In a significant ruling, a federal district court judge has determined that the White House cannot halt funding for the Consumer Financial Protection Bureau (CFPB), ensuring that the agency's employees will continue to receive their salaries. This decision comes just days before the CFPB would have faced a potential funding crisis, jeopardizing the paychecks of its staff.
On Tuesday, Judge Amy Berman issued her ruling, affirming that the CFPB is entitled to ongoing financial support from the Federal Reserve, even as the Fed currently faces operational losses. She dismissed the new legal argument presented by the White House regarding the CFPB's funding mechanisms, stating it lacks validity.
This case centers around Russell Vought, who served as the budget director under President Donald Trump and also held the acting director position at the CFPB. The crux of the conflict is whether Vought can effectively dismantle the CFPB and terminate all of its employees. Since Trump's inauguration nearly a year ago, the agency has been largely inactive, with most of its personnel prohibited from conducting any work. The few operations that have taken place primarily involve reversing initiatives established under President Biden and during Trump’s initial term.
Vought has publicly expressed his intention to significantly reduce the CFPB's functions, which raises concerns about the future of consumer financial protections in the country. The National Treasury Employees Union, representing CFPB staff, has been largely successful in legal efforts to prevent mass layoffs, having previously secured a preliminary injunction against Vought’s plans.
Recently, the White House has introduced a new line of argumentation aimed at bypassing the court's restraining order. They assert that the Federal Reserve currently has no "combined earnings" available to fund the CFPB’s operations, claiming that this lack of financial resources prevents the agency from receiving necessary appropriations. The CFPB relies on the Fed for its funding through anticipated quarterly payments.
Since 2022, the Federal Reserve has operated at a paper loss while attempting to combat rising inflation. The Fed holds bonds acquired during the low-interest-rate period of the COVID-19 pandemic but must now offer higher interest rates to banks that deposit funds with them. This situation has led to the Fed recording a "deferred asset" on its balance sheet, which is expected to be resolved in the coming years as lower-interest bonds mature.
Due to these losses, the White House contends that the CFPB lacks sufficient "combined earnings" to draw from. The CFPB has functioned since 2011, including during Trump’s first term, by utilizing the Fed’s operational budget.
In early November, White House attorneys filed a notice with the court claiming that the CFPB would exhaust its appropriations in early 2026 based on the "combined earnings" argument and stated that they do not anticipate receiving further funding from Congress.
While the idea of "combined earnings" is not entirely new and has circulated in conservative legal discussions since the Federal Reserve began reporting losses, it has yet to be tested in a court of law.
Judge Berman criticized this new interpretation, stating, "It appears that defendants’ new understanding of 'combined earnings' is an unsupported and transparent attempt to starve the CFPB of funding and yet another endeavor to achieve the very outcome the Court’s injunction was established to prevent."
As of now, representatives from the White House have not provided an immediate response to Judge Berman's ruling.
