A federal district court judge ruled Tuesday that the White House cannot allow funding for the Consumer Financial Protection Bureau to lapse, just days before the agency was expected to run out of money and be unable to pay its employees.
Judge Amy Berman ruled that the CFPB must continue receiving funding from the Federal Reserve, even as the Fed operates at a loss, rejecting the White House’s new legal argument over the bureau’s funding structure. The case centers on whether Russell Vought, President Trump’s budget director and acting CFPB director, can effectively dismantle the agency and lay off its workforce. The CFPB has been largely dormant since Trump took office nearly a year ago, with most employees barred from working and the agency focused mainly on rolling back actions taken under President Biden and even during Trump’s first term.
Vought has openly signaled his intent to effectively shut down the CFPB. Earlier this year, the White House issued a “reduction in force” plan that would have furloughed or laid off much of the agency.
The National Treasury Employees Union, which represents CFPB workers, has largely blocked those efforts in court, winning a preliminary injunction that halted the layoffs while litigation continues. In recent weeks, the White House has advanced a new argument to sidestep that ruling, claiming the Federal Reserve currently lacks the “combined earnings” needed to fund the CFPB, which relies on expected quarterly payments from the Fed.
In recent weeks, the White House has used a new line of argument to potentially get around the court’s injunction. 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 it seeks to combat inflation, marking the first time in the Fed’s history that it has operated at a loss. The Fed has held bonds on its balance sheet since low interest rates during the COVID-19 pandemic, but now pays higher interest rates to banks that hold deposits at the central bank. The Fed has been recording a “deferred asset” on its balance sheet, which it expects to be paid down over the next few years as low-interest bonds mature.
Because of the Fed’s paper losses, the White House argues there are no “combined earnings” for the CFPB to draw from, despite the agency having operated since 2011 — including during President Trump’s first term — using the Fed’s budget.
In a notice filed with the court in early November, White House lawyers argued that, under this theory, the CFPB would exhaust its funding in early 2026 and would not receive additional appropriations from Congress. While the “combined earnings” argument has circulated in conservative legal circles since the Fed began running losses, and was adopted by the Office of Legal Counsel in a Nov. 7 memo, it has never been tested in court.
In her opinion, Berman said the Office of Legal Counsel and Vought were using the legal theory to circumvent the court’s injunction rather than litigate the case on its merits. A trial on whether the CFPB employees’ union can sue Vought over the layoffs is scheduled for February 2026.
“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.
“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 is representing the CFPB employees in the case.
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