CFPB shutdown battle reaches crucial D.C. Circuit hearing

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• Key Insight: The high-stakes case revolves around the actions of Russell Vought and President Trump’s publicly stated goal to eliminate the CFPB, challenging Congress’ authority to establish the agency.
• What’s at stake: The National Treasury Employees Union is fighting to maintain an injunction that has blocked the CFPB’s leadership from laying off up to 1,400 civil servants.
• Forward Look: Due to the D.C. Circuit’s composition, many experts think the union will prevail with an ultimate showdown reaching the Supreme Court in the 2027-2028 term.

A high-stakes legal showdown will play out in federal court this week with a crucial hearing to determine whether the acting director of the Consumer Financial Protection Bureau has near-absolute authority to fire up to 90% of the agency’s staff, an effort being vigorously fought by the bureau’s union. 
On Tuesday, the U.S. Court of Appeals for the D.C. Circuit will hear oral arguments in a case pitting the National Treasury Employees Union against Russell Vought, the CFPB’s acting director under the Trump administration. The union is fighting to have the court uphold an injunction that has blocked Vought from firing up to 1,400 civil servants. 

At issue is whether the CFPB’s management has the authority to shut down an agency created by Congress. Vought and President Trump have publicly confirmed their goal is to eliminate the CFPB. 

“Of all the cases nationwide about the government overstepping its reach, this is a great one to watch,” said Colgate Selden, a shareholder at the law firm Baker Donelson.

The D.C. Circuit granted a rare en banc review — a sign of the case’s importance — with a ruling expected later this year or into 2027. 

Vought, who is also the Trump administration’s director of the Office of Management and Budget, was a key architect of Project 2025, the Trump administration’s plan to reduce the federal workforce. In the past year, the administration has fired more than 315,000 federal workers. 

Many legal experts think the union will prevail based on the composition of the D.C. Circuit, and the Justice Department’s strained credibility. The D.C. Circuit has seven judges who are Democratic appointees and four Republican appointees. Many federal judges have accused the DOJ under the Trump administration of providing misleading, inaccurate or false information in court, and of defying court orders.

Last year, a three-judge panel of the D.C. Circuit sided with the Trump administration in a 2-1 vote, with two Trump appointees siding with Vought. The appellate panel found that Vought’s effort to conduct RIFs did not constitute a final agency action — or even a policy — and, therefore, was not reviewable by the courts under the Administrative Procedure Act. They ruled that the CFPB’s director can fire union employees through a mass reduction-in-force, or RIF.

The ruling lifted a district court’s preliminary injunction that had kept Vought from firing union employees. The union appealed. At the district court, U.S. District Judge Amy Berman Jackson had granted the injunction last year after finding that the CFPB’s leadership had tried to shut down the agency without the statutory authority to do so. She ordered the CFPB’s leaders to reinstate temporary and probationary staff who had been fired, and to preserve data and maintain the agency’s operations.

In her ruling, Jackson stated: “There is no act of Congress that empowers the president to shut down the CFPB in his discretion.” 

Interestingly, the CFPB’s leadership refused to cooperate with a review by the Government Accountability Office of its actions last year.

Vought and Mark Paoletta, the CFPB’s chief legal officer, made declarations to the district court that the CFPB needs a staff of only 200 people to perform its legally required functions, down from 1,755 a year ago. When Vought took over the agency last February, he immediately closed the bureau’s headquarters and ordered staff to stop working. 

At issue is whether emails and internal instructions to CFPB staff sent last year by senior managers constituted a final agency action to dismantle the CFPB.

Vought had sent an email to staff last February that said: “Employees should not come into the office. Please do not perform any work tasks. Employees should stand down from performing any work task.”

The DOJ, arguing on behalf of Vought, claims in legal briefs that Vought’s actions did not constitute a policy or even a final agency action, which may be a focus of the oral arguments.   
“Notably, even if the stop-work email were somehow final agency action, plaintiffs’ [Administrative Procedure Act] claim would fail. Plaintiffs have not shown that the action was unlawful; plaintiffs argue only that a complete shutdown — which the email plainly does not order — would be unlawful,” wrote Brett. A. Shumate, an assistant attorney general, in a 43-page brief. “Nor can the email support the injunction, since it inflicted no irreparable harm and the injunction extends well beyond work stoppages.”

“Such a decision was, if anything, the beginning of a process to decide what actions to take to implement an abstract strategy, not the ‘consummation’ of the agency’s decision-making process that affected any person’s rights,” the brief states.

The union’s case is a challenge to President Trump’s view of presidential authority as expansive and near-absolute. The executive branch has claimed direct control over all federal agencies and officers, challenging Congress’ role, experts say.

Mike Pierce, executive director at Protect Borrowers and a former CFPB senior advisor, said Vought has purposely sidelined the CFPB from carrying out its statutory duties. 

“This hearing will show that no matter how hard the Trump administration tries, you can’t put the toothpaste back into the tube — Russ Vought tried to kill an agency created and funded by an act of Congress, in clear violation of the law,” Pierce said. 

John Coleman, a partner at Orrick, Herrington & Sutcliffe and a former deputy general counsel at the CFPB, said the court is unlikely to rule quickly. 

“They’re going to take their time,” Coleman, who thinks a ruling will come out after the midterm elections, said. If the union prevails, Vought is expected to appeal. But it will take time for the case to reach the Supreme Court, with an ultimate showdown expected in the 2027-2028 term, he said. 

The CFPB has exclusive authority among financial regulators of supervising banks, thrifts and credit unions, and their affiliates, that have $10 billion or more in assets. The bureau also supervises nonbanks of all sizes in specific markets such as mortgages. Yet, Vought has claimed that the bureau is not statutorily required to enforce or supervise financial firms, which some former CFPB officials said may be flouting the law. The Dodd-Frank Act states specifically that the bureau “shall require reports and conduct examinations on a periodic basis” of non-depositories within its jurisdiction. 

Even as the CFPB’s union fights for the agency’s survival, many banking and legal experts acknowledge that the bureau faces funding challenges ahead and potential RIFs, or mass reductions, targeting enforcement and supervision, as part of its deregulatory efforts.

Congress slashed the CFPB’s budget last year by 43% to $446 million, down from $785 million.  

The bureau enforces 18 consumer protection laws that previously had been overseen by seven other agencies including the Federal Reserve and Federal Trade Commission and the Office of the Comptroller of the Currency. 

The CFPB was created by the Dodd-Frank Act after the 2008 financial crisis. The bureau was first conceived and stood up by Sen. Elizabeth Warren, D-Mass., before she ran for Congress.