Chevron is Overruled: Will This Stop the CFPB in its Tracks?

The U.S. Supreme Court, on June 28, 2024, issued a landmark 6-3 decision rejecting the judicial doctrine known as Chevron deference in two cases, Loper Bright and Relentless.  The Court’s opinion was authored by Chief Justice Roberts, with Justices Thomas, Alito, Gorsuch, Kavanaugh, and Barrett joining.  Justices Kagan, Sotomayor, and Jackson dissented (note that Justice Jackson was recused in Loper).

The judicial doctrine of Chevron deference, created in the 1980s by the Supreme Court in a case titled Chevron v. NRDC, provided that courts must defer to an administrative agency’s reasonable interpretation of an ambiguous statute.  The Chevron doctrine had been made up of two steps.  The first step was the court’s determination of whether the statute was clear or ambiguous.  If it was ambiguous, the court moved to the second step, which was a determination of whether the agency’s interpretation was reasonable, and if so, the court deferred to that interpretation (even if it believed it was not the best interpretation of the statute).

This doctrine has been seen by many legal scholars as antithetical to section 706 of the Administrative Procedures Act (“APA”), which states that a court reviewing agency actions must “decide all relevant questions of law, interpret constitutional and statutory provisions, and determine the meaning or applicability of the terms of an agency action.”  5 U.S.C. § 706.  In Loper Bright and Relentless, the Supreme Court based its opinion, in part, on this statutory provision, stating that “Chevron is overruled.  Courts must exercise their independent judgment in deciding whether an agency has acted within its statutory authority, as the APA requires.”  The Court’s opinion was a clear rejection of Chevron, and not a limiting or cabining of Chevron deference (as some scholars thought was a potential outcome).

This decision could help reign in the aggressive excesses of the CFPB and other regulatory agencies, and perhaps unexpectedly, provide more consistency for regulated entities.  I summarize below the Supreme Court’s opinion and provide some brief thoughts on what this holds for the CFPB and other regulatory agencies.

I.  The Supreme Court’s Opinion

Let’s start with a brief look at the facts of the two cases Loper Bright and Relentless.  The cases involve a statute titled the Magnuson-Stevens Fishery Conservation and Management Act (“MSA”), which allowed the federal government to require third party observers on fishing vessels to ensure compliance with fishing laws.  But the MSA only stated for three specific groups of fishermen that the federal government can require the fishing vessels to pay for such observers, which groups did not include Atlantic herring fishermen.  The government had fully funded the observers for herring vessels for some time, but that funding was at some point not appropriated by Congress, and the Department of Commerce promulgated a rule in 2020 that required herring fishermen to pay for the government-required observers on their vessels, which would have cost up to 20% of their annual returns according to government estimates.  The herring fishermen sued the Department of Commerce to stop the rule, arguing that the MSA does not authorize the government to require the herring vessels to pay for the observers.  In both cases, the district and appellate courts based their decisions on Chevron, and the Supreme Court granted certiorari for the sole question of whether Chevron should be overruled or clarified.

The Court started its opinion with a discussion of the role of judicial review.  The Court noted that Article III of the U.S. Constitution gives the judiciary the power to adjudicate cases and controversies .  The Court stated that the framers of the Constitution understood that there were “limits of human language” and “envisioned that the final interpretation of the laws would be the proper and peculiar province of the courts.”  The Court then noted that it embraced this understanding in its 1803 case Marbury v. Madison, in which the Court first confirmed the doctrine of judicial review by looking at the principles of the U.S. Constitution, and asking whether the judiciary should be bound by an unconstitutional act of Congress.  The Court stated that, “it is emphatically the province and duty of the judicial department to say what the law is.”  I note further that the Court in Marbury reasoned that, “the judicial power of the United States is extended to all cases arising under the constitution,” and that it was “too extravagant to be maintained” that a court should not look at the Constitution.  Marbury is viewed as the bedrock of judicial review.

