The Supreme Court’s recent decision that overturns the decades-old "Chevron deference" doctrine will likely have an enormous impact on the financial industry, and only time will tell how it fully plays out
US financial institutions, the regulators who oversee them, and the industry groups that advocate for them have largely maintained a curious silence over the Supreme Court’s momentous decision to overturn the Chevron deference doctrine that was based on a 1984 judicial precedent that gave deference to government agencies in interpreting the laws they administer.
Experts said the Court’s decision in Loper Bright Enterprises v. Raimondo, which was announced in late-June, could lead to the elimination or weakening of thousands of rules for the environment, healthcare, labor protection, food and drug safety, telecommunications, and the financial sector. As one of the most heavily regulated US industries, financial services will now face greater regulatory uncertainty.
“The court’s decision to overrule Chevron deference… was a convulsive shock to the legal system because so much of lawmaking over the past 40 years has been based on this framework,” said Prof. Richard Lazarus of Harvard Law School. “Going forward, it’s going to be no-holds-barred because no one really understands how the courts will rule on the validity of federal regulations in absence of the Chevron precedent.”
Reticent regulators
For financial services, the impact will be felt most greatly by regulatory agencies, such as the Securities and Exchange Commission (SEC), the Federal Reserve, the Office of the Comptroller of the Currency (OCC), the Consumer Financial Protection Bureau (CFPB), and the Commodity Futures Trading Commission (CFTC).
“Agencies will likely need to be more careful in drafting rules to, where possible, tie their expectations to specific statutory language,” said the consulting firm PwC in a note to clients. “Crucially, they may now be more limited in their ability to respond to risks in areas not explicitly discussed in statutes, such as climate, digital assets, and artificial intelligence.”
Thus far, regulatory agencies have been reticent to share their view on the Court’s ruling, and when contacted, the Fed, OCC, SEC, CFPB and CFTC all declined to comment.
Still, in perhaps a glimpse of how financial regulators might approach the newly uncertain legal terrain, the CFPB sent a letter on July 2 to the U.S. Court of Appeals for the Seventh Circuit regarding a case that involves “certain discriminatory discouragement of credit applications.” The CFPB argued that its action against such discrimination is a “valid exercise of the bureau’s authority” and “has never depended on [the Chevron] deference.”
Agencies will now have to weigh their actions more carefully in light of the Supreme Court’s ruling to ensure they are not invoking the Chevron doctrine in asserting their authority.
Large banks silent
Many US banks, particularly the largest ones, have long been critical of what they see as over-regulation by federal agencies, particularly the Dodd-Frank Act rules established after the 2008- ‘09 financial crisis. For example, the recently proposed increase in capital requirements under the so-called Basel Endgame has unleashed a torrent of public criticism, with many large institutions calling the proposal without merit and potentially damaging to American consumers and businesses.
With the Supreme Court’s decision likely to mean less regulation, experts said the biggest Wall Street banks might welcome such an outcome. A handful of banks — including JPMorgan, Bank of America, and Morgan Stanley — either declined to comment on the decision or did not respond to requests for comment.
As for the industry groups representing US banking interests, the Financial Services Forum, a leading lobby group, also declined to comment. Additionally, the Bank Policy Institute (BPI), which represents the largest banks, did not reply to a request for comment. BPI has traditionally been one of the most vocal groups against increased bank regulation.
The American Bankers Association (ABA) was the sole industry group that did provide a response.
“While we are still reviewing the full implications of [the] Supreme Court decision, the ruling sends a crystal-clear message to federal agencies that their powers are not unlimited,” said Rob Nichols, ABA president.
“This is an important win for accountability and predictability at a time when agencies are unleashing a tsunami of regulation — in many cases clearly exceeding their statutory authority while making it harder for banks to serve their customers,” Nichols said. “We will continue to fight to ensure that bank regulators follow the law every time they exercise their powers.”
