of federal consumer finance statutes. Chevron does not appear to be a vital factor in deferring to the CFPB’s interpretations, with some courts accepting the CFPB’s interpretations irrespective of Chevron. In Nat'l Cmty. Reinvestment Coal. v. Consumer Fin. Prot. Bureau, for example, the court held that “[e]ven dispensing with the Chevron framework, which the parties invoke, and ‘[u]sing a statutory interpretation lens,’ CFPB has ‘offered the best construction of the statute,’ and thus the Court adopts the agency's understanding.” And in Ginsberg v. I.C. Sys., the plaintiff alleged that an undated FDCPA Letter, which followed the CFPB’s Model Form, violated the FDCPA because the lack of date “misled as to the status of the subject debt”, while the defendant argued that the Model Form’s “safe harbor” under Regulation F was entitled to Chevron deference. Without any mention of Chevron, the court rejected the CFPB’s interpretation of the FDCPA and held that “compliance with Regulation F, alone, does not provide a ‘safe harbor’ from violation of the FDCPA. Similarly, in Berlin v. Renaissance Rental Partners, LLC, the Second Circuit deferred to the CFPB’s interpretation of the term “lot” without mentioning Chevron at all, instead applying Auer deference. Under Auer deference (sometimes called “Seminole Rock deference”), when an agency interprets its own ambiguous regulation, the Court defers to the agency’s interpretation unless plainly erroneous or inconsistent with the regulation. In 2019, the Supreme Court declined to overrule Auer due to stare decisis considerations, but Loper Bright’s overruling of Chevron may signal a similar overruling of Auer in the future. In the meantime, the CFPB will continue to enjoy Skidmore and Auer deference even in a post-Chevron world. The CPFB’s rulemaking and interpretative authority is especially notable in combination with its funding mechanism that the Supreme Court recently endorsed as complying with the Appropriations Clause. Most federal agencies must petition Congress for funds on an annual basis, but Congress authorized the CFPB to draw the amount its Director deems “reasonably necessary to carry out” the CFPB’s duties from the Federal Reserve, subject to an inflation-adjusted cap. The CFPB cannot request more than twelve percent (12%) of the Federal Reserve System’s total operating expenses as reported in fiscal year 2009, adjusted for inflation. In fiscal year 2022, that cap was about $734 million. Loper Bright opens the floodgates for challenges to agency action, casting previously permissible agency interpretations into uncertainty. But even in a post-Chevron world, compliance attorneys should worry that courts will still tacitly defer to the statutory interpretations of administrative agencies, like the CFPB. Even if courts can no longer blindly defer to the CFPB, courts can still rule (and already are ruling) that the CFPB’s interpretations are entitled to respect. As the CFPB proposes amendments to Regulation X, compliance attorneys must ensure that our loan servicing clients adhere to the new loss mitigation requirements, including notices and timing. In sending out compliant FDCPA notices, must law firms (and debt collectors) adhere to Regulation F, or may they rely on the clear and unambiguous language of 15 USC 1692g? Mortgage industry compliance attorneys are paying close attention as courts start to decide these questions and give shape to the newest incarnation of the agency deference doctrine. Matthew Fleck, Esq. is an associate attorney in the compliance department of Stern & Eisenberg, P.C. The law firm operates in the states of Pennsylvania, New York, New Jersey, Delaware and West Virginia. The firm offers services in third party creditors’ rights, transactional real estate, litigation and regulatory and compliance matters. Footnotes were removed from the original version of this article. 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