Happy week-after-July 4th! While you and millions of other Americans were doubtlessly enjoying bottle rockets, brews, and bratwurst, the team at Husch Blackwell was diligently poring over the latest developments in the alternative commercial finance space.
Loper Bright Was Big
We would be remiss if we didn’t spend time discussing the truly momentous United States Supreme Court term and in particular the decision in Loper Bright Enterprises v. Raimondo. As you have likely heard, this decision is set to reshape the landscape of regulatory litigation. In a nutshell, Loper Bright (discussed in detail by our colleagues Gregg N. Sofer and Joseph S. Diedrich) centered around the interpretation of the Chevron deference doctrine. Chevron deference is (or was) a legal principle that compels courts to defer to a federal agency's interpretation of ambiguous laws that the agency administers. In Loper Bright, the Supreme Court held that the Administrative Procedures Act (APA) requires that courts reviewing agency actions decide “all relevant questions of law”—and “all” means all, including when the statutory language is ambiguous. This ruling could create new approaches for challenging the most significant new federal regulatory regime—Dodd-Frank 1071. With the Consumer Financial Protection Bureau (CFPB) setting firm compliance dates that are fast approaching, the implications of this decision are particularly pressing. (By the way…the Husch Blackwell team is currently prepping a webinar on 1071, so stay tuned).
But Corner Post Might Prove to be Bigger
Perhaps just as important—albeit more under-the-radar—is the Supreme Court decision in Corner Post, Inc. v. Federal Reserve. In technical terms, the Supreme Court held that an APA claim does not accrue for purposes of the six-year statute of limitations until the individual plaintiff is actually injured by the final agency action. In practice, this means that before Corner Post, APA claims for any particular agency action expired six years after the final agency action. Now, it seems that any party harmed by an agency action may have a claim so long as that party files suit within six years of the injury. In practice, this decision could open up the floodgates to litigation over agency actions that, until now, appear to have been settled.
Like Loper Bright, this development opens up a new avenue for redressing allegedly harmful agency action; however, the decision could significantly increase the rate of litigation challenging agency actions and potentially expose long-standing regulations to new legal challenges. While this might provide a useful means to contest onerous regulations, it also might conflict with the competing interest in maintaining regulatory certainty and predictability for highly regulated businesses.
But the Biggest Challenge Continues to Be at the State Level
While the Supreme Court decisions in Loper Bright and Corner Post open new avenues for challenging federal agency actions, the biggest issue may not be at the federal level but at the state level. Neither decision affects the role of state legislatures and regulators, who are increasingly active in enacting commercial finance disclosure laws and other limitations on small and medium-sized enterprise products.
With states independently enacting their own regulations, businesses face a growing compliance burden. The differences in state laws can lead to increased costs and operational challenges for lenders who must tailor their practices to meet varied state requirements. At some point, a single, unified regulatory regime may become preferable to ensure consistency and predictability in the market.
News and Views
Banking Dive: Supreme Court ends Chevron deference
This is another great detailed rundown of the Court’s decision in Loper Bright. Even better, our colleague Mike G. Silver has this insightful quote about the specific impact of the case on the CFPB:
Mike G. Silver, a consumer finance attorney for Husch Blackwell in Washington, D.C. who spent 12 years at the CFPB, said he thinks the decision could impact the CFPB less than it will affect other agencies, because the CFPB has a shorter history and smaller body of regulation than other federal regulators.
“The CFPB is so young as an agency, it’s only 12 and a half years old, so it doesn’t have a large body of interpretive guidance for courts to follow,” Silver told Banking Dive.
Implications are “pretty unclear in the short term,” Silver said, noting that the decision didn’t come as a surprise.
SEC v. Jarkesy
Continuing the theme of the Supreme Court hamstringing the administrative state, the Court in SEC v. Jarkesy removed the ability of the SEC to utilize Administrative Law Judges (ALJs), stating that the Seventh Amendment to the Constitution entitles defendants to a jury when the government seeks to impose civil penalties for securities fraud. The results of this decision may very well extend beyond the SEC. Multiple federal agencies utilize ALJs, including agencies that affect commercial finance like the Federal Trade Commission and the CFPB.
ABF Journal: “Commercial Chapter 11 Filings Increased 70% in First Half of 2024, Total Filings Increased 7%”
Recent reporting by Epiq indicating a 70% increase in commercial Chapter 11 filings in the first half of 2024 is significant. This surge reflects growing financial distress among businesses, and it has several potential implications for the commercial finance sector. This rise in bankruptcies might tend to tighten traditional credit markets, increasing the demand for alternative products. This rise in bankruptcies serves as a crucial reminder to shore up your due diligence processes and rigorously monitor your customers for any signs of financial distress or new bankruptcy filings. Staying vigilant can help mitigate risks and ensure that you are prepared to address potential disruptions promptly.
IFA Commercial Factor: The Evolution of Factoring with Integrations and AI
This insightful article by Darren Palestine, Managing Partner at Commercial Finance Partners, highlights the growing use of artificial intelligence (AI) in underwriting and portfolio monitoring. The consumer finance space has already seen widespread adoption of these technologies, and the commercial finance sector can benefit greatly by learning from both the successes and mistakes of their consumer finance counterparts. Adopting these advanced technologies could enhance decision-making and risk management processes within commercial finance. We’re excited to see what’s in store for AI and machine learning in commercial finance and would love to chat with folks about ways that they are putting these technologies to use.
Bloomberg Law: FTC Noncompete Ban Freeze Signals Tough Legal Road for Agency
“Judge Ada Brown, of the US District Court for the Northern District of Texas, on Wednesday sided with the US Chamber of Commerce and a Texas tax firm’s argument that the FTC overstepped its legal authority with a sweeping regulation barring worker noncompetes.”