Time to Rein in Judicial Deference to Executive Agencies

Bryana Bible defaulted on her student loans. Upon her default, the guarantor of her loans, United Student Aid (USA) Funds, paid the default claim and took over the loan. Bible and USA Funds agreed to a $50-a-month repayment plan. Per the applicable Higher Education Act and Department of Education regulations, however, the agreement included a collection fee of 18.5% of the unpaid loan balance.

Bible balked at this fee and filed a class action against USA Funds, alleging that the company violated both the terms of the promissory note and the federal Racketeer Influenced Corrupt Organizations Act (!). The district court agreed with USA Funds because both the law and applicable regulations allowed for exactly that fee to be imposed. But when the case got to the appellate stage, it went off the rails.

The Seventh Circuit panel fractured, with one judge considering the regulatory text unambiguously permitting the fee, one judge considering the regulatory text unambiguously prohibiting the fee, and one just finding the regulations altogether ambiguous. The judges decided to resolve the case by deferring to the Department of Education’s opinion on the matter.

The Secretary of Education filed an amicus curiae brief, siding with Bible—which contradicted both the agency’s previous regulations and the statute’s express terms. Still, because the Secretary’s brief offered novel interpretative guidance, the court was forced to defer to the agency’s interpretation of its own guidance under a rule called Auer (or Seminole Rock)deference—a doctrine requiring courts to defer to agencies’ interpretation of their own guidance unless plainly erroneous or inconsistent with the regulation—instead of hazarding its own interpretation.

USA Funds has asked the Supreme Court to clean up this mess. Cato has joined the American Action Forum and Judicial Education Project on a brief urging the Court to take up the case and overrule both Auer v. Robbins (1997)and Bowles v. Seminole Rock & Sand Co. (1945).

Auer deference is simply outdated—and was superseded by statute from its inception. In 1946, one year after the Court decided Seminole Rock, Congress passed the Administrative Procedures Act (APA). The APA distinguished between legislative and interpretative rules. Legislative rules are subject to notice-and-comment practice but interpretative rules are not. Accordingly, judicial deference to a rule that results from an open notice-and-comment procedure may be justifiable, while deference to an interpretative rule—like the one at issue here—which is not subject to such a process, is inappropriate.

The text, history, and structure of the APA confirm this reading. Indeed, Auer deference subverts the APA’s purpose and immunizes the least politically accountable agency action from meaningful judicial review.

Moreover, even if the Court decided to apply Auer deference rather than overruling it, the Education Secretary’s guidance plainly fails the Auer test because it’s “plainly erroneous or inconsistent with the regulation.” The Department of Education in 1994 – under President Clinton – issued interpretative guidance stating that collection fees like the one here are not only permissible but “reasonable” under the very same regulation that it now interprets to bar them.

Taking a step back, Auer deference has become increasingly unpopular in legal circles because its invocation is now a too-frequent occurrence that shuts down jurisprudence. Justices Scalia, Thomas, and Alito have written several opinions in the last decade indicating that they wish to overturn Auer. USA Funds v. Bible presents a perfect case for the Court to do so, thus restoring a measure of reasonableness and accountability to the administrative state.