In a decisive ruling issued on Tuesday in New York, a federal district court judge determined that the Consumer Financial Protection Bureau must maintain its funding derived from the Federal Reserve, notwithstanding the central bank's ongoing financial losses. This decision emerged just days before anticipated funding depletion which threatened to halt remuneration for the agency's workforce. Judge Amy Berman explicitly rejected the White House's novel legal rationale contesting the CFPB's funding structure.
The core legal conflict stems from whether Russell Vought, President Donald Trump’s budget director and erstwhile acting CFPB director, holds the authority to defund the bureau effectively and discharge its staff. Since President Trump’s tenure commenced nearly a year prior, the CFPB has largely been rendered inactive. Personnel have been largely inhibited from pursuing agency work, and much of the bureau’s recent operations have centered on dismantling initiatives implemented during the preceding Biden administration and even during Trump’s initial term.
Vought has publicly expressed intentions to curtail CFPB activities and downsizing staff complements. The White House enacted a reduction in force earlier this year that threatened widespread furloughs and terminations within the bureau.
The National Treasury Employees Union, representing CFPB employees, has actively opposed these cutbacks through legal avenues, achieving preliminary injunctions that forestalled large-scale layoffs while litigation continues.
Recently, the White House advanced an argument positing that the Federal Reserve's current lack of “combined earnings” renders it incapable of supplying CFPB funds. The CFPB traditionally relies on quarterly transfers from the Fed as its primary funding source.
The Federal Reserve has recorded operational losses on paper since 2022 amid efforts to counter inflation—the first instance of such losses in its history. These losses arise because the Fed must now remit elevated interest payments to banks holding reserves with it, whereas its bond holdings were acquired when rates were substantially lower during the COVID-19 crisis. The Fed accounts for this situation by maintaining a “deferred asset” on its balance sheet, anticipating recovery as lower-interest bonds mature in coming years.
Despite the bureaucratic precedent of funding the CFPB throughout its existence, including during Trump's initial administration, the White House maintains that absent