The U.S. Supreme Court’s recent decision in Perez v. Mortgage Bankers Ass’n invalidated a significant line of  D.C. Circuit case law known, after the leading case, as the Paralyzed Veterans doctrine. A case involving a series of contradictory Department of Labor interpretations of whether mortgage loan officers are exempt from minimum wage and overtime guarantees, Perez holds that the Paralyzed Veterans doctrine is incompatible with the plain language of the Administrative Procedure Act (APA) and impermissibly imposes notice-and-comment requirements on interpretive rules.

The original 1997 decision in  Paralyzed Veterans of America v. D.C. Arena L.P had required administrative agencies that effected a fundamental change in prior interpretations of substantive regulations to proceed via notice-and-comment rulemaking, even though they might characterize the new interpretation as an “interpretive” – as distinct from a “legislative” or “substantive” – rule.

Justice Sotomayor, in her opinion for the Court, took the position that an interpretive rule is an interpretive rule, regardless of what the interpretation is and whether or not it is consistent with the agency’s prior interpretations. Unlike Gertrude Stein’s “A rose is a rose is a rose,” however, Sotomayor’s tautology with the phrase “interpretive rules” is neither as philosophical or clearcut, especially  — as discussed in the accompanying article — when doctrines of judicial deference are thrown into the mix.

Thus far in its short history, the CFPB has promulgated relatively few rules and has generally preferred to make law, and to interpret key provisions of Title X of the Dodd-Frank legislation, via adjudication (including consent orders). Adjudication has been recognized as a legitimate alternative to rulemaking.since the dawn of the administrative state and the Supreme Court’s landmark 1947 decision in SEC v. Chenery Corp. Now, however, “interpretive” rulemaking without notice-and-comment procedures may become equally, if not more, attractive, and would certainly be more efficient for industrywide regulation than case-by-case adjudication. It would not be surprising, therefore, to see, in the wake of Perez, a shift by the Bureau towards more interpretive rulemaking, at least unless and until the Supreme Court cuts back on existing deference doctrines.