Judge blocks White House’s attempt to defund the CFPB, ensuring employees get paid

Federal Court Blocks White House Attempt to Defund Consumer Protection Agency

A federal district court judge ruled on Tuesday that the White House cannot halt funding to the Consumer Financial Protection Bureau (CFPB), a decision that comes just days before the agency would have potentially run out of money to pay its employees.

Judge Amy Berman rejected the White House’s novel legal argument regarding the CFPB’s funding mechanism, ruling that the agency should continue to receive its funding from the Federal Reserve as it has since its inception in 2011.

The case centers on actions taken by Russell Vought, President Trump’s budget director who also serves as acting director of the CFPB. Under Vought’s leadership, the consumer watchdog agency has been largely inoperative for nearly a year since President Trump took office for his second term. Most employees have been forbidden from conducting their normal regulatory work, with the bureau’s primary activity focused on dismantling policies established during the Biden administration and Trump’s first term.

Vought has made little secret of his intention to effectively shutter the agency. Earlier this year, the White House issued a “reduction in force” directive that would have furloughed or laid off a significant portion of the bureau’s workforce.

These efforts were temporarily halted when the National Treasury Employees Union, which represents CFPB workers, successfully sued Vought and won a preliminary injunction preventing the mass layoffs while their case proceeds through the courts.

In recent weeks, the White House deployed a new legal strategy to potentially circumvent this court order. Administration lawyers argued that because the Federal Reserve is currently operating at a paper loss, it has no “combined earnings” from which to fund the CFPB, which receives its budget through quarterly payments from the central bank.

The Federal Reserve has indeed been recording accounting losses since 2022 as a result of its aggressive interest rate hikes to combat inflation. The central bank holds low-interest bonds purchased during the COVID-19 pandemic while currently paying higher interest rates to banks that maintain deposits with the Fed. This has created the first operating loss in the central bank’s history, though the Fed records this as a “deferred asset” expected to be resolved as low-interest bonds mature.

White House lawyers notified the court in early November that the CFPB would exhaust its appropriations in early 2026 due to this “combined earnings” issue and did not anticipate additional funding from Congress.

While this legal theory has circulated in conservative legal circles since the Fed began operating at a loss, it was officially adopted by the Office of Legal Counsel—the government’s internal legal advisors—in a memo issued on November 7. However, until now, the argument had never been tested in court.

Judge Berman was unpersuaded, concluding in her opinion that the administration’s “new understanding of ‘combined earnings’ is an unsupported and transparent attempt to starve the CFPB of funding and yet another attempt to achieve the very end the Court’s injunction was put in place to prevent.”

The ruling ensures that the CFPB will continue to receive funding while the underlying legal dispute over employee layoffs proceeds toward trial, currently scheduled for February 2026.

“We’re very pleased that the court made clear what should have been obvious: Vought can’t justify abandoning the agency’s obligations or violating a court order by manufacturing a lack of funding,” said Jennifer Bennett of Gupta Wessler LLP, who represents the CFPB employees.

The White House has not yet commented on Judge Berman’s ruling.

The case highlights ongoing tensions over the CFPB, which was created following the 2008 financial crisis to protect consumers from predatory financial practices. Its funding structure—designed to be independent from congressional appropriations—has been a point of contention since the agency’s establishment, with critics arguing it lacks proper oversight while supporters maintain this independence is crucial for effective consumer protection.