Henry C. Meier, Esq., The Law Office of Henry C. Meier

The same day the Supreme Court ruled in Loper Bright vs. Raimondo that courts should no longer use the so-called Chevron deference when ruling on the legality of federal regulations, it decided a second case that could have almost as big an impact.

If you recall, Chevron provided deference to regulators when the law was unclear or incomplete. The NCUA, CFPB and others could see a flurry of activity regarding regulations previously covered by Chevron.

In the second case, Corner Post, Inc. v. Bd. of Governors of Fed. Rsrv. Sys., the Court greatly expanded the ability of individual businesses to challenge regulations, even if they have already been upheld by a court. The three-justice dissenting opinion went so far as to call the decision “destabilizing.” Not surprisingly, the majority argued that these concerns were overblown.

Credit unions and other heavily regulated institutions will now be firsthand observers of who has the better argument. 

Words Matter

First, let’s have a little vocabulary lesson.

A facial challenge to a regulation argues that a regulation is illegal as written. As explained by Black’s Law Dictionary, it is an argument that a regulation or statute “operates unconstitutionally.”

An applied challenge is an argument that a “law or governmental policy is legal on its face but is being applied in an illegal manner.” 

A statute of limitations is the amount of time a party has to bring a lawsuit. Everyone agrees that challenges to federal regulations must be brought within six years of when a “right of action first accrues.”

This means that, for a credit union negatively affected by a new regulation wishing to bring a facial challenge, the clock starts running when the regulation is finalized. Corner Post decided when the six-year clock starts running for a business that did not exist when the regulation in question was enacted.

Down Memory Lane

In 2010, Congress passed the Durbin Amendment, which tasked the Federal Reserve Board with capping debit card interchange fees at a level that was reasonable and proportional to the cost of providing debit card services by institutions with $10 billion or more in assets. The merchants sued after the agency promulgated Regulation II, arguing that the Federal Reserve gave too much money to the affected institutions. 

Fast forward to 2018, when Corner Post, a small truck stop and convenience store in Waterford City, N.D., opened for business. The cost of debit card interchange fees quickly added up for the new business – it had to pay thousands of dollars in interchange fees, which it passed on to its customers. Our frustrated merchant brought a facial challenge to Regulation II, once again arguing that the Federal Reserve’s final regulation did not properly interpret the Durbin Amendment and its resulting regulation, causing higher interchange fees for our merchant. 

Notwithstanding the merchant’s frustration, the federal district court and the Court of Appeals for the Eighth Circuit both ruled that, because six years had passed since the regulation was finalized in 2011, it could not bring a facial challenge to the regulation. In making this ruling, the Eighth Circuit joined six other circuits in interpreting that facial challenges to federal regulations to start running when a regulation is finalized.

However, in a decision written by Justice Barrett, the Supreme Court ruled that the statute of limitations for facial challenges to federal regulations begins to run only after a business has been injured by the regulation. In contrast, all but one federal appellate court that has examined the issue concluded that the statutes of limitation for facial challenges to regulations begin to run on the day the regulation is finalized, after which there are six years to challenge its legality.

Because of the Court’s ruling, Corner Post had more than enough time remaining to bring a facial challenge; after all, it wasn’t even in business until six years after the regulation initially took effect. 

So What?

Why is this such a big deal? Because the Supreme Court has just opened the door for new challenges to regulations no matter how old they are or how many legal challenges they have already survived. For instance, a new financial institution could challenge regulations promulgated by the CFPB in 2013. And remember, these challenges would not have to overcome the obstacle of Chevron deference, which mandated that the courts defer to reasonable agency determinations. 

Consistency Is Key

I was happy when the Supreme Court upheld the constitutionality of the CFPB’s funding mechanism. At some point, the value of consistency outweighs the advantages of getting a regulation or statute repealed. What makes me uneasy about this Supreme Court ruling is how much it could raise questions about a host of regulations. While it is true, as the majority suggests, that many of these challenges will ultimately be dismissed, the very fact that long-standing regulations could be overturned makes it more difficult for compliance people and their bosses to know how much time and resources should be put into complying with a regulation. 

Both sides of the debate agree that Congress could, if it chooses, simply reverse the Supreme Court’s ruling by amending the relevant statute. To me, this makes sense. While the ruling is ultimately very consistent with the court’s approach to statutory interpretation as a matter of legal interpretation. As a matter of policy, it’s in no one’s interest to make agencies perpetually face challenges to regulations every time a new business is confronted with a rule it doesn't like. 

And let’s remember one thing: The merchant in the Corner Post case had the ability to understand the challenges it faced in opening a business. It chose not to do adequate due diligence or complain about the burdens placed on it by regulations that were in place long before its business started. Its remedy is to complain to its local congressmen and not to seek to relitigate settled law. The merchant reminds me of the kid who takes a job at the ice cream parlor that is open seven days a week and then is annoyed that he must work on the weekends.

One more potentially troubling aspect of this ruling is that associations typically lead the way in challenging new regulations. This makes sense since a well-functioning association is well-positioned to understand the opinions of its membership and to develop a consensus in determining whether suing a regulator is a step worth taking. By allowing institutions to effectively have their own statute of limitations, this ruling could increase the temptation of some institutions to bring lawsuits that may or may not be in the interest of an industry writ large.