The Loper Bright Decision and the Chevron Doctrine

On June 28, 2024, the Supreme Court issued its opinion in Loper Bright Enterprises v. Raimondo, holding that the Chevron Doctrine was inconsistent with the Administrative Procedure Act.

For financial services firms, the impact of the decision will vary from agency to agency. National banks, for example, have benefited from the application of the Chevron Doctrine to actions by the Office of the Comptroller of the Currency. Going forward, however, actions by regulatory agencies must more closely be linked to statutory language, and agency justifications for regulations and other actions will be subject to tougher scrutiny by the courts. This likely will curb some agency actions and result in new legal challenges to some agency actions. It also will require Congress to change statutes in order to justify regulatory initiatives that are not clearly authorized in current law.

The decision in Loper does not invalidate prior court decisions that relied on Chevron. According to the Court, the holdings of those prior cases remain valid, and the “mere reliance” on Chevron does not constitute a justification for relitigating those prior decisions.

The Chevron Doctrine

In the 1984 case Chevron U.S.A. v. Natural Resources Defense Council, the Supreme Court established a two-step approach when reviewing the statutory authority of an agency action. First, the reviewing court must examine the authorizing statute to determine if Congress specifically empowered the agency to take the action in question. If Congressional intent is clear, no further analysis is necessary, and the agency action is authorized. However, if the statute is silent on the issue, or where the statutory language is ambiguous, Chevron directs the reviewing court to take a second step and defer to the agency’s interpretation of the statute, provided the interpretation is “a permissible construction of the statute,” or stated another way, so long as the agency’s construction of the statute is “reasonable.” This two-step process for reviewing agency actions is commonly called the Chevron Doctrine.

Under the Chevron Doctrine, administrative agencies have had wide latitude in justifying regulations as authorized even when a reviewing court does not agree with the agency’s reading of the statute in question. Thus, the Chevron Doctrine was used in upholding a number of actions by the Federal banking agencies, including the OCC’s determination that state restrictions on check cashing fees were preempted for national banks, that national banks may sell annuities, and that national banks may offer discount brokerage services at branch offices. On the other hand, the Chevron Doctrine was also used to uphold a HUD ban on payment of referral fees to affiliated businesses, and EEOC regulations related to an adverse impact standard in the Age Discrimination in Employment Act.

Limitations on the Chevron Doctrine Prior to the Loper Case

In recent years, the Supreme Court has limited the application of the Chevron Doctrine when considering agency actions that make changes of “vast economic and political significance.” Under this so-called “major questions doctrine,” a presumption is created that “Congress intends to make major policy decisions itself” and a court should not assume that Congress intends to leave such weighty decisions to Federal agencies in the absence of clear Congressional instruction. As summarized by the Supreme Court in a 2022 decision: “Extraordinary grants of regulatory authority are rarely accomplished through ‘modest words,’ ‘vague terms’ or subtle devices.  Nor does Congress typically use oblique or elliptical language to empower an agency to make a ‘radical or fundamental change’ to a statutory scheme.  Agencies have only those powers given to them by Congress, and enabling legislation is generally not an ‘open book to which the agency [may] add pages and change the plot line.’ We presume that Congress intends to make major policy decisions itself, not leave those decisions to agencies.”

In other recent cases, the Supreme Court has stated that Congress is not wont to “hide elephants in mouseholes,” and that Congress does not authorize major policy changes through silence. Nor does it use cryptic phrases to delegate authority to make significant economic or policy changes.

Thus, for example, in MCI Telecommunications Corp. v. American Telephone & Telegraph Co., the Supreme Court stated “it is highly unlikely that Congress would leave the determination of whether an industry will be entirely, or even substantially, rate-regulated to agency discretion -- and even more unlikely that it would achieve that through such a subtle device as permission to ‘modify’ rate-filing requirements.”  And, in Freeman v. Quicken Loans, Inc., the Supreme Court held that general rulemaking authority cannot sustain a Department of Housing and Urban Development (HUD) policy that a mortgage settlement service provider may not “mark-up the cost of another provider’s services without providing additional settlement services.” In addition, the Court held that, under RESPA, HUD could not prohibit a mortgage service provider from charging fees that exceed the reasonable value of goods, facilities, or services provided.

The Loper Bright Enterprises Case

In the Loper Bright Enterprises case, the Supreme Court explicitly overturned the Chevron Doctrine for agency actions subject to review under the Administrative Procedure Act (APA). The decision applies not only to agency regulations, but all final agency actions, other than those Congress has exempted from judicial review.

The Supreme Court explained that the APA specifies that courts, not agencies, will decide “all relevant questions of law” arising on review of agency action, and makes no exception for “ambiguous” laws. The legislative history of the APA and the contemporaneous views of various respected commentators underscore that the intent is that the courts will exercise independent judgment in determining the meaning of statutory text, although they may consider the views of the agency implementing the statute. This is so-called “Skidmore deference,” and is based on the Supreme Court’s ruling in Skidmore v. Swift & Co.

Under Skidmore deference, the interpretations and opinions of the relevant agency, made in pursuance of official duty and based upon specialized experience, “constitute a body of experience and informed judgment to which courts and litigants [could] properly resort for guidance,” even on legal questions. However, the weight to be given the agency’s interpretation will depend upon “the thoroughness evident in its consideration, the validity of its reasoning, its consistency with earlier and later pronouncements, and all those factors which give it power to persuade, if lacking power to control.”

Thus, pursuant to the Loper Bright case, a court will no longer be required to defer to an agency’s reasonable interpretation of a statute, but instead will independently determine if it accepts the agency’s view, after considering the basis for the agency’s conclusion, the thoroughness of its process, and the validity of its reasoning. This is a significant enhancement in the ability of a court to reverse an agency rule or other action and will result in more stringent review of the statutory authority of agency actions.