Will Supreme Court rulings keep federal regulators in court?

When the U.S. Supreme Court on June 28 reversed its own 40-year-old ruling in LoperBright Enterprises v. Raimondo — a case that became popularly known as SCOTUS v. Chevron — reaction was mixed.

On the one hand, some politicians and legal experts were outraged that the activist court had attacked what it saw as the federal government’s right to regulate. On the other hand, free-market advocates saw a justification that they hoped would offset what they saw as an overly aggressive stance of federal regulation.

In the meantime, cooler legal minds have prevailed. Also in the meantime, the potential implications of Chevron are being considered—as well as another lesser-known case decided toward the end of the court’s term. Both could have implications for the banking and payments industries.

Contrary to previously published reports, the decision does not signal the beginning of the end of federal regulation of financial services and payments. It does not notify the Consumer Financial Protection Bureau (CFPB). However, it does open up legitimate challenges to that body, especially in cases where the current rules are still subject to judicial interpretation.

“I think any time long-standing laws are repealed, we’re going to take a step back and try to understand what that means,” Steven Brotman, an associate at the law firm LockeLord, recently told PYMNTS. “But I think it’s important to recognize what that decision doesn’t do, and that’s that it doesn’t overturn any existing decisions. So, if there’s already been litigation and decisions about a law that’s still in effect, maybe someone will challenge that same law or do something to bring it back into favor. But the way things are now, it doesn’t change anything that’s already happened.”

According to Brotman’s commentary, the Loper case, as it is now known in legal parlance, does not expose the CFPB, the Federal Deposit Insurance Corporation, the Federal Deposit Insurance Corporation or any other federal banking and payments regulatory agency to existential risk.

But to understand why they are not at risk, the word “ambiguity” must be placed in the context of the decision. As interpreted by several analysts and law firms, the decision, led by Chief Justice John Roberts, shifts the authority to interpret ambiguous regulations from federal agencies to the courts, marking a significant shift in how the rules are interpreted and applied.

The concept of “ambiguity” was central to the Court’s reasoning. Under the now-defunct “Chevron Doctrine,” if a law was found to be ambiguous, courts were required to defer to the government agency’s reasonable interpretation.

Roberts argued, however, that determining whether a statute is truly ambiguous has proven problematic, making the Chevron doctrine impractical. The majority of the justices found that even in the face of ambiguity on technical or scientific issues, courts are able to make informed decisions, aided by expert briefings and arguments.

Dissenting opinions challenged this interpretation. Critics, including Justice Elena Kagan, warned of a “massive shock to the legal system.” Kagan argued that the Chevron doctrine was deeply integrated into modern governance and that its removal could lead to increased judicial activism and political uncertainty.

So far, there have been no high-profile cases using the new “ambiguity” ruling, and Brotman said his firm has yet to encounter one.

Judging by recent briefs and opinions, if a federal regulation is unclear or open to interpretation, it can be challenged in court and heard by a judge. If the federal regulation is found to be “unambiguous,” the court seems bound to apply it. By that standard, the existence of the CFPB seems to be unambiguous, as established in an earlier Supreme Court decision. But if an individual CFPB regulation is found to be ambiguous, the current briefs and opinions suggest that it can be challenged.

“I think one of my takeaways is that existing laws that have been in place for a long time will continue to apply,” Brotman said. “There’s no reason to panic and think they’re going to change overnight. I think the types of topics that are going to be in play in the future are junk fees, artificial intelligence, or areas of cryptocurrency that haven’t been the subject of a lot of litigation over the years. Those are the areas where I think we’ll see some initial litigation.”

The Loper case was not the only Supreme Court decision that could have an impact on financial services.

In another decision from late June, titled “Corner Post v. Board of Governors of the Federal Reserve System,” the Court made an important decision about when individuals or companies can sue government agencies for harmful decisions. A law called the Administrative Procedure Act (APA) gives people six years to file such lawsuits. The court ruled that the six-year countdown begins when the individual or company actually suffers harm because of the agency’s decision, not when the agency first makes the decision.

The case is particularly important for the payments industry as it challenges a regulation known as Regulation II, which sets the maximum fees that can be charged for the use of debit cards.

The court sent the case back to the lower court, allowing the plaintiff (Corner Post) to continue arguing against the regulation. Corner Post believes that the fee limit set by Regulation II is higher than what the law actually allows.

Put simply, the decision could give payments companies more time to challenge regulations they believe are unfair, even if they were introduced years ago.

“Together, Loper Bright and Corner Post provide a greater opportunity to challenge final agency actions, including those of the CFPB, the Federal Reserve, and FinCEN,” FinTech law firm K&L Gates said in a blog post.

“While the Court in Loper Bright noted that its ruling ‘does not overturn prior cases that relied on the Chevron framework,’ that finding does not necessarily preclude a timely challenge to a final agency action that previously passed muster under Chevron, including a challenge that is deemed timely under Corner Post. For example, under the APA’s explanation of the limitations period in Corner Post, a court may hold that Regulation II fee limitations are inadmissible even if the final agency action establishing the fee limitations occurred in 2011,” the post said.