- What's at Stake: The CFPB's top managers want to fire 90% of the staff, which would both dramatically reduce the agency's headcount and severely cripple the Trump administration's rulemaking and supervisory agenda.
- Key Insight: A preliminary injunction issued by a district court was a necessary judicial "stop gap" measure to prevent the CFPB's operations from effectively ceasing.
- Forward Look: Experts say that if the government presented a credible plan to run the agency and abide by its legally required duties and functions with as small a workforce as it envisions, it would likely prevail in court.
Federal appeals court judges hinted at a potential solution to the contentious showdown between the Consumer Financial Protection Bureau and the National Treasury Employees Union that could keep the agency alive.
During oral arguments Tuesday, judges on the U.S. Court of Appeals for the District of Columbia appeared poised to find a middle ground in a dispute that has wended its way through the lower courts for over a year. The move challenges the Trump administration's uncompromising refusal to scale back a mass firing, or reduction in force, of the CFPB staff, and potentially force acting CFPB Director Russell Vought to uphold the agency's legally required functions.
That solution was this: If the CFPB presents a credible plan to run the agency and fulfill its legal duties, the judges will remand the case back to the district court, and an injunction could be modified to allow a scaled-back round of firings.
"There was a real willingness to try to come to a resolution of the case that works for the long-term," said Brad Lipton, director of corporate power and financial regulation at the Roosevelt Institute, and a former CFPB senior advisor.
That solution, Lipton said, would be "in accordance with the separation of powers," and would allow the existing injunction that has stopped the CFPB's leadership from firing up to 90% of the agency's staff to be narrowed, allowing for some firings.
Over three hours of heated arguments Tuesday, judges floated a compromise: The CFPB could proceed with a scaled-back reduction in force, or RIF, but not without certain assurances. Legal experts noted that the Department of Justice under the Trump administration has failed in many cases to abide by court rulings it disagrees with, causing it to lose credibility with the judiciary.
Eric McArthur, a DOJ deputy assistant attorney general, reiterated during the hearing that acting CFPB Director Russell Vought's actions last year did not constitute a policy or even a final agency action. Disputes by federal employees must be channeled to the Merit System Protection Board, McArthur claimed, though the board itself has been caught up in a lawsuit of its own. After its lone Democratic appointee, Cathy Harris, was fired by President Trump last year, she sued the administration arguing that her termination was unlawful. An appeal court sanctioned her removal, but her absence has left the board without a quorum and a long backlog of cases to review. The ruling is out on appeal.
Crucially, some experts warn that allowing a RIF to continue could cripple the CFPB's ability to rewrite rules and perform effective supervision, two legally required functions.
"There have been some mixed signals about the administration's intentions for the CFPB," said Chris Willis, a partner at the law firm Troutman Pepper Locke. "The agency is pursuing a number of policy initiatives and rulemaking efforts that it presumably wants to complete. It has recently announced that it's going to re-engage in supervisory exams. But, there have been statements by the agency's leadership that the CFPB should be shut down completely."
Several experts said the agency is caught in a pickle. On the one hand, the Trump administration wants to use the agency to deregulate, which involves reissuing rulemakings and pursuing other regulatory efforts such as debanking and virtual supervisory exams. On the other hand, acting CFPB Director Russell Vought has
Christa Bieker, a partner at Mayer Brown, said she has seen an uptick in dormant investigations being reopened by the CFPB, which suggests the agency's leadership is moving forward on some level.
"We're seeing the CFPB slowly restart some of these investigations after a year of dismissing many cases with prejudice and terminating existing consent order obligations," Bieker said. "Are they going to have enough people to continue these cases? Or are they going to decide to fire 90% of employees or come up with some other plan where they keep more staff? It's really unclear at this time."
The National Treasury Employees Union sued the CFPB's acting Director Russell Vought last February after he issued a
At oral arguments on Tuesday, judges noted the breathtaking speed with which Vought sought to dismantle the CFPB, a process so swift that the agency would have been eliminated within 30 days if the district court had not issued an injunction barring mass firings, the union claims.
McArthur dropped a bombshell during the last 10 minutes of the hearing, saying the CFPB's leadership has a plan to issue a RIF while also performing the agency's legally required functions. The mere mention of a plan immediately perked up the ears of several of the judges.
"The planning has continued, and if it's of interest to the court, that's something that I could take back to the CFPB," McArthur said. "The planning for what to do with this agency if and when an injunction is vacated or modified so as to allow us to proceed with the RIF, which is a lawful measure that the agency is allowed to take."
Judge Patricia Millett replied: "Are you offering to share with us your plans for what to do if the injunction is lifted?"
"If that's something of interest to the court, I can certainly take that back to my client," McArthur said, referring to the CFPB.
The oral arguments centered on two critical issues: Whether the president can shut down an agency created by Congress, and whether federal courts have the power to halt a unilateral dismissal of employees with a preliminary injunction.
Several judges suggested the litigation could be resolved easily by remanding the case back to District Court Judge Amy Berman Jackson of the District Court for the District of Columbia to narrow the injunction that she
Judge Justin Walker asked the government what it would do if the D.C. Circuit sided with the union in finding that the CFPB's management had, in fact, taken a final action by telling employees last February to stop work with the intention of firing nearly all of the agency's employees.
"If we were to vacate the injunction as overbroad, and then on remand, the District Court were to conclude that the Feb. 10 email was final agency action, and the district court then vacated that final agency action and did nothing more than that, what would you do?"
McArthur replied: "I don't know exactly what we do, but that sounds like not something that we would have a particular objection to."
