Supreme Court’s new term to take on federal agency powers in earnest

Tuesday’s battle over the Consumer Financial Protection Bureau (CFPB) is the first in a string of Supreme Court cases this term that could dramatically reel in bureaucratic power.

The court is taking on the authority of federal agencies in earnest this term, with several high-profile arguments implicating the administrative state still to come.

Among the roughly 35 cases on the docket so far is one that weighs overruling a decades-old precedent giving executive agencies wide latitude to enact regulations, and another that challenges the Securities and Exchange Commission’s (SEC) in-house enforcement proceedings.

“It’s unusual for, out of that number of cases, for so many to involve significant questions about the constitutional structure of agencies,” said Jennifer Mascott, co-director of the C. Boyden Gray Center for the Study of the Administrative State at George Mason University’s Antonin Scalia Law School.

Left-leaning groups have broadly portrayed the push as the product of extreme judges bowing to conservative and libertarian interests.

But Mascott, a former law clerk to conservative Justice Clarence Thomas, said the increased focus is more so a reflection of the lawyers bringing the cases.

“Over the years of Congress giving broader powers to agencies and procedurally authorizing them to have more tools to try to go after regulated parties, and agencies then in turn are interpreting these grants of statutory authority quite broadly,” said Mascott, who filed a brief on behalf of 132 members of Congress backing the challenge to the CFPB.

“Litigants are facing quick, burdensome, regulatory challenges and penalties and enforcement actions, and starting to ask the courts to look at whether agencies are really exceeding their proper role within the constitutional scheme,” she continued.

The justices heard arguments Tuesday in the first of the string of cases, weighing whether the CFPB’s funding mechanism is constitutional. 

Two lending trade associations argued that the agency, which does not receive funding through the annual appropriations process and instead receives up to a capped amount from the Federal Reserve, runs afoul of Congress’s power of the purse.

But during the argument, the court’s liberals and even several conservatives seemed hesitant of ruling that way and upending the CFPB.

“You’re just flying in the face of 250 years of history,” liberal Justice Elena Kagan asked the attorney representing the lenders.

Conservative Justice Amy Coney Barrett told him, “I think we’re all struggling to figure out then, what’s the standard you would use.”

The surprising shift has given Democrats and the CFPB’s advocates a boost of hope that the court’s conservative majority won’t upend the agency after all.

“Throughout the argument this morning, from all corners of the court, I think we saw real skepticism of the arguments that the payday lenders have been making,” said Brianne Gorod, chief counsel at the left-leaning Constitutional Accountability Center.

When asked if she was surprised by the justices’ cold reception to the lenders, Gorod noted that much of the Biden administration’s argument was rooted in making historical analogies to the agencies that operated in the country’s early years.

“For many members of the court, including the more conservative justices in the court, they have a professed commitment to the text and history of the Constitution. It doesn’t mean that they always follow it,” Gorod said. “But a case like this one where the text and history arguments are so, so strongly supportive of the CFPB’s argument, it makes it very difficult for them to come out a different way.”

Even if the CFPB does survive another day, the court could still take a sledgehammer to the administrative state through its other upcoming cases.

Later this term, the Supreme Court will hear arguments about overturning Chevron deference, a landmark decision that has given executive agencies wide authority to enact regulations for nearly 40 years.

Overturning it could stifle agencies’ ability to implement wide swaths of regulations in policy areas across the board, including the environment, public health and transportation.

Under the deference, courts must uphold agencies’ actions if Congress is ambiguous on the issue and the agency’s regulation is based on a reasonable reading of the statute.

Several of the court’s conservatives are known critics of the Chevron deference, particularly Thomas and Justice Neil Gorsuch. Court watchers also suggest Justice Brett Kavanaugh as a potential skeptic.

Roman Martinez, a partner at Latham & Watkins who clerked for Chief Justice John Roberts, pointed to conservative Barrett replacing liberal Justice Ruth Bader Ginsburg in 2020 as one reason to be bullish on the challengers’ chances.

“I think that there’s good reasons to think that the challengers to the regulation here have a lot of wind at their back coming to this court, especially in light of the changing composition of the court over the last few years,” Martinez said at a term preview.

The Biden administration has urged the justices to uphold Chevron deference, arguing that overruling it would be a “convulsive shock to the legal system.”

“All three Branches of government, regulated parties, and the public have arranged their affairs for decades with Chevron as the backdrop against which Congress legislates, agencies issue rules and orders, and courts resolve disputes about those agency actions,” the Justice Department wrote in court filings.

“Given its central importance, overruling Chevron would threaten settled expectations in virtually every area of conduct regulated by federal law,” the filing continued.

The Biden administration this term is also set to defend the SEC before the justices in a case that could claw back the commission’s ability to use its administrative law judges to secure penalties and take other enforcement actions.

The case involves three different constitutional questions, including whether the setup violates defendants’ right to a jury trial.

“Over the past few years, it’s become very clear that the Supreme Court and, especially the conservative justices, have been laser focused on what they see as the excesses of the administrative state and how it’s gone beyond the original constitutional plan and structure,” Martinez said. “And so we’ve seen a steady diet of cases in which the Court has been sort of walking back aspects of agencies run amok in various ways.”