CFPB court battle with union continues with no end in sight

Bloomberg News

• Key Insight: The Consumer Financial Protection Bureau is going to run out of money early next year, putting the agency in violation of a preliminary injunction.
• What's at Stake: Acting Director Russell Vought says that because he cannot request funding for the agency, he may have to furlough employees or be unable to pay them.  
• Forward Look: Legal experts say if an appeals court agrees to rehear the case, it will be months before a decision is reached.

The Consumer Financial Protection Bureau and the National Treasury Employees Union agree that a preliminary injunction barring acting CFPB Director Russell Vought from firing employees remains in effect.

But the two sides differ on how the district court should respond if the CFPB refuses to request money from the Federal Reserve System to pay its employees, putting it in violation of the injunction.   

On Friday, the CFPB and its union filed legal briefs in response to a request from U.S. District Court Judge Amy Berman Jackson, who has been overseeing the NTEU's lawsuit against Vought to halt a plan to fire up to 90% of the bureau's employees.

In the latest twist, Vought told both courts last month that the CFPB will run out of money next year — and will likely be in violation of the court's preliminary injunction because he will be unable to pay employees. Vought alleges he cannot request funding from the Federal Reserve System because the central bank is unprofitable, though — in yet another twist — the Fed expects to turn a profit in early 2026. 

Brett A. Shumate, an assistant attorney general in the Department of Justice's civil division, said in a three-page brief that the district court should take a limited approach. He claimed that a decision in August by a panel of the U.S. Court of Appeals for the District of Columbia Circuit in favor of the Trump administration is the current law, even though it has been stayed on appeal.

"The Court should interpret the injunction narrowly to achieve the limited effect of temporarily remedying the early 2025 actions the Court found occurred and were unlawful, rather than as addressing separate questions regarding whether Congress has appropriated sufficient funds for the Bureau to discharge all its obligations under statute or court order throughout 2026," Shumate wrote. 

Meanwhile, Jennifer D. Bennett, representing the NTEU, said the preliminary injunction "remains in effect," and that the court "has authority to clarify the scope of its order and, if it is violated, to enforce it," according to the union's five-page brief filed Friday.

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Both sides are waiting for the D.C. Circuit to agree to rehear the case. 

Vought and President Trump have both publicly stated that they want to eliminate the CFPB. Vought has argued that as director, he has broad control over the agency's staff and direction. To that end, the DOJ urged the district court to take a narrow approach.

"District courts are not 'roving commissions' assigned to pass on how well federal agencies are satisfying their statutory obligations," and "may intervene only when a specific unlawful action harms the plaintiff, and only to the extent necessary to set aside that action," Shumate wrote.

The CFPB's roughly 1,400 employees have been fighting for their right to continue working at the agency. The Trump administration locked employees out of their Washington, D.C., headquarters in February and has been working to get the bureau's remaining civil servants to resign, according to current and former employees. For the past nine months, employees have been told to be "work ready," though most are not working. Last week, employees received emails notifying them that if they haven't used their cell phones, to turn them in to the agency.

Legal experts say it could be months before any court action. 

JoAnn Needleman, leader of the financial services regulatory and compliance group at the law firm Clark Hill, said that if the D.C. Circuit grants the en banc petition to rehear the case before the full court, then it would set a briefing schedule to hear the case in April or May, and the court likely would rule in September. 

The preliminary injunction was initially aimed to prevent a mass layoff and it is unclear how the courts will deal with the new funding issue being raised by the CFPB. Vought and some Republicans have advocated a novel legal theory that under the Dodd-Frank Act, the CFPB cannot request funding if the Fed doesn't turn a profit.