NerdWallet's Smart Money Podcast - Financial, Crypto Oversight On the Ropes After Supreme Court Overturns a 40-Year Precedent

Episode Date: July 31, 2024

Learn how a recent Supreme Court decision impacts financial regulations and crypto, plus the latest money news and travel tips. Is the end of the Chevron deference really going to shake up the world of financial regulations? What does this mean for the future of crypto investments? Hosts Tess Vigeland and Anna Helhoski and NerdWallet investing writer Sam Taube discuss the Supreme Court’s recent decision in Loper Bright Enterprises v. Raimondo, and how overturning the 40-year-old Chevron deference is set to impact everything from workplace safety to the environment. They discuss how this decision might loosen federal regulations and what it means for the finance industry moving forward. Then, they cover the latest money headlines, including the Federal Reserve’s interest rate decisions, the California Supreme Court ruling on gig workers, and Southwest Airlines’ change in seating policy. You’ll walk away with a better understanding of how these changes affect inflation measures, gig economy labor laws, and the travel experience for frequent flyers.” In their conversation, the Nerds discuss: supreme court decision, financial regulations, crypto investment, chevron deference, loper bright enterprises, federal regulatory agencies, investment regulations, crypto deregulation, securities and exchange commission, commodity futures trading commission, noncompete agreements, federal trade commission, investor protections, congressional regulations, federal court cases, health care regulations, environmental regulations, workplace safety regulations, taxation of cryptocurrency, legal ramifications, business rules, investment products, crypto ETFs, ethereum ETFs, staking yield, prediction markets, event contracts, political event contracts, election betting, personal consumption expenditures, inflation measures, interest rates, gig economy labor laws, independent contractors, employee benefits, california supreme court, southwest airlines seating policy, travel experience, economic indicators, gross domestic product To send the Nerds your money questions, call or text the Nerd hotline at 901-730-6373 or email [e-mail]. Like what you hear? Please leave us a review and tell a friend.

Welcome to NerdWallet's Smart Money Podcast. I'm Tess Vigland in for Sean Piles. And I'm Anna Helhaski. And this is our weekly money news roundup where we break down the latest in the world of finance to help you be smarter with your money. We'll go deep into a single topic and then leave you with the latest money headlines. Today, we're talking about phishing and crypto. Is that a riddle? You've lost me, Tess. Yeah, I think I've lost myself too. So let me rephrase. Today, we are talking about how a phishing regulations-related case ended up in the Supreme Court and led to the overturning

of a 40-year-old decision that is going to impact finance regulations, including crypto. Ah, much clearer. The 40-year-old decision that Tess is referring to is Chevron versus the National Resources Defense Council that gave federal agencies that discretion to interpret statutes and write and enforce their own regulations. Basically, it said that courts do not have the expertise that federal agencies do to interpret laws and write and enforce regulations that fall under the federal agency's purview. The shorthand for this decision is the Chevron deference, and it has been used in over 19,000 federal court cases. Until now, that is. This year, the Supreme Court took on a new

case called Loper Bright Enterprises v. Raimondo. The plaintiffs were a group of New Jersey herring fishers who were challenging a federal rule created by the National Marine Fishery Service that requires fisheries to pay for observers to be aboard fishing vessels to prevent overfishing. So the fishers said Congress never gave the executive branch the power to require fisheries to pay for the monitoring. They also said the Chevron deference violates Article 3 of the Constitution, which gives courts the power to interpret laws. Now, on June 28th, the Supreme Court decided in a 6-3 majority to end the Chevron deference. The decision will weaken every federal regulatory agency's power to set and enforce its own rules.

It's expected to have all kinds of legal ramifications for healthcare, the environment, workplace safety, and investing. To give us a better sense of some of the possible ways the Loper decision could impact financial regulations and investments, we have Sam Taub, an investing writer here at NerdWallet, to talk us through it. Sam, welcome back to Smart Money. Thanks. Good to be back. So Sam, the LOPRA decision could loosen some federal regulations. So can you talk about some of the ways it's already affecting business and finance rules?

