"Enough is enough"

At least one Supreme Court Justice is ready to stop deferring to agencies The CFPB, OCC, FDIC, and Federal Reserve have broad authority to issue and interpret rules covering financial institutions. Courts have generally given agencies a great deal of deference when an agency explains the meaning of its own rules. In fact, courts will uphold agency interpretations of agency rules even if it is not the best understanding of the rule. The agency interpretation only needs to be plausible. At least one Supreme Court Justice is ready to change this deference. In a relatively short opinion in Decker v. Northwest Environmental Defense Center, the United States Supreme Court reaffirmed the longstanding judicial policy of deferring to agency interpretations of agency rules. However, there were signals from three Justices that it may be time to reevaluate the merits of giving agencies so much deference. The case arose after a group of citizens in Oregon sued Oregon officials charged with implementing the Clean Water Act and its rules. The citizens argued that under the Clean Water Act and its rules, a temporary logging site was required to obtain a water pollution discharge permit for storm-water discharge. The case hinged on whether the temporary logging activity was included within the EPA's 'Standard Industrial Classification 24.' The EPA rules require 'industrial activities' to obtain water pollution discharge permits for storm-water discharged. The rules defined 'industrial activities' to include 'Standard Industrial Classification 24' which includes industries involved in 'lumber and wood products.' The citizens argued that the meaning was clear logging operations must obtain pollution permits. The Oregon officials, and ultimately the EPA disagreed. They argued that the purpose of the discharge permit rule was to require operations such as sawmills to obtain permits. The Supreme Court, after reviewing EPA's rules, deferred to the agency's interpretation of the meaning of its own rule. While the case was pending before the Supreme Court, the EPA re-wrote the text of the rule to state the meaning it claimed the prior rule had. Justice Scalia strongly disagreed with the majority's conclusion. In dissent, Justice Scalia proclaimed 'enough is enough.' He noted the problem with giving agencies deference is that agencies will be 'vague in framing rules, with the plan of issuing interpretations to create the intended new law without observance of notice and comment procedures.' This, added on to the deference already given agencies to interpret the scope of their own statutory authority, previously discussed in this blog, means that agencies have virtually limitless authority to write rules affecting financial institutions. He also pointed out that the EPA's interpretation was plainly inconsistent with its rule because the EPA went to the trouble of issuing a new rule while the case was pending. Why would the EPA need to issue a new rule if the old rule had the meaning the EPA claimed it had? Justice Scalia has clearly signaled that he is prepared to hold agencies to account for the words they choose. Chief Justice Roberts and Justice Alito also signaled that they would be prepared to reevaluate the strong presumption given to agency interpretations of agency rules. This could be the beginning of a new period of stronger judicial skepticism of agency action. This would have important implications for agencies like the CFPB, OCC, FDIC, and Federal Reserve because they will be held accountable for the words they choose. The courts would presume, in a phrase coined by Justice Scalia, that 'an agency says in a rule what it means, and means in a rule what it says there.

The material in this blog is not intended, nor should it be construed or relied upon, as legal advice. Please consult with an attorney if specific legal information is needed.

- John Lande