Tuesday, October 3, 2023
I’ve been thinking about the Loper Bright Enterprises case that SCOTUS will hear this fall, and how the basis of that case is inter-woven with the Payday Lending Rule case we discussed last week. If you believe the administrative state has grown too large and unwieldy – upsetting the balance between the three branches of the federal government – then this case is for you.
Many in our industry have overlooked this case, because it appears to deal with fishing companies rather than the real estate sector. But let’s take a look at the facts and see if you spot a familiar pattern.
In response to concerns of overfishing in our coastal waters, Congress enacted the Magnuson-Stevens Fishery Conservation and Management Act and directed the Secretary of Commerce within it to develop a fishery management program, with delegations out to a network of regional councils.
The language of the act itself states that the Secretary of Commerce may require observers to be aboard fishing vessels from time to time, to monitor the activities during certain fishing trips.
The solution presented and adopted for the fishing boats selected for monitoring was as follows: the owners of the selected vessels had the obligation to arrange the services of an approved third-party monitoring provider to observe their practices during selected trips. More important for this case, the cost for the observer must be paid by the shipping vessel owner.
The plaintiff argues that the practices and associated fees are overly detrimental to their operations, and they question the authority of the Secretary of Commerce to require the industry to fund the mandated monitoring. The government argues that the Secretary has full authority, as derived from the Chevron Deference Doctrine.
Chevron Deference emerged out of case law back in 1984. Essentially it gave long relied upon guidance that when determining if an agency (or bureau) has overstepped its authority, one should apply a two-prong test. 1) Did the law conferring specific authority to the executive branch for administration of its provisions directly speak to a specific issue in question? And if Congress did share that direct and specific language, then the agency (or bureau) must heed that plain language. However, 2) if the enacting or empowering law is silent on a specific issue, then the court must determine whether the action in question is based on a solid interpretation of it, and if so, then the agency’s interpretation must be deferred to by the court.
When learning and teaching the 2010 RESPA Reform as well as TRID and other provisions of the Dodd-Frank Act, I’m here to tell you that our industry has relied significantly on Chevron Deference when determining how to operationalize a new regulatory requirement. We often looked to the regulator’s interpretive guidance, both formal and informal, to discern that regulator’s mindset with regard to enforcement, as well as our own private rights of action risk mitigation considerations.
I, for one, cannot imagine relying on Congress to define the vast majority of terms defined by the CFPB that Dodd-Frank was silent on. The immense apparatus required to get a loan from application through the end of servicing is far too granular and vast to expect a piece of legislation to address them all. Let alone the inexpertise of Congress to think about operational minutia, anticipate the myriad scenarios and craft a law to expressly define each term, each step, its decimal point with clarity. Assuming for a moment it could be accomplished, how long would each bill take to craft and pass. 20 years? 50 years? Never?
And yet, many in industry have felt the same frustration as the result of an agency (or bureau) reaching beyond its riverbanks and getting creative with enforcement measures we know for sure were not contemplated during the debate and passage of the Dodd-Frank Act.
So where does that leave us? Watching this case extremely closely. I don’t envy the court in having to decide this matter. Though clearly it does need clarification as quickly as possible.
This court has repeatedly encouraged Congress to be more specific in the laws it passes. Some want Congress to reclaim much of the authority they’ve ceded to the executive and legal branches. And now, the court must face the unenviable task of determining how to force Congress to get back in the act – while simultaneously risking that the tearing down of many regulations our industry has spent millions of dollars understanding and implementing would result in market chaos. Not just for the residential mortgage market, but for many other sectors of our economy as well.
A list of impacted regulators would be too long to list here, even if I just focused on the financial services sector. But here’s a partial list of cases that have previously relied on Chevron Deference:
- Smiley v Citibank – definition of interest
- BB&T v FDIC – FDIC premium payments
- B of A v FDIC – banking insurance fund
- Trans Union v FTC – definition of financial institution
- Hess v Citibank – definition of overlimit fee
- Cetto v LaSalle Bank – definition of a creditor under HOEPA
- PHH v CFPB – broad authority of CFPB
and
- Interestingly, an example of Chevron keeping the CFPB within its riverbanks – CFPB v Townstone Financial.
Obviously this one is a really big deal, with the potential to send shock waves throughout business communities of many sectors, including ours. Our editors are on the case, and we will keep subscribers in the know – making sure you have all the information you need to chart your vessel (fishing or non) through the changing regulatory sea.
Until next time,
Mary Schuster
Chief Knowledge Officer
October Research, LLC
The case for (and against) ChevronChevron deference, the doctrine used by courts in matters involving government agencies, is being challenged by a case involving fishery management. The Supreme Court’s ruling could alter agency authority as we know it and how the executive branch operates – including the Consumer Financial Protection Bureau. RESPA News listened in as Alan Kaplinsky, Ballard Spahr LLP senior counsel, consumer financial services, moderated a discussion between Jonathan Masur, University of Chicago law school professor and director of the Wachtell, Lipton, Rosen & Katz program in behavioral law, finance and economics, and Lauren Campisi, Hinshaw & Culbertson LLP partner, consumer financial services, on the potential impact of the decision. |