Yeah. The Federal Trade Commission has already run into some issues related to the LOPRA decision. Back in April, the FTC announced a ban on non-compete agreements, which restrict about one in five Americans from seeking a job with a firm that competes with their employer. But shortly thereafter, a tax preparation firm called Ryan LLC sued to block this new rule. And on July 3rd, which is only a few days after the Loper decision, a federal judge in Texas issued a preliminary order that partially blocks the non-compete ban. And she cited Loper in that order. For now, that just prevents the FTC from enforcing the non-compete ban against Ryan and a few other firms who are involved in the suit, but there is a chance it could overturn it entirely.

That's just one small example of how this decision is already upending the government's ability to regulate really any kind of business activity when there isn't explicitly worded law about it. So Sam, you wrote an article that focuses on cryptocurrency as one investment that could end up deregulated as a result of the court's decision. What are some of the implications of that? So crypto is still pretty new if you look at it on a congressional timescale. Congress has passed some laws about how it's taxed, but not a lot of laws about how it's regulated. Up until now, federal agencies like the Securities and Exchange Commission and the Commodity Futures Trading Commission have been issuing regulations on crypto and sometimes taking legal action against alleged wrongdoers in the crypto industry

because they believe that their role as financial market regulators gives them jurisdiction over crypto. But Congress hasn't actually passed any laws that say that. That sounds like the kind of rulemaking that actually won't fly anymore because of Loper. Exactly. I talked to a number of law professors and crypto industry leaders about this, and they all agreed that Loper could kind of turn crypto into the Wild West unless Congress passes a comprehensive regulatory framework for it. So what does that mean for crypto investors? Well, there are positives and negatives. On the upside, the crypto deregulation caused by the Loper decision

could cut some red tape and help companies bring different kinds of crypto investment products to market faster, which could offer investors more choices. One example of this is crypto exchange-traded funds. So the SEC just approved the first Ethereum ETFs a few weeks ago. Now, one of the big draws of Ethereum as a cryptocurrency is this feature called staking, which kind of works like an interest payment or a dividend. People who hold a certain amount of Ether coins can earn new Ether coins over time.

But the current crop of Ethereum ETFs doesn't have staking features. People who hold those ETFs don't earn any kind of yield the way that Ether holders might. The SEC was taking a really long time to work out the rules on how staking would work within these ETFs. So the issuers just kind of gave up on it in an effort to get to market faster. Some people I talk to within the crypto industry say that because of the Loper decision, we might get crypto ETFs that pay a staking yield sooner rather than later. And what are some of the negatives for crypto investors? Well, the sweeping deregulation we're talking about could also potentially remove a lot of

investor protections against fraud. For example, there's a company called Uniswap, whose software is basically a decentralized crypto exchange. It doesn't have any kind of licenses to operate as an exchange. And it's been the subject of some class action lawsuits by investors who have been duped to buying scam cryptocurrencies on its software. The SEC has been moving toward pressing charges against Uniswap for violations of federal securities laws. It sees Uniswap as basically a bootleg securities exchange that does not offer its users the kind of protections that the law requires. But a few days after the Loper decision, Uniswap's legal counsel sent an open letter to the SEC, which basically said,

you have no case because of this. There are no explicitly defined laws that give you regulatory power over cryptocurrency. So you have no jurisdiction because of Loper. It's too early to say whether that angle will work, but some crypto industry folks I talked to say it might, unless Congress actually passes laws on crypto regulation, that is. Okay, so we know that crypto regulations will now likely be in the hands of Congress, but what are some other investments that could be affected by this Loper decision? Really, any kind of new investment product that isn't explicitly mentioned by law is going to be hard to regulate post-Loper. Another example that's come up recently is prediction markets. Are prediction markets those websites like Polymarket or

Manifold that let you bet on the winners of the Oscars and whatnot? Yeah, it's basically that same concept, but Wall Street has bigger plans for it than just Oscar bets. Recently, certain derivatives exchanges have been experimenting with these things called event contracts. These are option-like instruments that pay out some amount of money if a thing happens and go to zero if the thing doesn't happen. Now, many of these involve fairly innocuous finance related predictions like will the S&P 500 close above 5700 before year end? But some issuers have been trying to put out exchange traded event contracts that allow people to bet on elections. And for listeners who don't know this, betting on elections is generally understood to be illegal in the US. And the CFTC has been issuing cease and desist orders and proposed regulations to try and ban political events

contracts. Right. But the CFTC freely admitted in one of its regulatory proposals, this was before the Loper decision, by the way, that the term event contract is not really legally defined. So CFTC is trying to regulate these things based on its own interpretation of its legally defined regulatory powers. And again, that's the kind of thing that might not hold up in court post Loper Bright.

