Supreme Court: Regulators Can Change Rule Interpretations without Advance Notice, Comment Period (March 10, 2015)
The Supreme Court is backing the authority of regulators to reinterpret their own rules without seeking industry input. In a decision issued yesterday in the case of Perez v. Mortgage Bankers Association, the court ruled unanimously that agencies can change how they interpret certain rules without issuing advance notice and soliciting public comment under the Administrative Procedure Act (APA)—a process that can take several months, or even years. The decision reverses a circuit court’s contrary ruling.
“Not all rules must be issued through the notice and comment process,” Justice Sonia Sotomayor wrote in the court’s decision. Even when an agency issues “new interpretation of a regulation that deviates significantly from one the agency has previously adopted,” the APA does not require a notice and comment period, she wrote.
The decision could affect regulation in the payments industry, which is subject to oversight by several federal agencies, including the Federal Reserve, FDIC and CFPB, among others. Those agencies now will have more leeway in how they interpret many of their own rules. The industry could see more sudden changes of rule interpretations akin to the FDIC’s December notice that it would begin classifying some prepaid card deposits held by banks as brokered deposits—a position it had not yet before put into writing, but which had the effect of a new and immediate law. The industry was similarly taken aback in March 2013, when the Fed quietly released a set of FAQs around the Durbin Amendment’s exclusivity routing regulations for prepaid cards, just weeks before the rules were to take effect.
“This is not new, but one still hopes that this ability to change interpretations will be used carefully and judiciously by regulators,” said Judith Rinearson, a partner with law firm Bryan Cave LLP and a Pay Gov contributing editor. “We all can easily imagine a range of changes in interpretation that could create havoc, especially if our regulatory agencies become politicized,” Rinearson tells Paybefore. While the court’ decision upheld restraints against “arbitrary and capricious” changes to interpretive rules, Rinearson says those standards might not provide much peace of mind for regulated parties.
Michael W. Sheridan, attorney at Butler Snow LLP, views the decision as business as usual for regulated entities. “The ruling most likely will not change how the payments industry is regulated by various agencies,” Sheridan tells Paybefore. “In large measure, payment companies now react to, and deal with, interpretations of rules each and every day. UDAAP (unfair, deceptive, or abusive acts and practices) comes to mind as a prime example of the prevalence of ‘regulation through interpretation,’” Sheridan says. “Should the line that separates interpretation from rule or regulation be crossed, the APA and other laws remain available.”
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