Judge blocks White House’s attempt to defund the CFPB, ensuring employees get paid
NEW YORK (AP) — A federal district court judge ruled Tuesday that the White House cannot cut funding for the Consumer Financial Protection Bureau, just days before the bureau is likely to run out of funds and the consumer financial agency will run out of money to pay its employees.
Judge Amy Berman ruled that the CFPB should continue to receive its funds from the Federal Reserve despite the Fed’s losses, and that the White House’s new legal argument for how the CFPB obtained its funds did not hold water.
At the center of this case is whether President Donald Trump’s budget director, Russell Vought, is. CFPB acting directorcould effectively shut down the agency and fire all of the bureau’s employees. The CFPB has been largely unavailable since President Trump took office almost a year ago. Employees mostly It is forbidden to do any workand much of the bureau’s operations this year have been to unwind the work it did under President Biden and even Trump’s first term.
Vought made comments in which he made clear his intention was to effectively shut down the CFPB. The White House issued a “reduction in force” for the CFPB earlier this year that would furlough or lay off much of the bureau.
The National Treasury Employees Union, which represents workers at the CFPB, has been mostly successful in stopping mass layoffs and furloughs in court. The union sued Vought earlier this year and obtained an injunction to halt the layoffs while the union’s case continues through the legal process.
In recent weeks, the White House has used a new argument to potentially bypass the court’s injunction. The argument here is that the Federal Reserve does not currently have “combined earnings” to fund the CFPB’s operations. The CFPB receives its funding through expected quarterly payments from the Fed.
The Federal Reserve has been operating at a paper loss since 2022 as a result of the central bank trying to fight inflation; For the first time in its history, the Fed is operating at a loss. The Fed holds bonds on its balance sheet from a period of low interest rates during the Covid-19 pandemic, but now has to pay higher interest rates to banks that keep their deposits at the central bank. The Fed records a “deferred asset” on its balance sheet that it expects to be paid off over the next few years as low-interest bonds mature on the Fed’s balance sheet.
Because of this loss on paper, the White House argued that there was no “compound gain” from which the CFPB could benefit. The CFPB has operated using the Fed’s operating budget since 2011, including during President Trump’s first term.
White House lawyers sent a memorandum to the court in early November arguing that the CFPB would run out of funding in early 2026, using the “combined gains” argument and not expecting to receive any additional funding from Congress.
This combined gains legal argument is not entirely new. swam in it conservative legal circles We go back to when the Federal Reserve started operating at a loss. The Legal Consultancy Office, which acts as the government’s legal advisors, has adopted this legal theory in a broad framework. memory On November 7. But this idea has never been tested in court.
In his view, Berman said OLC and Vought used this legal theory to circumvent the court’s injunction instead of allowing the case to be decided on the merits. A hearing on whether the CFPB employees union can sue Vought over the layoffs is currently scheduled for February 2026.
“Defendants’ new “joint gain” understanding is an unsupported and transparent attempt to deprive CPFB of funding and is yet another attempt to achieve the result that the Court’s injunction was set up to block,” Berman wrote in an opinion.
“We are very pleased that the court clarified what should be obvious: Vought cannot justify abandoning the agency’s obligations or violating the court order by creating a lack of funding,” said Jennifer Bennett of Gupta Wessler LLP, which represents CFPB employees in the case.
A White House spokesman did not immediately respond to a request for comment on Berman’s opinion.