The Court in Loper and Relentless then discussed its jurisprudence after Marbury, discussing how it would give respect to the interpretations of the Executive Branch, noting cases like the 1827 case Edwards’ Lessee v. Darby, in which the Court stated that, “In the construction of a doubtful and ambiguous law, the cotemporaneous construction of those who were called upon to act under the law, and were appointed to carry its provisions into effect, is entitled to very great respect.”  The Loper and Relentless Court also noted that courts would give greater weight to such agency interpretations when they were “issued roughly contemporaneously with enactment of the statute and remained consistent over time.”  But the Court also noted that this “weight” was not the same as “deference,” noting cases like the 1932 case Burnet v. Chi. Portrait Co., in which the Court stated that, “The Court is not bound by an administrative construction, and if that construction is not uniform and consistent, it will be taken into account only to the extent that it is supported by valid reasons.”

The Loper and Relentless Court also stated that in its post-New Deal jurisprudence, which was during an era of “rapid expansion of the administrative process,” the Court “continued to adhere to the traditional understanding that questions of law were for courts to decide, exercising independent judgment.”  The Court stated that during this era, the Court would defer to agencies on questions of fact, but that “the Court did not extend similar deference to agency resolutions of questions of law.”  Of particular note, 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” (this has become known as the doctrine of Skidmore deference, or weight).

The Court then distinguished certain cases in which the Court deferred to agency applications of law to fact, such as the 1944 case NLRB v. Hearst, in which the Court was reviewing a decision by the NLRB that determined that “newsboys” were “employees” under the relevant statute regarding collective bargaining.  The Hearst Court stated that, “The Board’s determination that specified persons are ‘employees’ under this Act is to be accepted if it has ‘warrant in the record’ and a reasonable basis in law.”  But before it made this statement, the Hearst Court engaged in a lengthy analysis of whether the NLRB was applying the correct definition of “employee.”  The Loper and Relentless Court stated that in Hearst, this was a “fact-bound determination,” and that the Hearst Court did not mean to “refashion the longstanding judicial approach to questions of law.”  The Court stated that this New Deal era jurisprudence did not “resemble[] the deference the Court would begin applying decades later,” and that in 1946, just two years after Hearst, “Congress codified the opposite rule: the traditional understanding that courts must decide all relevant questions of law” in section 706 of the APA.

Section 706 of the APA, which I noted in the introduction above, required the judiciary to “decide all relevant questions of law” and “interpret constitutional and statutory provisions.”  The Court stated that “[t]he APA thus codifies for agency cases the unremarkable, yet elemental proposition reflected by judicial practice dating back to Marbury: that courts decide legal questions by applying their own judgment.”  The Court stated that if Congress had wanted a more deferential standard than what the judiciary had been applying, it would have codified that.  The Court then stated that “the deference that Chevron requires of courts reviewing agency action cannot be squared with the APA.”

The Court then discussed the Chevron case, stating that “Chevron, decided in 1984 by a bare quorum of six Justices, triggered a marked departure from the traditional approach.”  The Court stated that it never in Chevron or afterwards “attempted to reconcile its framework with the APA,” and that it “defies the command of the APA….”  The Court noted that deference is more than the “respect historically given to Executive branch interpretations.”

The Court then discussed the arguments in favor of Chevron.  Regarding the argument that a statutory ambiguity represents an implicit delegation by Congress to an agency, the Court stated that “an ambiguity is simply not a delegation of law-interpreting power,” and that “many or perhaps most statutory ambiguities may be unintentional.”  The Court also noted that it routinely interprets ambiguous statutes that have nothing to do with agencies, and that the Court in those cases finds the “single, best meaning.”  The Court stated that this “is the whole point of having written statutes,” and that “every statute’s meaning is fixed at the time of enactment.”  The Court also reasoned that “Chevron’s presumption is misguided because agencies have no special competence in resolving statutory ambiguities. Courts do.”

Regarding the argument that Congress generally intends for agencies to resolve statutory ambiguities because of their subject matter expertise, the Court stated that statutory interpretation is the judiciary’s expertise and not the agency’s.  The Court noted that courts do not decide questions blindly, but instead have the benefit of perspectives and the agency’s “body of experience and informed judgement,” and then cited Skidmore (also discussed above), which is the doctrine under which courts give weight to agency interpretations with the “power to persuade.”  The Court then stated that deference is “not necessary to ensure that the resolution of statutory ambiguities is well informed by subject matter expertise.”

