In late May, in the case of Freeman v. Quicken Loans, the United States Supreme Court held that the Department of Housing and Urban Development (HUD) had exceeded its authority under the Real Estate Settlement Procedures Act (RESPA). Was this a case of executive excess, as the court found, or is it another case of the courts standing in the way of good government?
RESPA makes it illegal for any person to “give … [or] accept any portion, split, or percentage of any charge made or received for the rendering of a real estate settlement service … other than for services actually performed.” HUD regulations under the law state that a provider of real estate settlement services is “liable … when it charges a fee that exceeds the reasonable value of goods, facilities, or services provided,” even when that fee is not split among multiple providers. HUD’s theory, believe it or not, was that the “portion” of a fee in excess of the reasonable value for services actually provided could be viewed as “split” from the rest of the charge, thus constituting a basis for liability under the statute.
Trial lawyers liked the HUD rule, since it gave them access to more potentially deep pockets, but the Supreme Court was not pleased. Justice Scalia, who has written extensively on the subject of statutory interpretation, found HUD’s regulation to be “manifestly inconsistent with the statute HUD purported to construe.” All eight of Scalia’s colleagues on the court agreed. The decision was unanimous.
So why did HUD bureaucrats think their regulation was legitimate? They argued that it came within, and served the same purposes as, the statute. Congress’ purpose in the statute was to protect consumers “from unnecessarily high settlement charges caused by certain abusive practices.” The problem from the court’s perspective was that Congress did not include the practice of charging unreasonable fees among the abusive practices for which HUD is responsible to write regulations.
Clearly this was a case of executive excess, not judicial activism. Congress enacts the laws, the executive implements and enforces them. If the courts simply defer to every executive regulation that arguably serves the same purpose as a congressional statute, the executive will have displaced the legislature and the courts will have made themselves irrelevant.
Both Congress and the Supreme Court deserve some of the blame for HUD’s aggressive interpretation of RESPA. Since the New Deal, the court has been reluctant to invalidate regulations as exceeding the authority granted by Congress. Judicial deference to the well-meaning experts of the bureaucracy has been the norm.
Meanwhile Congress has realized that judicial deference to creative bureaucrats means that individual members of Congress do not have to do the hard work of writing clear and enforceable laws, nor do they have to take the political risks associated with taking sides where the costs and benefits to constituents are clear. It’s a lot safer to vote for a law that instructs executive agencies to go out and do good than it is to say yea to a law that steps on a few toes. Leave it to the agencies to do the toe stepping, and Congress can tend to packing legislation with earmarked gifts for the folks back home.