Capital Corner: Regulators to Face More, Broader Court Challenges

While DCUC’s focus has turned to the 2024 Elections and the unfolding Lame Duck session of Congress, we also are
reviewing a legal development that promises to reshape how NCUA and other federal regulators regulate: the Supreme Court’s overturning of the “Chevron deference” policy.

Earlier this year, the Supreme Court abandoned the Chevron doctrine, which for 40 years had directed courts to defer to agency interpretations of ambiguous provisions of federal statutes. This ruling to overturn Chevron means that deference to regulators is gone, and the regulatory deck in Washington has been reshuffled. It is likely that federal regulators will now be more careful and deliberate in putting new rules on the books due to elevated concern over court challenges from the industries they regulate.

What’s not clear, however, is the direct effect on regulators of financial institutions such as NCUA and CFPB. Why? Because the robust supervisory powers given to financial regulators, especially concerning issues of safety and soundness, may at least partially shield NCUA from the kinds of challenges that will face regulators in other fields such as environmental protection and healthcare.

Even a cursory, non-lawyer’s glance at the Federal Credit Union Act shows it is written to give NCUA latitude in implementing the law through agency-determined regulation. As one former NCUA attorney observes, “supervision and safety and soundness requirements for credit unions and banks are markedly different from those of other regulated industries. Simply put, Congress has put statutes on the books that give NCUA more authority and discretion. This is the trade-off for having federal deposit insurance, like it or not.”

This doesn’t mean that the Chevron decision won’t have an effect on regulations and the ability of DCUC and the entire credit union industry to push back if it sees regulators overreach beyond what the law says. It will.

For one thing, in the past under the Chevron doctrine, if a court saw a gray area in a law, the agency enforcing that statute was permitted to fill in the gaps so long as the agency’s interpretation met legal muster. In repealing Chevron, the Supreme Court said regulators can no longer expect automatic deference in interpreting a statute. That could slow or even stop NCUA and CFPB from straying from the letter of the law.

It remains to be seen how aggressively credit unions decide to push back against future regulations through lawsuits, but clearly there are new possibilities; this is a reality that DCUC will study carefully.

Now, a caution. The bank lobby will be able to use Chevron to their advantage too, as they try to stymie any NCUA efforts to modernize credit union service and product offerings. For example, in the past decade, NCUA was able to successfully defend its modernized Field of Membership regulation in federal court explicitly because of Chevron deference. The Federal Credit Union Act did not use exact terminology that enabled NCUA to grant more flexibility in serving rural communities, but the courts deferred to the regulator. That deference may not occur as frequently, or expansively in the future, and banks will likely look for opportunities to attack NCUA rules that enhance the credit union ability to serve consumers and the marketplace. (P.S., Credit unions should look to do the same to the banks with their regulators.)

The new Chevron interpretation is a game changer, for certain. How credit union regulation evolves given the new landscape remains to be seen, but you can be sure that DCUC will continue to evaluate the options for the good of the military financial services community.