Payments 3.0: Cool Off And Reconsider

The payments industry seems to be gearing up for more lawsuits in the wake of a recent Supreme Court decision, but cooler heads should prevail.

In June, the Court issued a decision in Loper Bright Enterprises v. Raimondo, Secretary of Commerce, that overtuned the Chevron Doctrine.

In 1984, the Court ruled in Chevron U.S.A. Inc. v. Natural Resources Defense Council that if a law was ambiguous with regard to a specific regulatory question, a court must defer to a regulatory agency if that agency offered a permissible construction of the statute. This tipped the scales in favor of regulators where the law wasn’t clear.

The decision in Loper said the Chevron doctrine violated the Administrative Procedures Act and that any ambiguities in laws related to regulations must be decided by the courts.

There has been a lot of cheering over this decision, but much of it is premature. One Congressional representative even went so far as to claim, in a hearing with the head of the Environmental Protection Agency, that the decision meant the agency had to roll back regulations. This is not the case.

Still, many industry observers seem to think the Loper decision means companies should be more aggressive about suing regulators. Given some of the postings I have read and things I have heard, it seems the industry thinks it is about to go on a lawsuit winning streak.

But even post-Chevron, suing should not be the plan of first resort. Lawsuits are expensive and take a long time. Look at the timelines of the PayPal v. Consumer Financial Protection Bureau case, which started in 2019 and is still ongoing, and the case of Consumer Financial Protection Bureau v. Community Financial Services Association of America, which started in 2018 and was resolved only this year.

Also, the Loper decision says that, while an agency’s interpretation of a law cannot bind a court, it might be “especially informative,” particularly if that interpretation comes from the agency’s expertise. Agencies know the laws and the industries they work with. While they may seem—and sometimes are—capricious, they are deliberative when writing rules, anticipating legal objections.

The Supreme Court said courts no longer need to pay the agency deference. It did not say courts must always rule against the regulator. Agencies, too, have smart lawyers working for them.

Consider the payday-lending rule case. The Fifth Circuit’s opinion said the payday-lending rule stood on solid legal ground. It found that the Consumer Financial Protection Act gave the Bureau the power to determine whether products and services are “unfair” and “abusive,” and rejected the plaintiffs’ arguments that consumers can reasonably avoid harm from payday loans. The Court also rejected arguments that the Bureau acted capriciously, saying its rulemaking process was a good method for gathering information to create the rules.

When that case continued to the Supreme Court, due to the challenge to the CFPB’s funding mechanism, the conservative Court found that the Bureau’s funding was Constitutional.

Now, these two questions are settled: the CFPB is Constitutional, and the Bureau has no reason to listen to any requests to modify the rule.

Imagine what will happen if industry players try to litigate every regulation they find objectionable. How many rules will end up protected by precedent and managed by regulators who have the power of decision and are annoyed at having been sued?

There will be times when lawsuits are justified, even necessary. That said, companies should keep in mind that costs and potential downsides mean that lawsuits can’t be the first option for every dispute.

—Ben Jackson bjackson@ipa.org