Why your credit union needs to care about Chevron deference

Chevron has been critical for credit unions in cases like ABA v NCUA

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

The CFPB’s decision to propose new conditions on “very large” financial institutions providing overdraft services wasn’t the only big news this week.

The Supreme Court heard oral arguments in a case that could, depending on how it is decided, have profound implications for the ability of federal administrative agencies, including the NCUA and the CFPB, to promulgate regulations.

Relentless, Inc. v. Dept. of Commerce is a case I have commented on frequently in the blogosphere. Ostensibly, it addresses whether federal law gives an obscure federal office the ability to make fishermen pay for the cost of monitors on their boats. But the case is really about whether the Supreme Court should jettison a 40-year-old case, Chevron U.S.A., Inc. v. NRDC, 467 U.S. 837 (1984).

Why does Chevron matter?

Chevron established a framework for how courts determine whether an agency’s regulation interpreting a federal statute should be upheld. This may seem like a classically arcane and esoteric issue, of interest only to law school professors in staff rooms during their lunch breaks, but Chevron has become an integral component of the administrative state.

Over the last 40 years Chevron has been cited in cases more than 18,000 times. For the credit union industry, it has been a key determining factor in some of its most important cases. It was why a federal court of appeals upheld the NCUA’s expansive definition of “ local community” when the banks challenged it in Am. Bankers Ass'n v. Nat'l Credit Union Admin., 306 F. Supp. 3d 44, 48 (D.D.C. 2018), rev'd and remanded, 934 F.3d 649 (D.C. Cir. 2019).

Conversely, in the seminal 1998 Supreme Court case striking down NCUA’s regulation expanding the authority of credit unions to comprise multiple select employee groups, the Court concluded that NCUA was seeking to exercise its powers beyond the flexibility provided by Chevron. Nat'l Credit Union Admin. v. First Nat. Bank & Tr. Co., 522 U.S. 479, 483, 118 S. Ct. 927, 930, 140 L. Ed. 2d 1 (1998). It has also impacted your HR practices and mortgage regulations promulgated by the CFPB. PHH Corp. v. Consumer Fin. Prot. Bureau, 881 F.3d 75, 112 (D.C. Cir. 2018), abrogated by Seila L. LLC v. Consumer Fin. Prot. Bureau, 140 S. Ct. 2183, 207 L. Ed. 2d 494 (2020).

The argument

This week’s oral argument underscored precisely what a big deal discarding the Chevron framework could be. For example, with each new change in administration, particularly when the new president comes from the opposing party, a flurry of new regulations undo some of the most important regulations passed by the previous administration. Justice Kavanaugh argues that these dramatic changes in interpretation don’t reflect a changing view of how the statute should be interpreted from a legal standpoint. “I think they're doing it because they have disagreement with the policy of the prior administration, and they're using what Chevron gives them and what they can't get through Congress to do it themselves, self-help, and to do it themselves unilaterally, which is completely inconsistent with bicameralism and presentment to get your policy objectives enacted into law.”

It affects HR, too

Again, this isn’t some abstract legal argument but an issue that has practical implications for how your employees spend their days. Just last week, the US Department of Labor finalized regulations essentially reversing amendments made by the Department of Labor during the Trump Administration. The preamble contained numerous legal citations arguing that the latest amendments more closely adhered to the Fair Labor Standards Act’s treatment of independent contractors. In reality, the impetus for these changes was a policy debate over how to regulate so-called “gig economy” workers. To Chevron critics, this is precisely the debate that Congress should decide.

Eliminating Chevron could affect previous decisions

Chevron’s legacy is, however, a complicated issue, and the answer is not clear-cut. For example, Justice Barrett expressed concern about the impact a ruling to discard Chevron could have on previous decisions upholding regulations based on Chevron deference. She asked whether a decision ending Chevron “would [be] inviting a flood of litigation, even if for the moment those holdings stay intact?”

Other justices pointed out that Congress has passed laws for forty years with the knowledge that agencies with expertise in arcane areas of the law, such as the monitoring of fishing activity, will ultimately decide on how best to address ambiguities in Congress’s handiwork.

Again, this is not an abstraction. When Congress passed the Durbin Act, it tasked the Federal Reserve with the responsibility of determining what costs should be included in calculating the debit card interchange fee cap imposed on large financial institutions and implementing the network “non-exclusivity” rule  The Federal Reserve’s regulations were challenged by retailers but the regulations were upheld on appeal because the Court ruled that Durbin’s mandates were ambiguous and that it should defer to the Boards reasonable interpretation of the amendment.  NACS v. Bd. of Governors of Fed. Rsrv. Sys., 958 F. Supp. 2d 85, 86 (D.D.C. 2013), rev'd, 746 F.3d 474 (D.C. Cir. 2014)

Is there a middle ground? Maybe, maybe not. Solicitor General Prelogar agreed with the conservative justices who argued that courts were too quick to declare that a statutory provision was ambiguous and defer to an agency interpretation. Perhaps the court could enact a higher standard for finding a statute ambiguous. But such a result is unlikely to mollify some of the court’s more conservative members. For instance, Justice Alito challenged Solicitor General Prelogar to provide a workable definition of ambiguity. He did not seem satisfied with her answer.

We will have a decision in this case by the end of this term this fall.