A federal judge has delivered a significant blow to the White House's efforts to dismantle the Consumer Financial Protection Bureau (CFPB). On Tuesday, Judge Amy Berman of the U.S. District Court ruled that funding for the consumer finance watchdog cannot be cut off, ensuring the agency can continue to pay its employees just days before its coffers were projected to run dry.
Legal Battle Over "Combined Earnings"
At the core of this case is a novel legal argument advanced by the White House. Lawyers for the administration contended that the CFPB could no longer draw its funding from the Federal Reserve because the central bank has been operating at a paper loss since 2022. They argued that with no "combined earnings," the quarterly payments to the CFPB must cease.
Judge Berman firmly rejected this reasoning. In her opinion, she stated the White House's new interpretation was "an unsupported and transparent attempt to starve the CFPB of funding." She ruled that the CFPB can and must continue to receive its funding from the Fed, as it has since its creation in 2011, regardless of the Fed's current accounting losses.
A Long-Standing Effort to Shutter the Agency
This funding dispute is the latest chapter in a prolonged effort to neutralize the CFPB. The agency has been largely inoperable for nearly a year under the current administration. Its employees have been mostly forbidden from performing their regulatory work, with the bureau's operations focused on unwinding actions taken under previous administrations.
Russell Vought, President Donald Trump's budget director and the acting director of the CFPB, has been central to this effort. Vought has publicly expressed his intention to effectively shut down the bureau. His plan to initiate mass layoffs was previously halted by a preliminary injunction won by the National Treasury Employees Union, which represents CFPB workers.
The White House's "combined earnings" argument was seen as a new tactic to circumvent that court order and achieve the same goal: defunding the agency and terminating its staff.
The Federal Reserve's Role and Paper Losses
The CFPB is uniquely funded through the Federal Reserve, not congressional appropriations. The Fed's recent losses stem from its efforts to combat inflation. It holds low-interest bonds purchased during the COVID-19 pandemic but now must pay higher interest rates to banks on their deposits.
While this has created an accounting loss, the Fed records this as a "deferred asset" on its balance sheet, expecting it to be paid down in the coming years as the older bonds mature. The White House's legal stance, which had been circulating in conservative circles since the Fed's losses began, attempted to leverage this technical accounting situation to cut off the CFPB's financial lifeline.
A White House spokeswoman did not immediately respond to a request for comment on the judge's ruling. The decision ensures, for now, that the consumer protection agency will remain funded and its employees paid, preserving its structure despite the ongoing political and legal assault against it.
