Perez v. Mortgage Bankers Association: Supreme Court Holds that Agencies Can Amend or Repeal Interpretive Rules Without Notice-and-Comment Procedures

Sullivan & Cromwell LLP - March 10, 2015

The U.S. Supreme Court yesterday held that agencies are not required to follow notice-and-comment rulemaking procedures when amending or repealing their interpretations of existing regulations.  The Court ruled that the D.C. Circuit’s longstanding Paralyzed Veterans doctrine, which required agencies to follow notice-and-comment procedures when changing interpretive rules, was contrary to the text of the Administrative Procedure Act and exceeded the scope of judicial review authorized by Congress.  The Court suggested, however, that changed interpretations should be subject to more searching review by courts, especially when regulated entities have extensively relied on the prior interpretation, and may face limitations in retroactive application.  Three Justices wrote separately to question the fundamental appropriateness of judicial deference to agencies’ interpretations of their own regulations.  Though the Court directed that an agency will need to provide a more substantial justification for its new interpretation if the new interpretation unsettles serious reliance interests or if it is based on factual findings contrary to prior findings, yesterday’s decision may make it easier for an agency to modify or even reverse its interpretation of existing regulations.