BY EMMANUEL OGBONNA
A federal judge has ruled that the White House cannot allow funding for the Consumer Financial Protection Bureau to lapse, rejecting a legal argument that could have left the consumer watchdog without money to pay its employees within days.
U.S. District Judge Amy Berman ruled on Tuesday that the CFPB is legally entitled to continue receiving funding from the Federal Reserve, even though the central bank is currently operating at a paper loss. In her decision, Berman said the administration’s latest interpretation of how the agency is funded lacks legal support and cannot be used to effectively shut down the bureau.
The ruling addresses a central question in an ongoing legal battle: whether Russell Vought, President Donald Trump’s budget director and the acting head of the CFPB, has the authority to dismantle the agency by cutting off its funding and laying off its workforce. Since President Trump returned to office nearly a year ago, the CFPB has been largely dormant. Most employees have been barred from carrying out their duties, and the agency’s limited activity has focused on rolling back policies and enforcement actions initiated during the Biden administration, as well as some measures dating back to Trump’s first term.
Vought has publicly expressed skepticism about the CFPB’s mission and has made comments indicating that he favors eliminating the agency altogether. Those statements have been cited by critics and employee representatives as evidence that the administration’s actions are aimed at permanently disabling the bureau rather than reforming it.
The National Treasury Employees Union, which represents CFPB staff, has challenged those efforts in court. Earlier this year, the union secured a preliminary injunction blocking mass layoffs at the agency, arguing that the White House was attempting to sidestep statutory protections and undermine the CFPB’s independence. Courts have largely sided with the union so far, allowing the agency to remain intact, at least on paper.
In recent weeks, however, the White House advanced a new legal theory in an attempt to circumvent the court’s orders. Administration lawyers argued that the Federal Reserve currently has no “combined earnings” available to fund the CFPB. By law, the bureau receives its operating budget through quarterly transfers from the Fed rather than through annual congressional appropriations.
The Federal Reserve has reported operating losses since 2022 as part of its efforts to combat inflation. During the pandemic, the central bank accumulated large quantities of low-interest government bonds. As interest rates later rose sharply, the Fed found itself paying higher interest to banks on reserves while earning less on the older bonds it holds. This imbalance has resulted in a deferred asset on the Fed’s balance sheet, which officials expect will be offset over time as those bonds mature.
The White House argued that because the Fed is not currently posting net earnings, there are no funds for the CFPB to draw upon. Judge Berman rejected that reasoning, noting that the CFPB has operated continuously since its creation in 2011, including throughout Trump’s first term, using funds derived from the Federal Reserve’s operating framework regardless of short-term accounting losses.
In filings submitted to the court earlier this month, White House lawyers claimed the CFPB would exhaust its remaining appropriations by early 2026 under their interpretation of the law and said the administration does not anticipate Congress providing additional funding. That position raised alarm among consumer advocates, who warned it would effectively nullify the bureau without congressional action.
While the “combined earnings” argument has circulated in conservative legal circles since the Federal Reserve began recording losses, it has never previously been tested in court. Berman dismissed the claim in unusually sharp language, writing that the administration’s new reading of the law appeared to be a deliberate effort to starve the CFPB of funding and to accomplish indirectly what the court’s injunction was designed to prevent.
A spokesperson for the White House did not immediately respond to a request for comment following the ruling.
The decision ensures that, for now, the CFPB will continue to receive funding and remain legally operational, even as its future remains uncertain amid ongoing legal challenges and political disputes over the agency’s role in overseeing consumer finance markets.
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