A Supreme Court Decision That Reshapes Federal Regulation
In June 2024, the United States Supreme Court issued one of its most consequential rulings in decades. In the consolidated cases of Loper Bright Enterprises v. Raimondo and Relentless, Inc. v. Department of Commerce, the Court fundamentally curtailed the power of federal agencies to interpret the statutes they administer. The 6-3 decision instructs courts to exercise their own independent judgment when interpreting ambiguous federal laws, rather than automatically deferring to agency interpretations. The implications of this ruling extend across every regulated industry in the country, and private lending is no exception.
Four Decades of Chevron Deference: Now Overturned
The decision overturned the Court’s landmark 1984 ruling in Chevron U.S.A., Inc. v. Natural Resources Defense Council, which had established what became known as the Chevron doctrine. Under that framework, when a statute was ambiguous and Congress had not directly addressed a specific issue, courts were required to defer to the administering agency’s interpretation so long as it was deemed reasonable. Over forty years, Chevron was cited more than 18,000 times in federal court decisions and became a cornerstone of administrative law.
Chief Justice John Roberts authored a 35-page opinion characterizing the Chevron framework as “fundamentally misguided.” The opinion held that the Administrative Procedure Act (APA) directs courts to “decide legal questions by applying their own judgment,” and that agency interpretations of statutes are not entitled to deference. Roberts emphasized that courts retain the responsibility to determine what the law means, even when the statutory language involves technical or scientific subject matter.
The cases that prompted this reconsideration involved the National Marine Fisheries Service’s requirement that herring industry vessels carry and pay for government-appointed onboard observers at an estimated cost of $710 per day. A vessel owner challenged the policy, and the resulting litigation ultimately provided the vehicle for the Court to revisit the Chevron doctrine entirely.
Concurrences and Dissent: The Broader Debate
Justice Clarence Thomas wrote a brief concurrence arguing that Chevron deference was inconsistent with both the APA and the Constitution’s separation of powers. Justice Neil Gorsuch authored a lengthy 33-page concurrence declaring the decision a return to the interpretive practices that guided federal courts since the founding of the republic.
In dissent, Justice Elena Kagan warned that Congress routinely passes regulatory statutes containing ambiguities that agencies have spent decades interpreting. She argued that agencies possess expertise that generalist judges lack and predicted that the ruling would produce inconsistent judicial interpretations across hundreds of federal judges nationwide.
Direct Consequences for Private Lending
For private lenders, this decision carries substantial practical significance. The ruling does not merely affect fishing regulations or environmental policy. It reaches into every area where federal agencies have issued interpretive guidance, including the regulation of lending activities by the Consumer Financial Protection Bureau (CFPB).
Business Purpose Loan Classifications Are Now Uncertain
Private lenders have long relied on the CFPB’s Official Staff Commentary to Regulation Z (the OSC) to determine whether a particular loan qualifies as a business purpose loan, and therefore falls outside the scope of consumer lending regulations. The OSC provided guideposts, including a widely used multi-factor test, to help lenders assess whether loans secured by real property, including rental properties and partially owner-occupied properties, constituted business purpose transactions.
After Loper Bright and Relentless, the entire body of CFPB guidance through the OSC no longer carries the legal weight it once did. Courts are no longer required to defer to the CFPB’s interpretation of what constitutes a business purpose loan. The multi-factor test that lenders relied upon for classification decisions is now open to judicial reinterpretation. Loans that were previously considered safely within the business purpose category may face challenges under new judicial analyses that reach different conclusions than the CFPB’s guidance.
In practical terms, this means that outside of transactions that are unambiguously for business purposes, lenders should exercise heightened caution. The established body of case law interpreting business purpose loan classifications under Chevron deference is now subject to challenge, and litigants will argue that prior decisions resting on deference to agency guidance should be revisited.
No-Action Letters Lose Their Protective Value
Private lenders are regulated by numerous federal and state agencies. State licensing bodies such as the California Department of Real Estate and the Department of Financial Protection and Innovation regulate lenders through statutes, regulations, commentary, and no-action letters. Historically, no-action letters served a dual function: they provided assurance that an agency would not pursue enforcement action against a specific course of conduct, and they carried persuasive weight in court proceedings. Under Chevron deference, a lender could point to a no-action letter to demonstrate that the relevant agency endorsed its practices, and courts often treated that endorsement as dispositive.
Without Chevron deference, the judicial weight of no-action letters is significantly diminished. Courts are now free to reach their own conclusions about statutory interpretation regardless of what an agency has communicated through informal guidance. Lenders who previously relied on no-action letters as a defensive shield should reassess that strategy.
Regulatory Agencies Face an Uncertain Future
Federal and state agencies invested years, sometimes decades, developing interpretive frameworks through publications, commentary, and rulemaking. The Loper Bright decision does not invalidate those efforts outright, but it opens every piece of regulatory guidance to potential judicial challenge. Agencies may respond by pursuing more aggressive enforcement actions or by seeking to codify their interpretations through formal rulemaking rather than informal guidance.
For private lenders, this creates a dual-edged regulatory environment. In some cases, the end of Chevron deference may reduce regulatory burden where agencies had adopted expansive interpretations of their authority. In others, it may eliminate exceptions and safe harbors that agencies had carved out through commentary and guidance documents.
Protecting Your Lending Operations Going Forward
The elimination of Chevron deference represents a fundamental shift in the relationship between regulated businesses and the agencies that oversee them. Private lenders should take proactive steps to reassess their compliance frameworks, particularly around business purpose loan classifications, regulatory reliance on agency guidance, and documentation practices.
Geraci LLP’s attorneys are prepared to help private lenders navigate this evolving regulatory landscape. Whether you need to reevaluate your loan classification protocols, assess the impact on existing compliance programs, or develop strategies for operating in a post-Chevron environment, our team can provide the guidance you need.
Contact Geraci LLP at (949) 403-3488 or visit us at 90 Discovery, Irvine, CA 92618.
