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Several conservative justices on the Supreme Court have recently expressed skepticism about the legal principle known as “Chevron deference,” and upcoming Supreme Court decisions could change the way banks deal with regulators. What does this mean for you? Read on.
Since 1984, Chevron deference has given federal agencies broad discretion to interpret ambiguous laws. It has been a cornerstone of how federal agencies exercise their authority. If the Supreme Court moves away from, or expressly eliminates, Chevron deference, it could limit the government’s regulatory authority and reach. Courts may well find that regulators’ initiatives are not permitted if they do not arise from clear congressional authorization. In the banking context, this could prove problematic for both the regulators and the regulated, as many of the statutes that create the framework of the banking industry have not been congressionally updated in decades or longer. For example, the National Bank Act enacted in the 1860s has no provision allowing for national fintech bank charters. The sting to the banking industry may be blunted compared to others because there is such a detailed statutory framework surrounding the industry, and many of the existing statutes grant broad “safety and soundness” powers to bank regulators. But, again, the framework has not necessarily been updated to keep with the times.
What would replace Chevron deference? It’s unclear. But, based on the current makeup of the Court, whatever fills the void will likely be far more restrictive in terms of agency authority. What is clear is that significant litigation between banks and regulators will increase, as more challenges to and requests for clarification of regulatory authority arise. Some on the bank side would welcome the opportunity to push back on regulators who have worked to insert, for example, climate change regulations into the finance industry without clear statutory footing. Without Chevron deference, it will be easier for all regulated industries to challenge regulators’ attempts to expand their authority or impose requirements not expressly contemplated by Congress. Some look forward to the prospect of more regulatory consistency through regime changes in Washington DC. Others, though, worry a change could hamper basic housekeeping functions of regulators, such as the day-to-day guidance on which some banks rely. And there is no question the end of Chevron deference would limit regulators’ abilities to respond to novel threats to the industry. State and federal lawmakers will need to get busy and stay busy to cover the waterfront on emerging issues in the finance sector and beyond.
Suffice to say, the end of Chevron deference cuts both ways. It could create opportunities for banks, as well as for novel competitors. It could indirectly un-level the playing field in the financial industry, which will be to the benefit of some and the detriment of others. Stay tuned.