On June 28, 2024, after nearly 40 years and more than 18,000 judicial opinions in which it was applied, the U.S. Supreme Court’s decision in Loper Bright Enterprises et al. v. Raimondo overturned the Chevron deference doctrine, significantly impacting how federal agencies create and enforce regulations. This decision means that courts no longer need to defer to federal agencies’ interpretations of ambiguous statutes, shifting the responsibility to interpret laws from agencies to the judiciary. For the mortgage and housing industry, this change could lead to increased scrutiny of regulations, such as those governing fair lending practices, housing policies, and financial disclosures. To understand the impact this decision could have on the industry, it is important that one first understands the administrative law process.
Federal agencies use the Administrative Procedure Act (APA) to enact and update rules and regulations typically driven by Congressional legislative mandates, Presidential Executive Orders, internal agency recommendations, and public/stakeholder petitions. This structured process involves issuing a Notice of Proposed Rulemaking in the Federal Register, which outlines the proposed rule, its purpose, and its legal basis, and invites public comments. Stakeholders, including individuals, businesses, and interest groups, have between 30-60 days to provide comments.
After considering public input, the agency publishes the final rule in the Federal Register, including a summary of comments, agency responses, and any changes. The rule generally takes effect no less than 30 days after publication, allowing time for compliance. Final rules can still be challenged in court to ensure they meet legal standards and do not exceed agency authority.
In 1984, The landmark Supreme Court case Chevron U.S.A., Inc. v. Natural Resources Defense Council, Inc. 467 U.S. 837 (1984), established the Chevron deference doctrine. This case concerned a disagreement over a change in the Environmental Protection Agency’s interpretation of a permitting provision of the Clean Air Act Amendments of 1977. The Supreme Court held that when a statute is ambiguous, courts should defer to a federal agency’s interpretation of the law, provided the interpretation is reasonable. The Court set forth a two-step process for federal courts reviewing an agency’s interpretation of a statute:
Step one: The court must determine whether Congress expressed intent in the statute and, if so, whether or not the statute’s intent is ambiguous.
- If the intent of Congress is unambiguous, or clearly stated, then the inquiry must end. Agencies must carry out the clearly expressed intent of Congress.
- If, however, the intent of Congress is unclear, or if the statute lacks direct language on a specific point, then a federal court must decide whether the agency interpretation is based on a permissible construction of the statute—one that is not arbitrary or capricious or obviously contrary to the statute.
Step two: In examining the agency’s reasonable construction, a court must assess whether the decision of Congress to leave an ambiguity, or fail to include express language on a specific point, was done explicitly or implicitly.
- If the decision of Congress was explicit, then the agency’s regulations are binding on federal courts unless those regulations are arbitrary, capricious, or manifestly contrary to statute.
- If the decision of Congress was implicit, then so long as the agency’s interpretation is reasonable, a federal court cannot substitute its own statutory construction superior to the agency’s construction.
Loper Bright Enterprises et al. v. Raimondo resulted from a pair of challenges to a rule issued by the National Marine Fisheries Service. The agency had required the herring industry to pay for the costs, estimated at $710 per day, associated with carrying observers on board their vessels to collect data about their catches and monitor for overfishing.
In analyzing the issue, the Supreme Court provided a history of the judiciary’s role in interpreting statutes beginning with the Federalist Papers, through the Court’s early decision in Marbury v. Madison, 5 U.S. 137 (1803) (the landmark decision that established the principle of judicial review), the rapid expansion of the administrative process which took place during the New Deal era, and ultimately the adoption of the Administrative Procedures Act. Chief Judge Roberts, writing for the Court majority, found that:
- [T]he APA specifies that courts, not agencies, will decide “all relevant questions of law” arising on review of agency action, 5 U. S. C. §706 (emphasis added)—even those involving ambiguous laws.
- Perhaps most fundamentally, Chevron’s presumption is misguided because agencies have no special competence in resolving statutory ambiguities. Courts do. The Framers anticipated that courts would often confront statutory ambiguities and expected that courts would resolve them by exercising independent legal judgment.
By overturning the Chevron deference, the impact of the Loper Bright Enterprises et al. v. Raimondo decision now significantly affects all federal agencies and their use of the administrative law process. In the housing and mortgage arena, several implications are now possible.
For example, the new amendments to the Community Reinvestment Act, recently issued by the federal prudential banking agencies (The Federal Reserve Board, OCC, and FDIC), are currently being challenged by the banking industry in a Texas federal district court on various grounds. The overturning of Chevron deference is potentially another reason to challenge the amendments. Similarly, proposed guidance and polices under the Fair Housing Act by the U.S. Department of Housing and Urban Development may now face legal challenges. Additionally, rules and regulations from the Consumer Financial Protection Bureau and the Federal Trade Commission concerning fair lending, consumer data, credit reporting, and “junk” fees may be subject to higher scrutiny.
Increased legal challenges from industry stakeholders, a slower regulatory process due to the new role of the courts to independently interpret statutes, and increased legal compliance costs and investment in legal counsel to understand and anticipate court interpretations of housing and mortgage regulations are all possible outcomes due to the overturning of Chevron deference.
In Congress, Republicans and Democrats have introduced competing legislation as follow up to the Chevron deference decision. U.S. Senator Bill Cassidy (R-La.) introduced the Upholding Standards of Accountability (USA) Act. This bill would require the head of a federal agency signing a major rule to testify about the rule before the committee of jurisdiction within 30 days of the rule being published; improve cost-benefit analyses by requiring federal agencies to conduct cost-benefit analyses and reviews for major rulemakings within five years of each rule’s effective date; and clarify that federal agencies are permitted to communicate with Congress at all times regarding proposed rules. Senator Elizabeth Warren (D-Mass.), joined by 10 Democratic colleagues, introduced the Stop Corporate Capture Act that would provide agencies more power to proceed with rulemaking in line with a “reasonable interpretation” of statutes. The bill would also allow agencies to reinstate rules that were overturned by the Congressional Review Act and would strengthen the public’s ability to comment on rules.
The coming months will, hopefully, provide more clarity into the implications of the end of Chevron deference and the future of the new relationship between administrative law and the courts. As these developments unfold, it will be crucial for stakeholders to stay informed and adapt to the evolving regulatory environment. NHC will keep our members updated on these developments to ensure they are well-prepared.