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

NEW YORK (AP) — The White House cannot lapse in its funding of the Consumer Financial Protection Bureau, a federal district court judge ruled on Tuesday, only days before funds at the bureau would have likely run out and the consumer finance agency would have no money to pay its employees.

Judge Amy Berman ruled that the CFPB can continue to get its funds from the Federal Reserve, despite the Fed operating at a loss, and that the White House's new legal argument about how the CFPB gets its funds is not valid.

At the heart of this case is whether Russell Vought, President Donald Trump's budget director and the acting director of the CFPB, can effectively shut down the agency and lay off all of the bureau's employees. The CFPB has largely been inoperable since President Trump has sworn into office nearly a year ago. Its employees are mostly forbidden from doing any work, and most of the bureau's operations this year has been to unwind the work it did under President Biden and even under Trump's first term.

Vought himself has made comments where he has made it clear that his intention is to effectively shut down the CFPB.

The National Treasury Employees Union, which represents the workers at the CFPB, has been mostly successful in court to stop the mass layoffs. The union sued Vought earlier this year and won a preliminary injunction stopping the layoffs.

In recent weeks, the White House has used a new line of argument to potentially get around the court's restraining order. The argument is that the Federal Reserve has no “combined earnings” at the moment to fund the CFPB’s operations. The CFPB gets its funding from the Fed through expected quarterly payments.

The Federal Reserve has been operating at a paper loss since 2022 as a result of the central bank trying to combat inflation. The Fed holds bonds on its balance sheet from a period of low interest rates during the COVID-19 pandemic, but currently has to pay out higher interest rates to banks who hold their deposits at the central bank. The Fed has been recording a “deferred asset” on its balance sheet which it expects will be paid down in the next few years as the low interest bonds mature off the Fed's balance sheet.

Because of this loss on paper, the White House has argued there are no “combined earnings” for the CFPB to draw on. The CFPB has operated since 2011, including under President Trump’s first term, drawing on the Fed’s operating budget.

White House lawyers sent a notice to the court in early November, where they argued that the CFPB would run out of appropriations in early 2026, using the “combined earnings” argument, and does not expect to get any additional appropriations from Congress.

This combined earnings legal argument is not entirely new. It has floated in conservative legal circles going back to the moment the Federal Reserve started operating at a loss. However, it has never been tested in court.

“It appears that defendants’ new understanding of “combined earnings” is an unsupported and transparent attempt to starve the CPFB of funding and yet another attempt to achieve the very end the Court’s injunction was put in place to prevent," Berman wrote in an opinion.

A White House spokeswoman did not immediately respond to a request for comment on Berman's opinion.