Regarding the argument that Chevron provides for a uniform construction of statutes, the Court notes that judges applied Chevron inconsistently, and that there is little value in a uniform interpretation if that interpretation is wrong.  The Court stated that, “we see no reason to presume that Congress prefers uniformity for uniformity’s sake over the correct interpretation of the laws it enacts.”

Regarding the argument that interpreting ambiguous statutes is policymaking, and Chevron allows for political actors to make such policy decisions, the Court stated that this was “especially mistaken,” and that it “rests on a profound misconception of the judicial role.”  The Court stated that the interpretation of ambiguous statutes does not become policymaking “just because a court has an agency to fall back on.”  The Court also stated that “courts interpret statutes, no matter the context, based on the traditional tools of statutory construction, not individual policy preferences.”  The Court then stated that, “by forcing courts to instead pretend that ambiguities are necessarily delegations, Chevron does not prevent judges from making policy. It prevents them from judging.”

The Court then noted how it has cabined Chevron over the years.  Among other cases imposing such limits, the Court noted Mead, a 2001 case in which the Court held that Chevron only applied to agency interpretations with the force of law.  The Court also noted the Major Questions Doctrine (“MQD”), which was recently affirmed by West Virginia v. EPA, under which issues of major political and economic significance must receive an express delegation (MQD had been referred to sometimes as “step zero” of Chevron).  The Court also noted that it had not deferred to agency interpretations under Chevron since 2016.

The Court then addressed the issue of stare decisis, i.e., judicial adherence to precedent, and whether that requires the Court to keep Chevron.  The Court stated that courts apply Chevron differently, because ambiguity has a different meaning to different judges.  In addition, the Court noted that “rather than safeguarding reliance interests, Chevron affirmatively destroys them. Under Chevron, a statutory ambiguity, no matter why it is there, becomes a license authorizing an agency to change positions as much as it likes.”  I note that this happens often when Presidential administrations and the leadership of the agencies change, setting in place different policies.  The Court stated that “Chevron fosters unwarranted instability in the law, leaving those attempting to plan around agency action in an eternal fog of uncertainty,” and that “Chevron accordingly has undermined the very rule of law values that stare decisis exists to secure.”  But importantly, the Court notes that “the holdings of [Chevron] cases that specific agency actions are lawful…are still subject to statutory stare decisis despite our change in interpretive methodology,” and that “mere reliance on Chevron cannot constitute a special justification for overruling such a holding,” and “is not enough to justify overruling a statutory precedent.”

Importantly, the Court concluded by stating that courts can give “careful attention to the judgment of the Executive Branch,” which can “help inform” its interpretation.  But the Court stated that “courts need not and under the APA may not defer to an agency interpretation of the law simply because a statute is ambiguous.”

II.  My Brief Thoughts

This is a well-reasoned opinion, and it is clear that Chevron conflicts with Section 706 of the APA.  Also, this opinion does not preclude the courts weighing an agency’s expertise and reasoned interpretations under other doctrines such as Skidmore.  So, what will be this opinion’s effect on regulatory agencies going forward, including the CFPB? While, I’ll discuss the CFPB specifically, much of what I say below would apply generally to other agencies as well.

First, it is possible (I wouldn’t go so far as to say likely) that the CFPB’s interpretation of a statutory provision is the best interpretation, in which case it would be affirmed by a court.  For this reason, not every CFPB rule or enforcement action will bite the dust after Loper and Relentless.  There have been past cases where the CFPB’s action has been upheld based on Chevron step one, such as in the PayPal litigation regarding the prepaid card rule.

