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Treichel: Hey everyone, this
is Mark Treichel with another

episode of With Flying Colors.

Today's podcast is going to be
about Supreme Court decisions that

Will likely impact credit unions.

Two weeks ago, Friday, the Supreme court
came out with two relevant decisions.

They are Chevron and I posted about
Chevron on LinkedIn, which is going to

be what I focus on here in this podcast
is talking through what I posted on

LinkedIn after reading through it.

The first time my take on what it
will mean for NC way and banking

regulators in general, and then also.

There was a second case called Jar Kezi
or Jar Keezy versus the SCC, and that

impacts civil money penalties, which are
rare in credit unions, but This decision

will likely make them even or rare.

All right.

So back to Chevron,

so Chevron deference was a legal
doctrine in the United States

administrative law that was
established by the Supreme court's

1984 decision in Chevron USA versus
the natural resource defense council.

The Chevron Doctrine required courts
to defer to a federal agency's

reasonable interpretation of an
ambiguous statute that the agency

is charged with administering.

And what happened was, since 1984, there
have been many court decisions and Supreme

Court decisions where essentially, I'll
call it in a baseball term, tie goes to

the runner, the runner being the agency.

Someone sues an agency, says you're not.

Following the Federal Credit Union
Act, and it goes all the way to court

or to Supreme Court, and they decide
that if it falls into the area of the

law being ambiguous, and the agency,
See also Now, if they interpreted that

and that interpretation was reasonable,
they will defer to the agency.

Now what has happened under Chevron
being overturned is that they will

no longer defer to the agency.

So it will be decided by the court.

And that can be any court on the
federal court along the way, all

the way up to the Supreme Court.

The decision from late June of 2024
overrules the Chevron deference,

a long standing legal doctrine
that required courts to defer

to federal agencies reasonable
interpretations of ambiguous statutes.

So two key words are, is the statute
ambiguous and was the federal

agency's determination reasonable?

The key points of the decision are
majority opinion written by Chief

Justice Roberts holds that Chevron
deference is incompatible with the

Administrative Procedures Act or the
APA and the proper rule of courts.

The court states that judges must now
exercise their own independent judgment

in interpreting statutes rather than
deferring to agency interpretations.

The majority argues that Chevron
was poorly reasoned, unworkable

in practice and inconsistent with
separation of powers principle.

The court overruled
Chevron on ground saying.

The doctrine's flaws outweigh
the need to uphold precedent.

So there's years and years of precedent,
but they're saying that doesn't matter.

Justice Kagan writes a dissenting
opinion joined by two others stating

that Chevron was correctly decided
and reflects Congress's intent.

Overruling it will cause massive
disruption for the legal system.

Which is probably true.

The majority is improperly expanding
judicial power at the expense of

agencies expertise, the decision is
likely to have wide ranging impacts

on administrative law and regulatory
policies across many areas of government.

The court vacates and remands the
lower court decisions that have a.

that had applied Chevron deference
in the specific cases under review.

This ruling represents a major shift in
how courts will review agency actions and

interpretations of statutes going forward.

Now, a question that was posed was,
does this apply to past decisions?

Now, the court did address this
specifically in the opinion, and

according to the majority, the six
versus three that overruled Chevron.

The decision to overrule
Chevron does not apply.

Automatically invalidate prior cases
that relied on Chevron deference.

Justice Roberts writes, by overruling
Chevron, though the court does not

call into question prior cases that
relied on the Chevron framework,

the holdings of those cases that
specific agency actions are lawful.

Including the Clear Clean Air Act holding
of Chevron itself are still subject to

statutory review, despite the court's
change in interpretive methodology.

The court states that mere reliance
on Chevron in a past decision is

not enough on its own to justify
overturning that decision.

There would need to be some additional
special justification beyond just

the fact that Chevron was applied.

However, Justice Kagan, in her dissent,
expresses skepticism about this assurance.

She argues that courts motivated to
overturn old Chevron based decisions

could easily find or manufacture
a special justification to do so.

Kagan also points out that even if
prior judicial decisions are not

automatically overturned, many agency
interpretations that were never

challenged under Chevron May now be
vulnerable to new legal challenges.

For example let's say there was a
challenge on field membership, but as

defined in the federal credit union
act, which there have been, there

was a situation where a judge ruled
against NCUA on the determination

of what the definition of rural was.

And so I appealed that and later went
on to win saying at the higher level,

they decided that NCUA under Chevron.

That there would be a deference
to NCUA in that regard.

So that deference would go away.

So what I anticipate may happen,
and this was pointed out to me by

someone who will remain nameless at
NCUA, who pointed out, pointed me

in the direction of field membership
when I started thinking about this.

