(New York) The White House cannot cut off funding to the Consumer Financial Protection Bureau (CFPB), a federal judge ruled Tuesday, just days before the bureau’s funds are likely to be exhausted, effectively depriving the agency of any payments to its employees.
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Judge Amy Berman ruled that the CFPB must continue to be financed by the Federal Reserve (Fed), despite the latter’s losses, and that the new legal argument put forward by the White House concerning the method of financing the CFPB was inadmissible.
At the heart of this case is the question of whether Russell Vought, President Donald Trump’s budget director and acting director of the CFPB, can effectively cripple the agency and fire its entire staff. The CFPB has been virtually inoperative since President Trump’s inauguration almost a year ago.
Its employees are mostly barred from engaging in any activity, and much of the office’s operations this year have involved undoing work accomplished under Joe Biden’s presidency, and even during Donald Trump’s first term. Mr. Vought himself has made clear his intention to paralyze the CFPB.
Earlier this year, the White House announced a “downsizing” at the CFPB, resulting in the technical leave or termination of a large portion of staff.
The National Treasury Employees Union (NTEU), which represents CFPB employees, won a court case to prevent these mass layoffs. The union filed a lawsuit against Mr. Vought earlier this year and obtained a preliminary injunction suspending the layoffs while the legal proceedings take their course.
In recent weeks, the White House has put forward a new argument to try to circumvent the court injunction. According to this argument, the Fed currently does not have sufficient “cumulative revenue” to fund the CFPB’s operations. The CFPB is funded by the Fed through quarterly payments.
The Fed has been operating at a latent loss since 2022, a consequence of its fight against inflation. This is the first time in its history that it has recorded such a situation. The Fed holds bonds on its balance sheet, inherited from the period of low interest rates linked to the COVID-19 pandemic, but currently must pay higher interest to banks that deposit their funds there.
It thus records a “deferred asset” in its balance sheet, the repayment of which is planned in the coming years, as these low-interest bonds mature.
Because of this unrealized loss, the White House has argued that the CFPB has no “combined benefit.” The CFPB has operated since 2011, including during President Trump’s first term, using funds from the Fed’s operating budget.
A legal theory never before the courts
In early November, White House lawyers filed a notice to the court, arguing that the CFPB would run out of funds in early 2026, relying on the “cumulative benefits” argument, and that they did not expect to receive additional appropriations from Congress.
This legal argument based on cumulative profits is not entirely new. It has been circulating in conservative legal circles since the Fed started posting losses. The Office of Legal Counsel, which serves as the government’s legal advisor, adopted this legal theory in a November 7 memo. However, this idea has never been tested in court.
In her opinion, Judge Berman said the Office of Legal Counsel and Mr. Vought were using this legal theory to circumvent the court’s injunction instead of letting the case be tried on its merits. A trial to determine whether the CFPB employees’ union can sue Mr. Vought over the firings is currently scheduled for February 2026.
“It appears that defendants’ new interpretation of the concept of ‘combined revenues’ constitutes a clear and baseless attempt to deprive the CFPB of funding, and a further attempt to achieve the very purpose of the court’s injunction,” Judge Berman wrote in her opinion.
“We are very pleased that the court has clarified what should have been obvious: Mr. Vought cannot justify abandoning the agency’s obligations or violating a court order by fabricating a funding shortfall,” said Jennifer Bennett of Gupta Wessler LLP, who represents CFPB employees in the case.
A White House spokeswoman did not immediately respond to a request for comment regarding Judge Berman’s opinion.
