Judge Warns Vought of Contempt Order If He Back-Door Shuts Down CFPB
In an order issued today, a federal judge in Washington clarified that any effort by Acting Consumer Financial Protection Bureau (CFPB) director Russell Vought to allow funding to lapse based on a theory that the Federal Reserve has no “combined earnings” from which to draw would violate her previous ruling to keep the agency open. Judge Amy Berman Jackson intimated that Vought could be held in contempt of court if he used this dubious interpretation of the CFPB’s funding structure.
Vought’s reasoning “is contrary to the text and intent of the statute and the way it has been consistently interpreted by both the Federal Reserve and the CFPB,” Jackson wrote.
The ruling pushes back on Vought’s latest attempt to shut down the bureau by fiat. CFPB workers have been in a state of suspended animation for months as Vought strives to close the agency. Meanwhile, financial scams and chicanery continue to proliferate virtually unabated.
In November, Vought sent a notice to Judge Jackson’s court in the case pitting him against the National Treasury Employees Union (NTEU), which represents CFPB workers. Judge Jackson previously issued a preliminary injunction preventing Vought from shutting down the agency or declining to fulfill its statutory obligations. An en banc panel of the D.C. Circuit court of appeals upheld the injunction temporarily earlier this month.
Vought’s notice put forward a novel interpretation of CFPB’s funding mechanism. The statutory language in the Dodd-Frank Act says that CFPB must request funding from the Federal Reserve on a quarterly or annual basis, and that the Fed provides the money out of “the combined earnings of the Federal Reserve System,” with combined referring to the 12 regional Federal Reserve banks. According to Vought and a Justice Department Office of Legal Counsel (OLC) opinion, because costs at the Federal Reserve have exceeded revenue, the central bank no longer has combined earnings, and therefore no money available to give to the CFPB. This would mean that all CFPB funding would lapse by “early 2026,” Vought said.
The OLC opinion subtly redefined “earnings” as “profits,” even though earnings could also mean gross earnings. The idea that Congress set up a consumer protection agency with statutory obligations that can only be funded when the Federal Reserve earns money sounds preposterous, and advocates, former Federal Reserve officials, former members of Congress Chris Dodd and Barney Frank who authored the law, and state attorneys general, which has filed a separate lawsuit in the matter, have condemned it. A coalition of consumer advocates also filed suit to block Vought’s scheme.
After Vought’s notice to the court, NTEU filed a motion seeking clarification that Vought “may not justify a violation of the preliminary injunction by refusing to request” funding to prevent a lapse in appropriations. No court has ever ruled in favor of Vought’s “combined earnings” claim, which CFPB opponents have put forward for years, and the Supreme Court found the agency’s funding structure to be lawful just two years ago.
Judge Jackson, in her ruling, confirmed that “combined earnings” means all gross income the Federal Reserve takes in, and that interpreting it otherwise would be inconsistent with standard practice throughout the CFPB’s history and across the statutory landscape. “Neither the statute, the injunction, nor the Fed’s willingness to pay has changed; the only new circumstance is the administration’s determination to eliminate an agency created by Congress with the stroke of pen,” she wrote.
Judge Jackson painstakingly recounted the numerous ways in which Vought has tried to shut the CFPB down, despite claiming that he is committed to carrying out all statutory obligations. The latest scheme, to decline funding from the Federal Reserve, is consistent with the work stoppage Vought has stated as a goal in public appearances, as the judge points out. “We want to put [the CFPB] out, and we will be successful probably within the next two, three months,” he told the Charlie Kirk Show in October.
“This candid statement does not mark a change in the Acting Director’s approach; he said as much on his first day on the job, and it would be foolhardy not to take Russell Vought at his word this time,” Judge Jackson wrote.
While the injunction doesn’t direct CFPB to seek funding from the Federal Reserve, it does say that the agency cannot be shut down, and declining to seek funding would put agency leadership in violation of that imperative. Judge Jackson pointed out in the ruling that the clarification should “add certainty to an implicated party’s effort to comply with the order and provide fair warning as to what future conduct may be found contemptuous.”
That’s a not-so-subtle hint that failing to seek money from the Fed could put Vought in contempt of court.
At this point, Vought could continue the current path of not seeking funding from the Fed, and risk that contempt citation, or he could reverse course and seek a funding draw. Complicating this is the fact that the Fed may be back on a path to profitability. Two weeks ago, the Justice Department sent a letter to the central bank, asking whether the Fed is making “combined earnings” as defined in the OLC opinion.
This would render moot Vought’s scheme to deprive the CFPB of money and give him an out from Judge Jackson’s wrath. It would also keep the CFPB in operation, if only barely. Vought has transferred some CFPB cases to the Justice Department, settled cases with corporate violators, and generally stopped the vast majority of work. This has threatened critical functions in the housing market that could have “potentially catastrophic consequences,” like the publication of the weekly Average Prime Offer Rate (APOR), a benchmark used to clarify what loans can be traded in secondary markets without further regulatory actions.
CFPB, like all government agencies, is also prohibited from firing anybody through January 30, because of a provision of the continuing resolution to end the government shutdown signed in November that barred mass layoffs.
Even a relatively inert CFPB that is still performing bare-bones tasks is preferable to a dismantled agency that would be harder to resurrect under a future president. The stonewalling of Vought’s efforts to destroy the CFPB also keeps him occupied and frustrates any attempt to carry over the impulse to other agencies.
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