And I want to thank him or her for that.

And anyway, so, the definition of
rural, you could see someone go get

a community charter and then the
ABA sue on behalf of banks, and then

that work its way through the system.

And all of a sudden, voila,
the field of membership rules

get tighter because of Chevron.

That's a specific example that
That I think is which shows

the real world ramifications of
Chevron's impact on credit unions.

Back to my post on LinkedIn, I
want to go to that and walk through

the major issues as it relates
to Chevron and credit unions.

And the issue I discussed there was,
will this impact agency guidance?

Now, By way of background, so you have the
Federal Credit Union Act, which is which

is put in place by a Congressional Act
and from there, you have NCRA regulations,

which further extrapolate and expand
and interpret and create regulations

as required for for working within the
confines of the Federal Credit Union Act,

for example commercial loan rule rule
on risk based net worth, for example.

The Federal Credit Union Act put
in place prompt corrective action.

And then when Congress did that, they
said NCUA needed to interpret the

Federal Credit Union Act and write
a regulation in response to that.

Now that regulation could be found to
be in violation of the Federal Credit

Union Act in a situation where the
Federal Credit Union Act was determined

to be ambiguous and then the regulation
interpreted that in the past, that

would be, again, tie goes to the
runner, they would rely On the agency.

Now, in the future, when it's pursued,
that would be decided by the judges.

Now, back to the LinkedIn post
and the topic of guidance.

You've got the Federal Credit
Union Act approved by Congress.

You have regulations approved by NCUA.

And then you have guidance.

Now I've said in other podcasts that
the way the other banking regulators

do guidance is a little bit different.

They actually put it out for public
comment and CUA does not do that.

They just issue it after either a
review by the board chairman or if

the board chairman wants to seek the
input of the other board members,

they can, but the final ends with
the CUA board chairman, for example.

Letters to credit unions on liquidity.

Letters to credit unions
on indirect lending.

Letters to credit unions on
third party due diligence.

Letters to credit unions on priority
letters, which comes out every year.

That is guidance that NCWA
relies upon in its examination.

And links it to safety and soundness.

So you can also get into
safety and soundness.

Is it defined in the
Federal Credit Union Act?

No.

Is it referenced in the
Federal Credit Union Act?

Yes.

And then NCUA interprets that and
links all this guidance to that.

So I think there's potentially,
theoretically, an opportunity for

guidance to be impacted heavily.

And here's how.

Number one, I would say, There is
a reduced deference to NCUA agency

guidance documents, which are often
interpret statutes or regulations

will no longer receive automatic
deference from courts under Chevron.

This could weaken the practical
force of such guidance.

In the end, I'll explain the likelihood
of this and the timelines for this, etc.

But because of Chevron, guidance
is now, in and of itself, a

weaker position for an agency to
take, any agency, including NCUA.

Number two, increase vulnerability
to the credit union challenge.

Without Chevron deference, NCUA
guidance will likely be more vulnerable

to appeal and legal challenges.

Courts will now apply their own
judgment in interpreting statutes

potentially disagreeing with agency
interpretations more frequently.

Again, statute regulation, guidance,
guidance is an extrapolation

of regulation, which is an
extrapolation of the federal credit

union act and congressional acts.

And all of that now is in play.

Potentially don't get
too excited, potentially.

And we'll explain that at the end.

Heightened scrutiny.

NCOA may need to provide more robust
justifications for their interpretations

and guidance documents, knowing that
courts will scrutinize them more closely.

So what happens if you know
somebody is going to scrutinize you?

You move a little bit more methodically.

That could slow things down.

It could also be a positive in that
NCOA won't issue nice to have guidance.

They'll only issue need to have guidance.

Number four, potential
decrease in guidance.

As I just said, NSUA might become
more cautious about issuing guidance

documents, particularly on contentious
or ambiguous statutory provisions due to

the increased risk of judicial override.

Note that in material, so A material
amount of NCOA guidance is very

dated, emphasis on the word very.

This is because staff avoids bringing
it forward to the board because of

the risk the updates make the guidance
less effective due to board influence.

Now, ironically, Chevron does the same.

It takes the power from staff
and agencies and puts it with

politically appointed judges.

Now I mentioned indirect lending guidance
and third party due diligence guidance.

That's more than 10, 15 years old.

Now, has it stood the test of time?

Some could argue it.

Yes.

Some could argue, no, I'd probably be
in the middle because other agencies

have come out with other guidance, which
is actually more robust and better.

Then what NCOA has now, why
don't they bring it forward?

