A federal district court judge ruled on Tuesday that the White House cannot halt funding for the Consumer Financial Protection Bureau, just days before the bureau’s funds would likely have run out and it would have had no money to pay its employees.
Judge Amy Berman ruled that the CFPB should continue to receive its funds from the Federal Reserve, despite the Fed operating at a loss, and that the White House’s new legal argument regarding how the CFPB obtains its funds is invalid.
The core of this case is whether Russell Vought, President Donald Trump’s budget director, can effectively shut down the agency and lay off all of the bureau’s employees. Since President Trump took office nearly a year ago, the CFPB has largely been inoperative. Its employees are mostly [information missing], and most of the bureau’s operations this year have been to reverse the work it did under President Biden and even during Trump’s first term.
Vought himself has made statements indicating his intention to effectively shut down the CFPB. Earlier this year, the White House issued a “reduction in force” for the CFPB, which would have furloughed or laid off a large portion of the bureau.
The National Treasury Employees Union, which represents the workers at the CFPB, has been mostly successful in court in preventing mass layoffs and furloughs. The union sued Vought earlier this year and won a preliminary injunction halting the layoffs while the union’s case proceeds through the legal process.
In recent weeks, the White House has used a new line of argument to potentially bypass the court’s injunction. The argument is that the Federal Reserve currently has no “combined earnings” to fund the CFPB’s operations. The CFPB receives its funding from the Fed through expected quarterly payments.
The Federal Reserve has been operating at a paper loss since 2022 due to the central bank’s efforts to combat inflation, the first time in the Fed’s entire history it has been operating at a loss. The Fed holds bonds on its balance sheet from a period of low interest rates during the COVID-19 pandemic, but currently has to pay higher interest rates to banks that hold their deposits at the central bank. The Fed has been recording a “deferred asset” on its balance sheet, which it expects will be paid down in the next few years as the low-interest bonds mature off the Fed’s balance sheet.
Due to this paper loss, the White House has argued that there are no “combined earnings” for the CFPB to draw on. The CFPB has operated since 2011, including during President Trump’s first term, using the Fed’s operating budget.
White House lawyers sent a notice to the court in early November, where they argued that the CFPB would run out of appropriations in early 2026, using the “combined earnings” argument, and does not expect to receive any additional appropriations from Congress.
This combined earnings legal argument is not entirely new. It has been floating around since the Federal Reserve began operating at a loss. The Office of Legal Counsel, which serves as the government’s legal advisors, adopted this legal theory in a [document type missing] on November 7. However, this idea has never been tested in court.
In her opinion, Berman said the OLC and Vought were using this legal theory to circumvent the court’s injunction rather than allowing the case to be decided on its merits. A trial on whether the CFPB employees’ union can sue Vought over the layoffs is currently scheduled for February 2026.
“It appears that the defendants’ new understanding of ‘combined earnings’ is an unfounded and transparent attempt to deprive the CPFB of funding and yet another attempt to achieve the very outcome the Court’s injunction was put in place to prevent,” Berman wrote in an opinion.
“We’re very pleased that the court made clear what should have been obvious: Vought can’t justify abandoning the agency’s obligations or violating a court order by creating a lack of funding,” said Jennifer Bennett of Gupta Wessler LLP, who is representing the CFPB employees in the case.
A White House spokeswoman did not immediately respond to a request for comment on Berman’s opinion.
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