Banks Brace for the Chevron Shift

As the Supreme Court begins its new term, the banking industry is adjusting to an evolving regulatory landscape following key court decisions from earlier this year. One of the most consequential rulings, Loper Bright Enterprises v. Raimondo, overturned the Chevron doctrine, which for 40 years required courts to defer to agencies’ interpretations of ambiguous laws. 

The ruling, according to a new RMA Journal article by attorneys at Covington & Burling LLP, “marks a significant shift in the balance of power between the judiciary and administrative agencies, including those that regulate banks such as the Federal Reserve Board, the OCC, and the FDIC.” Some key takeaways include: 

• Courts will now interpret ambiguous laws. The Loper Bright decision reinforces that courts, not agencies, will now resolve any ambiguities in statutory law. This change increases the likelihood of banks challenging agency regulations based on the interpretation of laws, especially when they feel the regulations overstep. 

• Litigation is likely to increase. With the Chevron doctrine no longer applicable, legal challenges to agency rules are expected to rise. Banks should be prepared for more litigation, as seen with recent challenges to the revisions of the Community Reinvestment Act (CRA). Regulatory uncertainty may persist as courts review more agency actions. 

• Long-established rules could be challenged. The Supreme Court’s decision in a different case, Corner Post v. Federal Reserve, extended the statute of limitations for challenging agency rules. This opens the possibility for regulations that have been in place for years to be revisited, potentially disrupting previously settled rules if plaintiffs show recent harm. 

• Supervisory guidance may face more scrutiny. The court’s emphasis on the distinct roles of courts and agencies may also affect non-regulatory guidance issued by banking regulators. Supervisory guidance, which has traditionally been less binding, may now be subject to more legal challenges, complicating compliance efforts for banks. 

As banks adjust to the Supreme Court’s decisions, they must contend with a new dynamic in regulatory interpretation. While this shift opens the door for more legal challenges to agency rulings, it also introduces a new level of unpredictability. As the article notes, “the change in the environment may come at the cost of lesser certainty about what requirements apply in the highly regulated financial services sector.”