WASHINGTON — The U.S. Supreme Court could have a say in how regulators issue guidance on interpretive rules that are not subject to notice and comment, which could have ramifications for NCUA and the credit union community.
The case, Perez v. Mortgage Bankers Association, is scheduled to be heard by the justices on Dec. 1. It originally was a dispute between the MBA and the Department of Labor regarding whether loan officers should be paid overtime (Thomas Perez is the U.S. Secretary of Labor).
In a statement on the Supreme Court's website, the issue the court will review is: "Whether a federal agency must engage in notice-and-comment rulemaking before it can significantly alter an interpretive rule that articulates an interpretation of an agency regulation."
In 2006, the Department of Labor issued an opinion letter that said mortgage loan officers' duty qualifies for an exception to the overtime rule in the Fair Labor Standards Act. In 2010, the department's deputy administrator reversed course, saying the officers did not qualify for the exception.
MBA sued the Department of Labor, saying its interpretation could not be changed without a notice and comment period required in the Administrative Procedures Act. The U.S. District Court of Appeals for the D.C. Circuit ruled that the 2010 decision must be reversed.
According to analysis by CUNA, the case has the potential to make the regulatory process more transparent for regulated industries such as credit unions. Eric Richard, the trade group's general counsel, said guidance is "used extensively" by credit union regulators, including both the National Credit Union Administration and the Consumer Financial Protection Bureau, "including sometimes when regulators could do a better job after public comment," he said. "This is an important issue CUNA will be watching during the current Supreme Court term."
The case could articulate a standard as to when regulated entities are expected to follow guidance, as well as important implications for examination and supervision processes, Richard said.
If the Supreme Court upholds the D.C. Circuit Court's decision, agencies may decide not to use guidance as often for fear of locking themselves into a position, Richard said. If the Supreme Court rejects that decision, agencies are more likely to issue more interpretations.
Carrie Hunt, SVP of government affairs and general counsel for NAFCU, said it is an "interesting" matter to decide because how regulators use guidance versus formal rule making has been an issue for a long time.
"There are times guidance is issued without notice and comment, which can be positive or negative. It really depends how the agency interprets guidance," she said.
As an example, Hunt said NCUA may issue a guidance document and during an examination the examiner gives the credit union a document of resolution for not following that guidance. In that case, the regulator is using that guidance as if it were a regulation. On the other hand, if guidance is issued but not enforced it can be "helpful," she assessed, if the point of the guidance is to give more elaboration or instruction as to how the regulation was intended to work. "That gives more flexibility."
How the Supreme Court looks at notice-and-comment rule making potentially will have an impact on credit unions, but Hunt said it is difficult to say what that impact will be. "There are lots of times when the industry asks for guidance because regulation is more cumbersome and takes longer to change."
Robin Cook, CUNA's assistant general counsel for special projects, noted there is a difference between legislative rules and interpretive rules. The former carry the force and effect of law, while the latter do not.
"In terms of expectations, I do not know that we can necessarily predict what the Supreme Court might do," Cook told Credit Union Journal. "The government is taking the position that the statute itself is very clear on legislative rules. The D.C. Circuit has had three big cases in recent years that have chipped away at that position. The mortgage bankers are saying that an agency cannot do a 180 without the benefit of notice and comment first."
From the perspective of a credit union, generally speaking guidance is "helpful," Cook explained. He said CUs need a "back and forth" with regulators on what regulations actually mean.
"Guidance gives an opportunity to do so," he said. "But in the context of a regulated industry, examiners are going to expect adherence to guidance, even if it does not have the force of law. This case has the potential to clarify what guidance really means to credit unions — when they have to follow it and when they don't — and the relationship between the regulator and credit unions."
Because of the potential ramifications, "It certainly is a case to watch," Cook assessed. He noted the various regulatory agencies frequently put out guidance on a variety of subjects, "so it has the potential to change the way in which the agencies operate."
"The Department of Labor told mortgage bankers the world looks like 'X' under one political administration, and then later said the world looks like 'Y,' a total 180. This is important for those that rely on guidance in making business decisions."
