This New Year is setting up to be a momentous one for the consumer financial services industry in the United States Supreme Court. In 2024, the Supreme Court is expected to decide four impactful cases that may hold that the CFPB’s funding is unconstitutional, eliminate giving deference to CFPB, FTC and federal banking agency regulations, severely narrow National Bank Act (NBA) preemption of state laws, and limit the time during which a plaintiff may sue an agency to facially challenge an agency rule. We cannot recall a prior year in which the Supreme Court considered so many cases which impacted the consumer financial services industry.
Constitutionality of CFPB Funding:
There is hardly a soul who isn’t aware of CFSA v. CFPB, the existential challenge to the CFPB arising from the manner in which the CFPB is funded exclusively by the Federal Reserve System and not through Congressional appropriations. The case has been fully briefed and argued and a decision will be forthcoming between now and the end of June. See some of our prior blog posts here and here.
Our Consumer Finance Monitor Podcast has devoted three episodes to this case. In May 2023, we released a podcast episode, “CFSA v. CFPB moves to U.S. Supreme Court: a closer look at the constitutional challenge to the Consumer Financial Protection Bureau’s funding,” in which our special guest was GianCarlo Canaparo, Senior Legal Fellow in the Heritage Foundation’s Edwin Meese III Center for Legal and Judicial Studies. In January 2023, we released a two-part episode, “How the U.S. Supreme Court will decide the threat to the CFPB’s funding and structure,” in which our special guest was Adam J. White, a renowned expert on separation of powers and the Appropriations Clause. To listen to the episode, click here for Part I and click here for Part II.
After the oral argument, we also presented a webinar roundtable in which we featured six lawyers who filed amicus briefs supporting a variety of positions. To listen to the podcast episode (which was repurposed from the webinar): “The U.S. Supreme Court’s Decision in Community Financial Services Association of America Ltd. v. Consumer Financial Protection Bureau: Who Will Win and What Does It Mean?,” click here for Part I and click here for Part II.
Chevron Judicial Deference:
The next two cases (Loper Bright Enterprises, et al. v. Raimondo and Relentless, Inc. v U.S. Department of Commerce) will likely determine whether the Supreme Court will overturn its 1984 opinion in Chevron, U.S.A., Inc. v. Nat. Res. Def. Council, Inc., which created a framework for courts to use when deciding whether to uphold the validity of federal agency regulations (“Chevron Deference”).
Under Chevron Deference, a court will typically use a two-step analysis to determine if the court must defer to an agency’s interpretation. In step one, the court looks at whether the statute directly addresses the precise question before the court. If the statute is silent or ambiguous, the court will proceed to step two and determine whether the agency’s interpretation is reasonable. If it determines the interpretation is reasonable, the court must defer to the agency’s interpretation.
If Chevron Deference is rejected by the Supreme Court, regulated entities may no longer be able to rely on regulations to ensure compliance with federal law. Even worse, regulated entities may no longer be able to rely on regulations that have been previously validated by courts exclusively based on Chevron Deference. Will the Supreme Court 1996 opinion in Smiley v. Citibank, N.A. still be binding precedent? In that opinion, the Supreme Court relied exclusively on an OCC regulation defining “interest” under Section 85 of the NBA to include late fees on credit cards. That decision held that a national bank could charge late fees allowed by the bank’s home state to cardholders throughout the country and ignore limitations on late fees in the laws of the states where the cardholders reside. These two Chevron Deference cases will be argued on January 17, 2023. As we previously stated, we expect the Supreme Court to overrule the Chevron decision.
National Bank Act Preemption:
The next extremely important case is one which will determine whether the OCC’s regulations promulgated in 2011 after the enactment of Dodd-Frank too broadly purport to preempt state consumer protection laws. In Cantero v Bank of America, the Supreme Court will decide whether the NBA preempts New York state law requiring the payment of interest on mortgage escrow accounts.
The Department of Justice just filed an amicus brief arguing that the OCC’s 2011 regulations contradict the amendments to the NBA made by Dodd-Frank. If the Supreme Court agrees with DOJ’s opinion, many national banks, particularly those engaged in interstate lending or deposit-taking, will need to take a fresh look at whether they need to comply with a whole array of state consumer protection laws. In December, we released a podcast episode, “What recent developments in federal preemption for national and state banks mean for bank and nonbank consumer financial services providers,” discussing the implications of the Supreme Court’s review of NBA preemption (other than Section 85 of the NBA which deals with interest which national banks may charge). The case is in the process of being briefed.
Timing for Facial Challenge to Regulations:
Lastly, in Corner Post, Inc. v Board of Governors of the Federal Reserve System, the Supreme Court agreed to decide when a right of action first accrues for an Administrative Procedure Act (APA) Section 702 challenge to a final rule issued by a federal agency—when the final rule is issued or when the rule first causes injury. This case involves a merchant who sued the Federal Reserve Board seeking to invalidate its Regulation II dealing with capping debit card interchange fees. The district court and Eighth Circuit ruled that the six-year statute of limitations for bringing facial APA claims (28 U.S.C. § 2401(a)) begins to run when a final rule is issued, which meant that the limitations period had run before the merchant had opened his doors for business.
In its brief, the Petitioner argues that if the statute of limitations for bringing a facial challenge under the APA can expire before a plaintiff is injured by final agency action, a plaintiff seeking to challenge a regulation beyond the six-year period would be forced to intentionally violate a regulation to induce an enforcement proceeding to manufacture an “as applied” challenge. The Federal Reserve argues in its brief that the tolling provision in 28 U.S.C. § 2401(a) would be unnecessary if the statute of limitations did not begin to run until a final rule first caused injury. Twelve amicus briefs have been filed in the case, including a brief supporting the Petitioner filed by the West Virginia Attorney General and 17 other states. Oral argument has not yet been scheduled.