Litigation round-up
It has only been a few weeks since the Supreme Court issued its decision in Loper Bright, and we are already beginning to see the full measure of legal fallout. As a refresher, in Loper Bright Enterprises v. Raimondo, the United States Supreme Court overturned the doctrine of Chevron deference, which required federal courts to defer to agencies’ interpretations of federal law when the relevant statutes are ambiguous and when the agencies’ interpretation is reasonable or permissible.
Loper Bright is already making its presence felt. This excellent analysis by Law360 provides an interesting rundown of some of the latest cases that have been affected by this landmark decision. Of particular interest—at least to us—are the cases involving the financial services industry. For instance, judge Loren AliKhan of the DC District Court in FDIC v. Bank of America, N.A., et al.—a case involving an alleged $1.12 billion underpayment in FDIC deposit insurance premiums—issued an order denying pending cross motions for summary judgment and requested that the parties set forth a new summary judgment briefing schedule “in light of the degree to which the Supreme Court’s decision in [Loper Bright] has changed the legal landscape.”
Another case of interest to the commercial finance industry due to its Equal Credit Opportunity Act (ECOA) implications (remember—business purpose credit is subject to the fair lending laws) is CFPB v. Townstone Financial. On July 11, the Seventh Circuit Court of Appeals—applying a de novo review in light of the Loper Bright decision—reversed a district court decision holding that ECOA and Regulation B do not reach pre-credit-application conduct such as advertising. What’s the bottom line here? Even though the Supreme Court eliminated Chevron deference, an appellate court found a way to uphold an arguably aggressive agency interpretation of ambiguous statutory language. We’ll be interested to see how this case progresses, but it is already clear that the statutory judicial review that Loper Bright institutes is not always pro-industry. After all, the Chevron case itself was the result of litigation challenging a Reagan-era EPA interpretation of the Clean Air Act of 1963 that would have effectively eased industry compliance requirements. Different judges and judicial panels can come to very different conclusions about the same set of facts, and litigation strategy will have to accommodate these impacts.
As always, we have our ears to the ground and our eyes open for regulatory litigation that might directly impact the industry.
News and views
Todd Philips, What’s Left but Enforcement Actions? (July 12, 2024). Available at SSRN.
Of course, the industry is pretty excited about potential new avenues for challenging onerous agency actions after Loper Bright. But we’re lawyers—so we like to pepper the good news with the (potentially) bad. Todd Philips, assistant professor at Georgia State University’s Robinson College of Business, “argues that the Court’s recent administrative law jurisprudence incentivizes agencies to forego creating legislative rules and simply bring enforcement actions…” This is a fascinating argument that relies heavily on the SEC’s struggle to regulate the cryptocurrency industry and its resulting reliance on informal guidance and commentary, often to the detriment of the industry. Of course, we’d be remiss not to note that financial services regulators (<cough> CFPB <cough>) have been known to regulate via circulars, speeches, revised exam manuals, and enforcement actions well before Loper Bright. It will be interesting to see whether the prudential bank regulators and others increase their reliance on these methods of governing the industry.
Chris Friedman and Mike Silver Discuss Loper Bright during Complimentary Tennessee Bankers Association Webinar
Yesterday, Husch Blackwell partners Chris Friedman and Mike Silver partnered with the Tennessee Bankers Association to present a webinar on Loper Bright. In particular, Chris and Mike discussed the details of the case and explored its significant implications for the banking industry. They also discussed potential responses from regulators. Check out this video of the webinar!
Next State Up (for Commercial Loan Disclosures)? Missouri
We knew it was coming, but somehow the knowing doesn’t help. Missouri now joins the ever-growing list of states requiring consumer-style disclosures for commercial finance products. Missouri’s law goes into effect either (1) within six months of Missouri’s Division of Finance finalizing a rule or (2) February 28, 2025. Fortunately, it does not appear that Missouri will require an APR disclosure like some other states, but compliance will certainly be onerous nonetheless. Keep an eye out for our deeper dive on this new legislation next week.
Wall Street Journal: Supply-Chain Finance Programs Seeing Cuts as Companies Face High Interest Rates
The WSJ reports on the pullback of supply-chain financing. In particular, several major companies, including AT&T, Keurig Dr. Pepper, and Krispy Kreme have reduced their reliance on supply chain financing programs as a result of higher interest rates. Supply chain financing—sometimes called “reverse factoring” —is typically a three-party agreement where a buyer purchases goods or services from a vendor, and a third-party financial institution settles the supplier invoice in advance of the invoice’s term, usually at a discount to the supplier, or extends the invoice’s payment term for a fee from the buyer. The financial institution, in turn, collects payment from the buyer on the terms of the invoice and the financing arrangement. These programs provide solutions for both the supplier and the buyer to improve cash flow by allowing the supplier to receive payments faster and by allowing the buyer more time to pay invoices through off-balance sheet financing.
We will be interested to see whether the reduction in the use of supply chain financing by some bigger market buyers will trickle down or cause market adjustments. We tend to doubt that there will be a large impact: as the WSJ article notes, “[d]espite pullbacks at some large companies with ample liquidity, many companies still find supply-chain finance programs beneficial in a high-rate environment because they offer buyers a way to boost cash without having to issue debt or take on a loan.” The WSJ also recognizes that “[v]endors, for their part, get payments in the door more quickly” which can alleviate the need to rely on costly cash flow financing solutions.
In other words, this product fills a critical market need—a need that is exacerbated in a high interest rate environment.
Small Business Finance Insights: A Data Point Summary of Bank Credit Tightening to Small Businesses
On the subject of alternative commercial finance products filling a critical market, Small Business Finance Insights has a great article about the tightening of traditional credit and finance markets. Of note, the article reports:
- Dropping loan approval rates for small businesses at large banks (from 28.3% in 2022 to 13.5% in mid-2023);
- a 25% decrease in year-over-year borrower demand while, at the same time, the National Federation of Independent Businesses report almost 30% of small business owners reporting access to credit as their most critical problem;
- a 10% drop in the volume of small business loans over the last year reflecting tighter credit conditions; and
- an increase in regulatory scrutiny.
IFA Launches a New Podcast
Last but certainly not least, the International Factoring Association’s NEXGEN Committee has launched a new podcast titled “Fund Forward,” which is dedicated to the “evolving world of factoring” and “supports the IFA’s mission to attract, engage, and develop the next wave of professionals in the industry.” So far, the series has released four episodes, including two in-depth episodes on the basics of invoice factoring, and a fascinating deep dive into the sales process. We’re looking forward to more insightful episodes from these industry leaders!