Because the staff, in my opinion, and
I've seen this discussed and heard this

discussed is wary that if they bring it
forward, that they'll get more teeth.

They might get less teeth.

And so old guidance that is good.

The NCOA staff will not
try and make it perfect.

If good is good enough.

And usually it is again, don't let
perfect be the enemy of the good.

And CUEA staff doesn't bring it forward.

So unless a compelling reason for
guidance comes out or a board member

says, I think we should rewrite this,
the old guidance tends to stand.

Now that doesn't mean that credit
unions can't push against that

envelope, but again, we'll explain
that a little bit more as we get

closer to the end of this discussion.

Now there could be a shift in focus.

NCOA may put more emphasis on formal
rulemaking processes, which typically

carry more legal weight rather
than relying on guidance documents.

While this is a slower overtime,
it may be the better resolution.

Now, again, NCOA board will only
likely take regulations forward

that they absolutely deem necessary.

And but I could see that guidance
becomes less and less under this

and regulations come into play,
theoretically, but more on that.

Now, will there be a retroactive impact?

I went into this a little bit, but while
the court states that past judicial

decisions rely on Chevron are not
automatically invalidated, guidance

and legal interpretations that has
not been subject to judicial review.

May be more vulnerable to new challenges.

For example, think of a Federal Community
Charter that gets approved in 2025.

Will the ABA sue?

You bet, and they might win, so that
tightens up field membership and reduces

the value of the Federal Charter.

Uncertainty is an issue.

There may be a period of increased
uncertainty as agencies and regulated

entities adjust to the new legal landscape
and courts develop new approaches

to reviewing agency interpretations.

Interestingly, as an aside, , I saw
an article about how and actually

was speaking with a client who is an
attorney who indicated that there are

full classes on Chevron and that the
client mentioned that, and then lo and

behold, I saw an article Where this
discussion was that all these classes

in law schools are going to have to be
reworked because, it said everything

that they said was yellow is now purple.

So they need to flip the case, the
class because of this case and Chevron

used to provide that difference.

Now it doesn't.

And what does that mean?

That's going to be part of that
upheaval in the legal system

that was referenced earlier.

So there could be a potential
legislative response.

Congress might respond by being
more explicit in delegating

interpretive authority to agencies
in future legislation, or by

clarifying existing statutes.

Now this to me might be the best case,
in some situations, but it's a double

edged sword, as writing a law with the
intent of being explicit is different

than actually achieving that in the end.

So as Congress in their infinite
wisdom tries to come up with better

language that is not ambiguous,
guess what words are ambiguous.

I think that's going to be a heavier
lift than what others think might

be the case, but there could be
definitely an effort by Congress.

Will they succeed?

They rarely succeed at
anything these days.

So I doubt it.

How about safety and soundness?

Now I'm still thinking this one
through, but I think credit unions

that want to appeal will have a
better chance of winning if they

attack safety and soundness.

Why is that?

Because it's very discretionary.

It's very ambiguous, but
here's what I was saying early.

Don't celebrate too quickly.

Because appeals are an extremely heavy
lift and to really get traction, it would

have to go beyond the walls of NCUA and
you'd have to take it down the judicial

path to get ultimate turnover here.

Meanwhile, you still need to comply
with the examination while the appeal

and or court challenge is going on.

Said another way, You will likely
find yourself in the same situation

that my clients find themselves every
time NCUA writes something in an exam

report or has a discussion with them.

They decide if they want
to go along, to get along.

NCUA, just like everybody, has good
ideas, bad ideas, and mediocre ideas.

The good ideas you're going to go
along with, the mediocre ideas you

might decide to go along, to get along.

Bad ideas are going to be where you decide
That you might want to appeal and then

ultimately appeal beyond the walls of
NCUA, but you're going to want to approach

that very carefully because it's a long
journey with a lot of associated costs

and more often than not, you are better.

You're going to find out that you best try
and negotiate with NCUA to get the best

possible exam result, the best possible
document resolution, et cetera, et cetera.

There will be some situations, I think.

Where credit unions will push
back or banks will push back or

people will push back on the IRS or
people will push back on the EPA.

And as these rules get rewritten,
most likely at other agencies, there

will be guidance that will come out
on guidance for federal agencies and

there will be an improvement here where
agencies will have to Put things more

in regulation and be more clear in
regulation and stick to the actual law.

And this is going to be a long journey.

So while there is, while this has
far reaching impacts on every federal

agency, and I think we will see some
of the overreach of the CB CFPB or

the presumed overreach, depending on
which side of the table you're on.

I believe you'll start to see
people push back on key situations.

