Judge blocks White House’s attempt to defund CFPB to ensure employees get paid

this White House Funding for the Consumer Financial Protection Bureau cannot be stopped, a federal district court judge ruled Tuesday, just days after the agency threatened to run out of money and leave consumer financial institutions without money to pay their employees.

Judge Amy Berman rules CFPB should continue to receive funding from financial institutions FedThat’s despite the fact that the Fed is in the red and the White House’s new legal argument about how the CFPB is funded is invalid.

The core issue in this case is Russell Voight, president Donald Trump’s budget director and acting director of the CFPB, could effectively shut down the agency and lay off all of the bureau’s employees. The CFPB has been largely inoperable since President Trump was sworn in nearly a year ago. The bureau’s employees are mostly barred from doing any work, and much of the bureau’s business this year has been undoing work it did under President Joe Biden and even Trump’s first term.

Vought himself has made comments making clear his intention is to effectively shut down the CFPB. The White House issued a “downsizing” order for the CFPB earlier this year, with most of the bureau’s staff set to be furloughed or laid off.

The state Treasury Employees Union, which represents CFPB workers, has largely succeeded in blocking mass layoffs and furloughs in court. The union sued Vought earlier this year and won a preliminary injunction halting the layoffs, while the union’s case continues through the legal process.

In recent weeks, the White House has used a new argument to potentially get around the court injunction. The argument is that the Fed currently has no “consolidated earnings” to fund the CFPB’s operations. The CFPB receives funding from the Federal Reserve through expected quarterly payments.

The Fed has been in the red since 2022, the first time in its history, as it attempts to combat inflation. The Fed holds bonds on its balance sheet from the period of low interest rates during the COVID-19 pandemic, but now must pay higher interest rates to banks that hold deposits with the central bank. The Fed has been recording a “deferred asset” on its balance sheet that it expects will be repaid over the next few years as low-interest bonds mature off the Fed’s balance sheet.

Because of the losses on its books, the White House argued that the CFPB had no “merger proceeds” to draw from. The CFPB has been operating from the Federal Reserve’s operating budget since 2011, including during President Trump’s first term.

White House lawyers notified the court in early November that the CFPB would run out of funding in early 2026, using a “merger benefit” argument and did not expect to receive any additional funding from Congress.

This legal argument for combining gains is not entirely new. It was already circulating in conservative legal circles long before the Fed began operating at a loss. The Office of Legal Counsel, which serves as the government’s legal adviser, adopted this legal theory in a Nov. 7 memo. However, this idea has never been tested in court.

Berman believes the OLC and Vought are using this legal theory to get around the court’s injunction rather than allowing the case to be decided on its merits. A trial is currently scheduled for February 2026 on whether the CFPB employee union can sue Vought over the layoffs.

“It appears that defendants’ new understanding of ‘merger proceeds’ is an unsupported and apparent attempt to starve CPFB of funds and is yet another attempt to achieve the very ends that the court’s injunction was intended to prevent,” Berman wrote in an opinion.

“We are pleased that the court has made clear what should be obvious: Vought cannot waive the agency’s obligations or violate a court order by creating a funding shortfall,” said Jennifer Bennett of Gupta Wessler LLP, which represents CFPB employees in the case.

A White House spokesman did not immediately respond to a request for comment on Berman’s views.