But for the CFPB, this could be an impediment in two ways.  First, with respect to rulemakings, I think that without the benefit of Chevron deference, the CFPB will be less likely to engage in aggressive rulemakings that will be challenged in court.  Many of its recent rulemakings have been challenged, so the agency understands that it can expect such challenges.  This does not mean the agency will not engage in rulemaking ever again.  Many rules are expressly mandated by Congress or purely technical and necessary, such as adjustments to certain regulatory thresholds.  For this, the CFPB’s Regulations Office will keep its job.  But as we’ve seen over the past couple years, the CFPB has been promulgating or floating entirely new requirements and prohibitions never dreamt of by Congress, such as its Registry for Non-Bank Public Orders (which I’ve written about here) or potential bans or caps on certain mortgage closing costs (which I’ve written about here).  And some of its most important rules are entirely discretionary and rely on general rulemaking authority (i.e., the type of authority under which the statute says the agency can issue rules to further the purpose of the statute), such as the loss mitigation provisions of its servicing rules. Without the fallback of Chevon deference, lower courts will have to actually interpret the underlying statutes to determine whether they support these regulatory expansions, which may be viewed more critically by these courts.  It will also be interesting to see how the courts view the CFPB’s use of its general rulemaking authority to support its rulemakings, which may be more of an issue after the demise of Chevron. The greater likelihood of successful challenges, and just the greater appetite to challenge such rules under a better playing field, may dissuade the CFPB from engaging in these resource-intensive and years-long rulemaking processes.  Unfortunately, because of this, the end of Chevron could also result in more informal guidance, which comes without the benefit of public comments or as careful a drafting process.

This decision could also result in new challenges to old rulemakings, or certain provisions of them. Many aspects of the CFPB’s older rulemakings have not been challenged, but have been controversial and questionable. It will be interesting to see if this occurs.

Significantly, this decision could result in an increase in the dreaded “regulation by enforcement.”  But I think we should really say “regulation by settlement,” because I think the CFPB will pick targets for its enforcement actions that appear more likely to settle, to more easily create what the CFPB considers “precedent.”  This is because Loper will also increase the likelihood of a successful challenge to CFPB enforcement actions, as courts will not be able to simply defer to the CFPB’s regulatory interpretation of the underlying statutes.  The CFPB typically uses very aggressive legal theories in its enforcement actions. The CFPB does not seem to want to go after the plain vanilla, bad apple types of cases. They like aggressive legal theories and the expansion of their jurisdiction. The CFPB has argued that it is deserving of Chevron deference for such theories.  Without that deference, courts will have to interpret the statute to see if the CFPB’s theory or regulation fits, which does not bode well for the CFPB, because if it doesn’t fit, you must acquit.  For an example, look at the CFPB’s redlining lawsuit against Townstone Financial (our law firm has represented Townstone Financial throughout the CFPB’s investigation and lawsuit against the company, and is now co-counsel with Townstone’s lead counsel Pacific Legal Foundation), in which our statutory authority defense was based on the plain language scope of the statute (which I’ve written about here). The district court ruled in favor of Townstone, holding that the plain language of the statute, ECOA, did not support the CFPB’s Regulation B discouragement provision on which it was relying in its lawsuit (the CFPB is appealing the district court’s decision in the 7th Circuit, and we have continued representing Townstone in its defense).  The end of Chevron will foreclose the CFPB’s ability to obtain Chevron deference in future redlining cases that it pursues under ECOA and Regulation B. And our .aw firm represents a defendant in a different CFPB reverse redlining lawsuit in which we argue that the CFPB is attempting to reach outside the scope of the statute, and Chevron deference will not longer be available to the government in that lawsuit as well. Subjects of CFPB investigations and lawsuits may want to more strongly consider challenges than they might have in the past. There may be many other regulatory provisions the CFPB uses, or interpretations the CFPB takes, in enforcement actions that do not find clear support in the underlying statutes.  For this reason, the Court’s striking down of Chevron deference will be an impediment to CFPB enforcement, and the CFPB may select targets that appear more likely to settle.

But also note that many provisions in the CFPB’s statutes provide express delegations of authority, such as TILA allowing the CFPB to revise, add or subtract from the criteria for a qualified mortgage.  And HMDA and the Small Business Loan Data collection rule also allow the CFPB to add data points. Congress has given the CFPB (and other agencies) broad authority under such express delegations to create new legal requirements out of thin air, which would appear to be unaffected by this decision, unless the terms used in these delegations are themselves ambiguous (or there are other bases for challenges to them – I can think of a few!).  If the next election results in a Republican-controlled Congress, Congress may want to take a look at all of these broad, express delegations of authority it has granted to the CFPB.

In the end, it will be interesting to see how this decision affects current challenges to CFPB and other agency actions (such as in Townstone).  Time will tell whether courts actually do the hard work of interpreting statutory provisions, or whether they still fall back on agency interpretations under the guise of Skidmore weight.

If you would like to discuss this blog post, email me at rich@garrishorn.com