And then when those things are decided
at the Supreme court level, we'll see

agencies get a little bit more scared
about their guidance, a little bit more.

Reasonable.

In their regulation, and in the end,
this is a very, very good thing.

Now, there's lots of chatter
in credit unions about this.

There's lots of chatter at NCUA.

I had some other retirees that
were sending out thoughts on this.

As I mentioned, I had some NCUA
staff reach out to me relative to it.

And in the end, I think this
is good for credit unions.

Now, I want to pivot to another case.

Pause.

I

want to pivot to another case that
I mentioned, which is Jarkezy.

Jarkezy.

Jarkezy.

On who appealed, which
is Jari against the SEC.

Now this decision, the Supreme Court
has significant implications for

banking agency's ability to assess
penalties through administrative.

Proceedings.

It calls into question the
constitutionality of administrative

proceedings used by banking
regulators to impose civil money

penalties or civil penalties.

The court ruled that the SEC's use of
in house administrative lodges judges

to impose civil penalties for securities
fraud violations was unconstitutional

as it violated the defendant's Seventh
Amendment right to a jury trial.

Many bank agencies like the OCC,
Federal Reserve, and FDIC and NCUA

use similar administrative processes
to assess civil money penalties

against banks and individuals
for violations of banking laws.

The reasoning in this decision Suggests
that processes may now be constitutionally

suspect the court held that when
the government seeks to impose civil

penalties, defendants have a right to
a jury trial in federal court rather

than an administrative proceeding.

If the claim is analogous to 1, that would
have required a jury trial at common law.

This likely means banking agencies will
have to bring civil penalty actions

in federal court, rather than through
internal administrative processes, by

the way, NCOA's process is internal
admin and administ, an internal

administrative process, if they want
to impose monetary penalties on banks.

credit unions, banks, or individuals.

It may significantly reduce banking
agencies abilities to quickly and

efficiently impose penalties through
streamlined administrative proceedings.

Federal court litigation is typically more
time consuming and resource intensive.

The decision potentially impacts
dozens of federal agencies beyond

just banking regulators that have
relied on administrative proceedings

to impose civil penalties.

However, the full scope of the ruling
impact on banking agencies is not

entirely clear as the court focused
specifically on security fraud claims.

There may be attempts to distinguish
other types of banking violations.

Banking agencies may need to reassess
and restructure their enforcement

processes in light of this decision
to ensure they comply with the 7th

Amendment jury trial right when seeking
to impose civil money penalties.

Thank you for your time, In summary, this
ruling seems to significantly curtail

bank regulators ability to unilaterally
impose civil money penalties through

administrative proceedings, likely
requiring them to pursue such penalties

through federal court actions instead.

However, the full implications may take
time to play out as agencies and courts

grapple with applying the decision
to different regulatory contexts.

So what does this mean for credit unions?

Here's the thing.

NCUA rarely, and I mean rarely,
uses civil money penalties.

They will jump over that and go to
conservatorship actions, quite frankly,

if they feel that there is a need.

They occasionally would do it for
filing of late 5300s and then waive

it, and they would occasionally do it
when someone has been put in jail and

that there, there was fraud involved.

I've had discussions with credit
unions where they have to sign

a letter of understanding and
agreement that might be published.

Or they enter into a cease and
desist order which might be

subject to civil money penalties.

And I, when I have those
conversations, I say, NCUA uses

civil money penalties very rarely.

And because of this decision, I
think it will be even more rare.

It's not really, while it's on
the decision tree of what NCUA

could do, this makes it even
more remote that NCUA will do it.

That's all I've got for you today.

I hope you have a good
week and stay tuned.

This Chevron decision, how it impacts
credit unions, how it impacts guidance,

how it impacts regulations, it's
going to be a long journey, but I

think over time the ruling will.

Make it better for credit
unions and harder for N.

C.

U.

A.

And harder for other banking regulators.

And it's going to be very interesting
to see what cases get brought forward

to start moving the ball here.

But I think it will be something that
we see the Supreme Court dealing with

here in the next few years and then
understanding the ramifications of that.

And again, in summary, while it's
going to make NCWA relying on

guidance harder, I don't think
it's going to happen immediately.

And I don't think it's going
to be something that you're

going to feel in the front.

The front lines with with your
examination, should you find yourself in

a situation where you want to appeal or
you think that there's overreach or you

think you have a good case for this reach
out and let's have a discussion and I

can walk through whether or not I think
it might make sense for you to do that.

All right, this is great.

Chatting with you again here again, and
I appreciate you listening as always.

This is Mark.

This is Mark Treichel signing
off with flying colors

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