So we really are just going to have to see what happens when it comes to the future regulation of things like event contracts and prediction markets. All right. Whole new world. Sam, thank you so much. Of course. Great to be here. So, Ana, we all know how closely the Federal Reserve is watching all the numbers that come out about the economy. Like a proverbial hawk. Yeah. And the Fed's Open Market Committee is meeting this week to decide whether to do anything with interest rates. So we had a couple of indicators over the last week that could help as they figure that out.

First, gross domestic product, or GDP. This is the key measure of how the economy is running, and it's running even stronger than economists had expected. Yeah, the Commerce Department reported that the economy grew at an annual rate of 2.8% in the second quarter of this year. That was twice as fast as the first quarter, at 1.4%. Much of the growth came from, well, us, spending money on goods and services. I'll raise my hand on that one. And there was some strong business investment in things like software and equipment. So, Tess, you say you contributed to the economy by buying stuff in the second quarter. Yeah, and the third. I mean, Ana, when the sun finally shows up here in Oregon, you got to go get some new sundresses.

Yeah, even those are too hot for humid New York summers. But you and I contributed to a bump in the personal consumption expenditures index as well. The figures for June showed a rise of 2.5 percent over a year earlier, a bit slower than the May rise of 2.6 percent. And this is considered one of the Fed's preferred measures of inflation, so a bit of cooling there. The Fed will let us know later today what its latest thinking is on what all this means for interest rates. If you're someone who's taken a gig as an Uber or Lyft driver, well, California's state Supreme Court says you are indeed an independent contractor and not entitled to employee benefits. Yeah, this debate has been

ongoing for several years now. In 2020, Californians passed a ballot measure known as Prop 22 that said rideshare companies and others like DoorDash that use gig workers did not have to classify those workers as employees. A union and some of the drivers sued over that measure, and the case ended up at the state Supreme Court. Yeah, the court ruled that the measure is constitutional. And there's that saying, Anna, as goes California, so goes the nation. So this will potentially have some ripple effects on gig workers in other states. And finally, Tess, do you fly Southwest? Every once in a while, especially here on the West Coast.

Ah, then you are well aware of its famous or infamous, depending on how you feel about it, seating system. Yeah. Get online as soon as humanly possible to get a good spot, then line up like a bunch of cattle once you get to the airport, and then hope to get a decent seat once you're on the plane. So you love the system, I see. Yeah, no. But a lot of people do love it. So they're going to be sad that Southwest is ending that system, and it's going to the one that almost every other airline uses, which is assigned seating from the get-go. Apparently, despite all the gnashing of

teeth and rending of garments by some fans of the old open system, Southwest says 80% of its customers want assigned seating. Yeah, I think there are some people that enjoy the competition of it, but maybe there's something to be said for predictability. Yeah, especially at the airport. And by the way, if you've got travel on your mind, dear listener, then NerdWallet has a great article on the best days to book a flight and when to fly. And you can find a link to that in today's show notes. All right, that's it for this week's money news. We always welcome your money questions and comments. Turn to the nerds and call or text us your questions at 901-730-6373. That's 901-730-NERD

or send us a voice memo at podcast at nerdwallet.com. And remember, you can follow the show on your favorite podcast app, including Spotify, Apple Podcasts, and iHeartRadio to automatically download new episodes. Today's episode was produced by Tess and edited by Rick VanderKneife. Sarah Brink mixed our audio. And here's our brief disclaimer. We are not financial or investment advisors. This nerdy info is provided for general educational and entertainment purposes and may not apply to your specific circumstances. And with that said, until next time, turn to the nerds.