Will Supreme Court Rulings Keep Federal Regulators in Court?

When the U.S. Supreme Court overturned its own 40-year-old ruling in the LoperBright Enterprises v. Raimondo case on June 28 — in what has come to being popularly tagged SCOTUS v. Chevron — the reaction was split.

On one hand, some politicians and legal experts were outraged that an activist court attacked what it saw as the federal government’s right to regulate. On the other hand, free market advocates saw justification that it hoped would balance what it saw as an overly aggressive federal regulation stance.

In the interim, cooler legal minds have prevailed. Also in the interim, the potential implications of “Chevron” — as well as another lesser-known case decided in the waning days of the court’s term — are being weighed. Both could have an impact on the banking and payments sector.

Contrary to early published reports, the decision does not spell the beginning of the end of federal regulation over financial services and payments. It does not put the Consumer Financial Protection Bureau (CFPB) on notice. But it does open legitimate challenges to that authority, especially in cases where current statutes are still open to judicial interpretation.

“I think anytime that longstanding laws are overturned, you’re going to see a step back and try to figure out what it means,” Steven Brotman, associate at the legal firm Locke Lord, told PYMNTS recently. “But I think it is important to know what this decision doesn’t do, and first and foremost, is that it doesn’t overrule any existing decisions. So, if there’s already been litigation and decisions on a statute that’s still binding, maybe someone challenges that very same statute or does something to bring it back into the fold. But as things stand now, it doesn’t change anything that’s already happened.”

In keeping with Brotman’s commentary, Loper, as the case is now known in legal parlance, does not put the CFPB, Federal Deposit Insurance Corporation, Federal Deposit Insurance Corporation, or any other federal agency that regulates banking and payments at an existential risk.

But to understand why they’re not at risk, the word “ambiguity” needs to be placed in the context of this decision. As interpreted by several analysts and legal firms, the decision, led by Chief Justice John Roberts, shifts the power to interpret ambiguous laws from federal agencies to the courts, marking a major change in how regulations are interpreted and applied.

The concept of “ambiguity” was central to the Court’s reasoning. Under the now-defunct “Chevron doctrine,” if a law was deemed ambiguous, courts were required to defer to a government agency’s reasonable interpretation.

However, Roberts argued that determining whether a statute is truly ambiguous has proven problematic, making the Chevron doctrine unworkable. The majority of Justices asserted that even when faced with ambiguity in technical or scientific matters, courts are capable of making informed decisions, aided by expert briefings and arguments.

Dissenting opinions took issue with that interpretation. Critics, including dissenting Justice Elena Kagan, warned of a “massive shock to the legal system.” Kagan argued that the Chevron doctrine has been deeply integrated into modern governance and that its removal could lead to increased judicial activism and policy uncertainty.

No high-profile cases capitalizing on the new “ambiguity” ruling have been brought so far, and Brotman said his firm had yet to see one.

Judging from writing and opinions that have come out recently, if a federal regulation is unclear or leaves room for interpretation, it can be challenged in court and heard by a judge. If a federal regulation is judged to be “unambiguous,” the court would seem to be required to apply it. By that standard, the CFPB’s existence would seem to be unambiguous as determined by an earlier Supreme Court decision. But if an individual regulation from the CFPB is judged to be ambiguous, current writing and opinions indicate it could be challenged.

“I think one of my takeaways would be that existing regulations that have been around for a long time will stand,” Brotman said. “There’s no reason to panic and think that those are going to change overnight. I think the types of topics going forward that are in the state of play could be junk fees or artificial intelligence or cryptocurrency areas that haven’t really been litigated much over the years. Those are the areas where I think you’ll see the initial litigation.”

Loper was not the only decision in the Court’s waning days that could have implications for financial services.

In another late June decision called “Corner Post v. Board of Governors of the Federal Reserve System,” the Court made an important decision about when people or businesses can sue government agencies for harmful decisions. A law called the Administrative Procedure Act (APA) gives people 6 years to file such lawsuits. The Court decided that this 6-year countdown starts when the person or business actually experiences harm from the agency’s decision, not when the agency first made the decision.

This case is particularly important for the payments industry because it involves a challenge to a regulation called Regulation II, which sets the maximum fees that can be charged for debit card usage.

The Court sent the case back to a lower court, allowing the plaintiff (Corner Post) to continue arguing against the regulation. Corner Post believes that the fee limit set by Regulation II is higher than what the law actually allows.

In simpler terms, this decision might give businesses in the payments industry more time to challenge regulations they believe are unfair, even if those regulations were put in place years ago.

“Taken together, Loper Bright and Corner Post afford greater opportunity to bring challenges to final agency action, including action by the CFPB, the Federal Reserve, and FinCEN,” stated legal firm K&L Gates, which specializes in FinTech law, in a blog post.

“While the Court in Loper Bright noted that its ruling does ‘not call into question prior cases that relied on the Chevron framework,’ that statement does not necessarily preclude timely challenges to final agency action that previously passed muster under Chevron, including challenges that are deemed timely under Corner Post. For instance, under the clarification of the APA limitations period in Corner Post, a court might determine that the Regulation II fee limitations are impermissible even though the final agency action setting the fee limitations occurred in 2011,” the post said.