In a groundbreaking ruling in the cases of Loper Bright Enterprises v. Raimondo and Relentless, Inc. v. Department of Commerce, the U.S. Supreme Court curtailed the authority of federal agencies to interpret the statutes they administer, insisting that judges must independently evaluate unclear laws. This shift is poised to reshape policies across the country, influencing sectors ranging from pollution controls to
medical expenses.
Reversing a Long-Standing Legal Framework
By a 6-3 margin, the Court nullified the 1984 precedent set in Chevron U.S.A. Inc. v. Natural Resources Defense Council, which created the Chevron deference principle. Under that rule, judges were required to accept an agency’s sensible reading of a law if Congress hadn’t explicitly resolved the matter. In his 35-page majority opinion, Chief Justice John Roberts labeled this approach as inherently flawed.
Since its inception, the Chevron ruling has been referenced more than 18,000 times in federal judgments. Originally embraced by conservative voices to back the Environmental Protection Agency’s stance on the Clean Air Act during the Reagan administration, it eventually drew criticism from those seeking to rein in bureaucratic expansion. The Court had previously declined to revisit Chevron but addressed it in these disputes concerning the National Marine Fisheries Service’s mandate that herring fishermen fund federal monitors aboard their vessels—costing around $710 daily—to track harvests and prevent overfishing. Vessel owners contested this requirement in court, arguing it imposed undue burdens.
Roberts argued that Chevron clashed with the Administrative Procedure Act (APA), which mandates judicial independence in resolving legal disputes. He stressed that agencie’s views on laws, akin to constitutional matters, warrant no automatic respect.
Instead, courts should tackle complex statutory issues themselves, potentially weighing agency input via the lighter Skidmore deference standard, which values persuasive expertise without compulsion. As Roberts put it, the APA requires courts to “decide legal questions by applying their own judgment,” making it the judiciary’s duty to determine if a law aligns with an agency’s claim.
He rejected the notion that agencies excel at clarifying vague laws, even in specialized technical fields, and clarified that prior rulings relying on Chevron wouldn’t automatically be invalidated unless proven erroneous.
In a concise concurrence, Justice Clarence Thomas contended that Chevron violated both the APA and the Constitution’s division of powers. Justice Neil Gorsuch, in a lengthy 33-page addition, hailed the outcome as restoring traditional judicial interpretive methods dating back to America’s early days.
Justice Elena Kagan, in dissent, lambasted the reversal, noting that lawmakers frequently enact broad statutes leaving gaps for expert agencies to fill. For four decades, this system leveraged bureaucratic knowledge effectively. She cautioned that dismantling it could destabilize the judiciary and mocked the majority’s optimism about enhanced stability, predicting ongoing debates over the level of “respect” due to agency opinions.
Roman Martinez, counsel for a fishing firm, lauded the verdict as a vital safeguard for governmental checks and balances, curbing excessive administrative actions. Conversely, Kym Meyer from the Southern Environmental Law Center decried it, forecasting erratic outcomes from judges without specialized insights.
Adding to the broader context, the decision dovetails with another 2024 ruling in Corner Post, Inc. v. Board of Governors of the Federal Reserve System, which extended the timeframe for challenging agency rules by tying the statute of limitations to when a party suffers harm, rather than the rule’s issuance date. This combination has sparked a surge in lawsuits against longstanding regulations, with industry analysts predicting a “tsunami” of litigation across sectors, including finance.
Relevance for Private Lending Professionals
This might seem like a niche fisheries issue at first glance, but as a pivotal reversal of 40-year-old doctrine, its ripples extend to all regulated industries, including private lending. The core change? Courts no longer automatically endorse agency glosses on laws, injecting uncertainty into compliance strategies.
Rethinking Private Lender Business-Purpose Lending Standards
Recent discussions among experts highlighted the relative stability of business-purpose loans, exempt from certain consumer protections under Regulation Z. The Consumer Financial Protection Bureau (CFPB) offered direction via its Official Staff Commentary (OSC), outlining factors like a seven-point test for classification and specifics on rental property financing, whether owner-occupied or not. These benchmarks, though not ironclad, provided navigational aids.
Post-Loper Bright and Relentless, that foundation erodes. Without mandatory deference, the OSC loses its authoritative weight, potentially exposing lenders to enforcement risks despite following it. Precedent cases invoking Chevron and the OSC are now vulnerable to reevaluation, paving the way for fresh disputes labeling loans as consumer-oriented. In essence, the clock resets to pre-1984 ambiguity, urging caution beyond the most straightforward commercial deals.
Since the June 2024 ruling, this has manifested in heightened challenges to CFPB rules, such as its small business lending data collection requirements, credit card late fee caps, and interpretations expanding unfair, deceptive, or abusive acts or practices (UDAAP) to cover discrimination outside traditional anti-bias laws. Proposed measures on overdraft and non-sufficient funds fees also face scrutiny, amplifying compliance dilemmas for lenders.
Diminished Value of No-Action Assurances
Private lenders interact with various overseers, from state bodies like California’s Department of Real Estate or Department of Financial Protection and Innovation to federal entities. These often issue regulations, interpretive notes, and no-action letters promising non-enforcement for specified practices. Courts historically leaned on these via Chevron when defending against private suits, bolstering their utility.
That shield weakens now. While no-action letters might still deter agency pursuits, their persuasive force in litigation diminishes without deference. This shift, combined with the extended challenge windows from Corner Post, invites revisits to established norms.
Anticipating Agency Backlash and Strategic Shifts
Regulators are unlikely to welcome this curb on their interpretive leeway. After investing extensive resources in crafting rules through drafts, feedback, and refinements—sometimes over years—their outputs now face easier invalidation. This opens floodgates for suits seeking deregulation or contesting granted exemptions.
In response, agencies like the CFPB have signaled resilience, asserting in ongoing cases that their powers stem from statutory text independent of Chevron. Yet, experts foresee more conservative rulemaking, tethered tightly to explicit laws, and a pivot toward enforcement over broad guidance. For lenders, this means consulting legal teams to navigate evolving risks and adapt operations amid the uncertainty.
