In its decision last week in Sackett v. Environmental Protection Agency, the U.S. Supreme Court issued a unanimous ruling that severely limits the federal government’s jurisdiction over wetlands and tributaries.  Specifically, the Court rejected the Environmental Protection Agency’s (EPA) regulatory definition of what constitutes “Waters of the United States” subject to federal jurisdiction under the Clean Water Act (CWA).  While the decision’s substance (discussed more fully in a Ballard Spahr legal alert) obviously has no direct relevance to consumer financial services, the decision does have relevance to an issue that directly impacts all federal agencies, including the CFPB, FTC, and federal banking agencies–namely what deference a court should give to agency interpretations of statutes when considering challenges to such interpretations.

Since the Supreme Court’s 1984 decision in Chevron, U.S.A., Inc. v. Nat. Res. Def. Council, Inc., the “Chevron framework” has typically been invoked by courts when reviewing a federal agency’s interpretation of a statute.  Under the Chevron framework, a court will typically use a two-step analysis to determine if it 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 ambiguous or silent, 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 will ordinarily defer to the agency’s interpretation.

In a series of recent decisions, most notably its decision last Term in West Virginia et al. v. Environmental Protection Agency et al., the Supreme Court has appeared to cut back on Chevron deference.  In West Virginia, without mentioning the Chevron framework, the Court invoked the “major questions doctrine” to strike down an EPA regulation interpreting the Clean Air Act.  In Sackett, the Supreme Court also did not mention Chevron in explaining its refusal to defer to the EPA’s interpretation.  Instead, it invoked what some commentators have called a “clear statement rule,” which is a rule of statutory construction that requires Congress to speak clearly when it wants to displace certain presumptions.  In Sackett, the Supreme Court stated that “this Court ‘require[s] Congress to enact exceedingly clear language if it wishes to significantly alter the balance between federal and state power and the power of the Government over private property.’” (citation omitted).  According to the Court, because “[r]egulation of land and water use lies at the core of traditional state authority…[a]n overly broad interpretation of the CWA’s reach would impinge on this authority.” (citations omitted).

As yet another decision in which the Supreme Court has opted not to apply Chevron when considering a challenge to an agency’s interpretation, Sackett reinforces the view of many observers that the Court is moving away from the Chevron framework to an approach that provides greater interpretative authority to the courts.  The Supreme Court recently agreed to hear a case next Term (Loper Bright Enterprises, et al. v. Raimondo) in which the petitioners are directly challenging the continued viability of the Chevron framework.  There is considerable speculation that the Court’s conservative majority will curtail, if not overrule, Chevron.  In any event, it is hoped that the Court’s decision in Loper next Term will resolve the current uncertainty that exists as to the Chevron framework’s continued viability and application.