Reversal of “Chevron Deference” Doctrine Gives Rise to Regulatory Uncertainty

The Supreme Court’s recent decision in Loper Bright Enterprises v. Raimondo (June 28, 2024) overturning the 40-year-old doctrine of administrative deference established in Chevron v. National Resources Defense Council (1984) will have a significant impact on the degree of latitude federal agencies enjoy when interpreting the federal statutes they are charged with administering. Under the so-called Chevron Doctrine, courts afforded federal agencies great deference when evaluating an agency’s interpretation of ambiguous statutes as long as the agency interpretation was reasonable.

The Loper decision eliminated the Chevron Doctrine, thereby placing the authority to interpret statutory ambiguities squarely back in the hands of the federal courts. In reversing Chevron, the Court relied on the judicial review standards established in the Administrative Procedures Act, which require courts, not agencies, to decide all relevant questions of law that arise on review of agency actions.

It is not immediately clear what impact the ruling will have on the various federal agencies that regulate the mortgage industry, although most experts believe there will be a surge in challenges to agency actions in general. Additionally, returning all such issues to the federal courts for adjudication and resolution will likely give rise to potentially conflicting interpretations of the same statutory provision in different parts of the country--presenting operational challenges for lenders transacting business in multiple states.

Proponents of the Court’s ruling hope Congress will be forced into using more precise language when enacting legislation which would, in theory, result in fewer ambiguities that would demand interpretations by either agencies or the courts. The reality, however, is that Congress has proven itself incapable of responding quickly and decisively to changing market conditions and business needs. This is one area where agency action has proven more flexible. And, of course, Congress lacks the flexibility of an agency to promulgate and implement a regulation rapidly in response to emerging issues and/or crises.

With the increased potential for conflicts in regulatory interpretations across federal circuits, it becomes even more critical to monitor statutory and regulatory changes nationwide. Lenders should ensure that all their service providers have robust measures in place for tracking legislative, judicial, or agency actions that may impact the products or services they provide.

To read the Supreme Court opinion in its entirety, please visit Loper Bright Enterprises v. Raimondo.