The full U.S. Court of Appeals for the District of Columbia Circuit has agreed to hear a case involving the Trump administration’s attempts to lay off nearly 90% of workers at the Consumer Financial Protection Bureau (CFPB).
The move tosses a 2-to-1 decision from a smaller panel of that federal appeals court in August that overruled a lower court’s decision and allowed the mass layoffs to proceed.
The rare move by the court represents a striking legal setback for the administration.
In April, CFPB officials — under the oversight of the bureau’s acting director, Russell Vought — issued reduction in force (RIF) notices to 1,483 of the CFPB’s 1,690 employees.
The attempted mass layoffs were carried out despite a pending lawsuit filed against Vought — who also heads the White House’s Office of Management and Budget — by a labor union representing the CFPB, as well as five other plaintiffs. The lawsuit initially stemmed from Vought’s temporary shuttering of the bureau in February, which the plaintiffs alleged amounted to an attempt to wind down the CFPB altogether.
A U.S. district court judge stepped in to block the RIF, but that lower court ruling was superseded by the decision from the appeals court panel in August.
Vought has made no secret of his intention to close the CFPB. During an October podcast appearance, he said he believes the administration will successfully dismantle the bureau “probably within the next two or three months.”
“We don’t have anyone working there except our Republican appointees and a few [career employees] that are doing statutory responsibilities while we close down the agency,” Vought said.
The CFPB has not responded to Scotsman Guide’s request for comment on this week’s ruling by the federal appeals court.
Profitability vs. combined earnings
The CFPB, a financial watchdog agency established by Congress in 2010, has historically funded its operations by requesting funds from the combined earnings of the Federal Reserve System, which includes the Federal Reserve Board and the 12 regional Fed banks.
In a November court filing, government attorneys argued that the Fed cannot legally fund the CFPB because the Federal Reserve System has not generated any profits since 2022. As a result, the opinion from the Department of Justice’s Office of Legal Counsel (OLC) reads, “there are no funds available from the CFPB’s congressionally authorized source of funding.”
An amicus brief filed Dec. 10 by five former Fed officials disputes this characterization, arguing that the OLC misinterprets the concept of profitability as it applies to the Fed, which as the nation’s central bank “plays a unique role that is not comparable to that of private banks or other profit-maximizing enterprises.”
“OLC’s reliance on what it understands to be ‘standard accounting practice for banks’ is inappropriate in light of the Federal Reserve’s unique role and inconsistent with longstanding Federal Reserve practice of which Congress would have been aware when it established the CFPB,” the brief states.
On Tuesday, Assistant Attorney General Brett Shumate sent a letter to Fed Chair Jerome Powell, asking whether the Federal Reserve System has “‘combined earnings’ … as that term is defined in the OLC opinion,” and “whether the Federal Reserve System anticipates having or continuing to have such ‘combined earnings’ in the coming weeks.”
The Fed did not immediately respond to Scotsman Guide’s request for comment on those questions.
An analysis published earlier this month by Paul Kupiec of the American Enterprise Institute found that the Fed is “on track to post its first systemwide profit since the fourth quarter of 2022.”
Former Fed staffer Bill Nelson, who now serves as chief economist of the Bank Policy Institute, wrote in an email posted to his LinkedIn account on Nov. 26 that the Fed “appears to be on track for the combined profits of the 12 Reserve Banks to be over $2 billion in the current quarter.”
Attorneys for the plaintiffs argue that the OLC’s interpretation of the Fed’s profitability is “tailor-made to support [Vought’s] novel interpretation of Dodd-Frank, designed to starve the Bureau of funding.”
“The only purpose of the defendants’ tortuous interpretation is to enable Vought to shut down the CFPB,” the plaintiff attorneys stated in a court filing Monday.
