By Jordan Beumer, Esq., and Reggie Corley, Esq.

Scott & Corley, P.A. *

USFN Member (SC)

On June 28, 2024, the Supreme Court of the United States, entered its decision in Loper Bright Enters. v. Raimondo[1], which overturned the longstanding precedent set by Chevron U.S.A., Inc. v. Natural Resources Defense Council[2]. This legal development is likely to have a significant impact on the regulatory landscape in the mortgage industry surrounding federal agencies’ constitutional authority to enact federal regulations.

The longstanding Chevron doctrine held that if a federal question had not been directly addressed by Congress, a federal regulatory body could interpret the relevant statute(s), offer an official stance on the issue, and so long as the guideline set by the regulatory body was reasonable, it would be upheld. In other words, the Chevron doctrine, allowed broad deference to federal administrative agencies’ reasonable interpretation of ambiguous federal statutes. When the United States Supreme Court first issued the Chevron decision, over 40years ago, the decision was not necessarily regarded as a particularly consequential one.[3] However, since its inception. the Chevron decision has become prolific and is one of the most important rulings on federal administrative law, cited by federal courts more than 18,000 times.[4]

The Court’s recent decision under Loper Bright is based entirely on Section 7 of the Administrative Procedure Act (the “APA”).[5] Section 7 specifies that courts, not agencies, will decide “all relevant questions of law” arising on review of an agency regulation. The Court elaborated in the opinion as follows:

Section 706 directs that ‘[t]o the extent necessary to decision and when presented, the reviewing court shall 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. Section 706. It further requires courts to hold ‘unlawful and set aside agency action, findings, and conclusions found to be …not in accordance with law.’ Section 706(2(A).

The APA thus codifies for agency cases the unremarkable, yet elemental proposition, dating back to Marbury: that courts, not agencies, will decide ‘all relevant questions of law” arising on review of agency action…even those involving ambiguous laws — and set aside any such action inconsistent with the law as they interpret it. And it prescribes no deferential standard for courts to employ in answering those legal questions. That omission is telling, because section 706 does mandate that judicial review of agency policymaking and fact finding be deferential. See Section 706(2)(A) (agency action to be set aside if “arbitrary, capricious, [or] an abuse of discretion); Section 706(2)(E) (agency fact finding in formal proceedings to be set aside if ‘unsupported by substantial evidence’).[6]

In the Loper Bright case, the Court described the Chevron opinion as being at odds with the congressionally authorized language in the Administrative Procedure Act (the federal law that sets out the procedures that federal agencies must follow, as well as the instructions for courts to review actions by those agencies).[7] The Court highlighted that the Administrative Procedure Act directs courts to, “decide legal questions by applying their own judgment” thereby “mak[ing] clear that agency interpretations of statutes — like agency interpretations of the Constitution — are not entitled to deference. . .”[8] The Court further stated that “it thus remains the responsibility of the court to decide whether the law means what the agency says.”  Emphasis added.[9] Additionally, the Court criticized the Chevron doctrine, noting that the doctrine allowed federal agencies “to change course even when Congress has given them no power to do so.”[10]

In practice, The Chevron doctrine utilized a two-stage approach. First, the court would determine whether a particular statute was clear and unambiguous regarding an issue.[11] If the statute was clear, then the court would follow it.[12] If, however, the court found the statute was ambiguous, or silent on the issue, then the court would proceed to step two.[13] At this step, the court would determine whether a federal agency’s interpretation was a permissible or reasonable construction of the statute.[14] If so, the court would uphold the agency’s interpretation.[15] This framework required courts to defer to an agency's interpretation of laws passed by Congress, if its interpretation is reasonable.[16] A major rationale behind this framework was that agencies were thought more likely to have the specific knowledge and expertise required to interpret complex laws and issues above and beyond the court’s ability.[17] The Court stated in Loper Bright that, “Perhaps most fundamentally, Chevron’s presumption is misguided because [federal] agencies have no special competence in resolving statutory ambiguities . . .[c]ourts do. The Framers, [] anticipated that courts would often confront statutory ambiguities and expected that courts would resolve them by exercising independent legal judgment.”[18]

The legal framework set by Chevron may have significant implications on the mortgage industry regulatory bodies, such as the Consumer Financial Protection Bureau (“CFPB”), the Federal Housing Finance Agency (“FHFA”), the Department of Housing and Urban Development (“HUD”), the Office of the Comptroller of the Currency (“OCC”), and their constitutional authority to enact federal regulations.

Before Loper Bright, the CFPB relied on the Chevron doctrine to mandate federal regulations, not prescribed by Congress, in an effort to police the mortgage industry. Per the CFPB’s official website, the CFPB is “a U.S. government agency dedicated to making sure you are treated fairly by banks, lenders and other financial institutions.”[19] Again, per the CFPB’s website the CFPB “provides different forms of guidance and compliance resources to help you understand and comply with our rules and the statutes we implement.” Emphasis added. Notably, under the CFPB’s language on their website, the CFPB admittedly provides its own statutes and rules. Likewise, the FHFA states on its website that the organization, “is responsible for the effective supervision, regulation, and housing mission oversight.”[20] The website further describes the banks that the FHFA will regulate and details how it regulates those banks.[21]

This new precedent may also have an impact on HUD’s use of the Fair Housing Act, which is a broad statute, to gain much of its authority. HUD, like the FHFA and CFPB, has traditionally been given substantial discretion, where it has taken great liberties, in setting guidance and taking enforcement actions against those who are not in strict compliance.[22] Similarly, the OCC states openly on their website that “[b]y maintaining a strong local presence, honing a unique national and international perspective, and seeking stakeholder feedback when setting policy, we can secure clear benefits for OCC-chartered banks and lead on bank supervision.” Emphasis added.[23] The public statements above show a clear understanding of the regulatory authority these organizations perceive to hold under the Chevron doctrine.

Although not yet argued under the recent precedent set by Loper Bright, the statutes and rules implemented by the mortgage industry’s regulatory bodies, using the Chevron doctrine framework, may no longer be upheld by federal courts. They, like all other federal agencies, are now facing a similar and significant dilemma regarding rules and regulations they may implement regarding the authority and power they may or may not have following this new United States Supreme Court decision.

Copyright © 2024 USFN

USFNews - August 7, 2024

*Denotes firm is a 2023 Award of Excellence recipient