Is a Supreme Shift About To Hit Regulators?

UPDATE: As widely expected, the Supreme Court on Friday, June 28, overturned the 1984 Chevron precedent, significantly curbing the regulatory power of federal agencies. Chief Justice John Roberts stated, “Courts must exercise their independent judgment in deciding whether an agency has acted within its statutory authority.” This decision will impact how banking regulations are interpreted and enforced, creating new legal and compliance challenges for the industry. Read more insights below.

The Supreme Court’s upcoming decisions in two key cases—Loper Bright Enterprises v. Raimondo and Relentless, Inc. v. U.S. Department of Commerce—could reshape how federal courts review agency interpretations, impacting regulatory frameworks across various sectors, including banking. 

Established 40 years ago, the so-called “Chevron doctrine” directs courts to defer to agency interpretations of ambiguous statutes, provided they are reasonable. Critics argue this approach allows agencies to stretch statutory language beyond Congressional intent. The banking industry has expressed this view, notably in challenges to new Community Reinvestment Act rules, where Chevron deference could mean the difference between upholding or overturning agency regulations. 

Writing for the RMA Journal, Karen Solomon, Michael Nonaka, Michael Reed, and Brandon Howell from the law firm Covington & Burling laid out some possible outcomes and impacts from the Supreme Court’s rulings, which are expected any day now: 

• Potential Abandonment of Chevron: Observers believe the Supreme Court is likely to overturn Chevron, with justices divided along ideological lines. If Chevron is discarded, the court might introduce a new standard or revert to existing ones like Skidmore or Auer deference. Skidmore deference relies on the persuasiveness of the agency’s reasoning, while Auer deference involves deference to an agency’s interpretation of its own rules unless plainly erroneous. 
• Immediate Impact on Banks: The immediate effect is likely to be limited. The Supreme Court’s decisions are usually prospective, meaning previously decided cases relying on Chevron will stand. However, any new standard will take time for lower courts to consistently apply, potentially causing initial confusion. 
• Long-Term Consequences for Regulatory Interpretation: Overturning Chevron could lead to increased legal challenges to agency interpretations. Banks may be more inclined to seek judicial affirmation of their own interpretations of ambiguous provisions, leading to greater uncertainty in banking law. This could result in different federal circuit courts reaching varying conclusions on similar issues, creating a fragmented regulatory landscape. 
• Prolonged Rulemaking Processes: Agency decisions, especially rules issued jointly by the Fed, FDIC, and OCC, might take longer to complete. Without Chevron deference, agencies will need to develop more detailed and carefully reasoned records to support their decisions. Interagency negotiations could become more protracted, and individual agencies may add layers of internal review to protect against court reversals. 

Ultimately, the court's decision will shape the future landscape of banking regulation and legal strategy, and banks should stay prepared for the evolving regulatory environment. Read Covington & Burling’s complete assessment here.