Chevron Deference Overturned: What This Means for Banking Professionals

The recent overturning of Chevron deference marks a seismic shift in how federal agencies create and enforce regulations. For decades, the Chevron doctrine has been a cornerstone of administrative law, giving deference to agency interpretations of ambiguous statutes. Its reversal now shifts power away from regulators and toward the judiciary, fundamentally altering the regulatory landscape. For banking professionals, this change could introduce increased uncertainty and new legal challenges. Regulatory bodies like the Federal Reserve, FDIC, and OCC, which play crucial roles in shaping banking rules, may face heightened scrutiny in the courts. As the judiciary takes a more assertive role in interpreting statutes, financial institutions must prepare for a dynamic and evolving regulatory environment. Understanding the implications of this landmark decision is essential for banks to remain compliant and agile in the face of regulatory uncertainty.

What was the Chevron Doctrine, and Why Was It Overturned?

The Chevron doctrine emerged from the 1984 Supreme Court case Chevron U.S.A., Inc. v. Natural Resources Defense Council, Inc. It established a two-step framework for judicial review of agency regulations:

If the statute is clear, the court must enforce the explicit meaning.

If the statute is ambiguous, courts should defer to the agency’s reasonable interpretation.

This doctrine allowed federal agencies significant discretion in interpreting ambiguous laws and implementing regulations, enabling them to create detailed rules across complex industries, including banking.

The Supreme Court’s decision to overturn Chevron signals a shift toward judicial primacy. Critics argued that Chevron gave agencies excessive power, bypassing Congress and diluting judicial oversight. By rescinding this precedent, courts are now empowered to decide statutory interpretation independently rather than relying on agency expertise. This change could reshape how regulations are drafted, enforced, and challenged across all sectors, with significant implications for banking.

What Banking Rules May Be Affected by the Overturn of the Chevron Doctrine?

The overturning of Chevron deference may trigger challenges to various regulatory rules that govern banking operations. Key areas likely to be affected include:

Community Reinvestment Act (CRA)

The CRA, which requires banks to meet the credit needs of low—and moderate-income communities, may face new legal challenges if certain agency interpretations are disputed. The court may interpret what constitutes meeting the community’s needs through a much narrower lens than regulatory agencies. 

Anti-Money Laundering (AML) Regulations

Rules enforced under the Bank Secrecy Act, particularly those issued by FinCEN, may face scrutiny where statutory clarity is lacking. Banks could see increased ambiguity in AML compliance requirements and reporting standards.

Overdraft and Non-Sufficient Fund Fee Regulations

Regulations governing overdraft fees and non-sufficient fund (NSF) fees, which have been subject to agency interpretations, could face court challenges. This may lead to changes in how banks structure fee disclosures and policies.

Fair Lending Laws

Agency enforcement of fair lending laws, such as those under the Equal Credit Opportunity Act (ECOA), could see increased judicial review. This may impact the regulatory guidance on lending practices and fair treatment of borrowers.

Requirements for Capital and Liquidity

Capital and liquidity rules established by agencies like the Federal Reserve, including Basel III requirements, may face heightened scrutiny. Banks may need to adapt their strategies to meet stricter judicial interpretations of statutory mandates.

Unfair, Deceptive, or Abusive Acts or Practices (UDAAP)

UDAAP regulations, prohibiting unfair or deceptive financial practices, could face significant legal challenges. This may result in shifts to agency enforcement priorities and interpretations.

Section 1071: Small Business Lending Data Collection

Section 1071 of the Dodd-Frank Act, which requires financial institutions to collect and report data on small business lending, may face judicial pushback. Banks could see delays or revisions in reporting requirements.

Access Rules Surrounding Open Banking and Consumer Data

Regulations promoting open banking and consumer data access, often guided by agency interpretations, could face legal challenges. This may impact data-sharing frameworks and compliance obligations for financial institutions.

5 Ways Banking Professionals and Financial Institutions Can Be Impacted by the Overturn

Increased Regulatory Uncertainty

The loss of Chevron deference could lead to prolonged litigation over existing and new rules, creating uncertainty for banks. Without deference, courts may issue conflicting interpretations, forcing institutions to navigate a fragmented regulatory landscape.

Greater Compliance Burdens

With courts holding agencies to stricter statutory interpretations, regulatory agencies may need to create more detailed and legally airtight rules. This process could increase compliance burdens and operational costs for financial institutions.

Delays in Rule Implementation

The threat of litigation may delay the rollout of new banking regulations. Financial institutions could face ambiguity regarding compliance timelines and requirements.

Heightened Legal Challenges to Existing Rules

Existing regulations, especially those relying on broad agency interpretation, may face challenges in courts. Banks may need to revisit compliance strategies for rules that are now vulnerable to reinterpretation.

Opportunities for Advocacy

The overturn of Chevron provides an opportunity for banks and industry groups to challenge unfavorable regulations and advocate for more business-friendly interpretations in the courts.

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