Banking and Finance Law Daily Wrap Up, CONSUMER FINANCIAL PROTECTION BUREAU—D.D.C.: CFPB funding lapse theory rejected; injunction requires continued compliance, (Jan 2, 2026)

By Shashi Kant, BALLB, LLM

The ruling reinforces limits on CFPB leadership actions, rejects a Justice Department funding theory, and keeps court-ordered operational requirements in place.

A federal district court in Washington, D.C., has granted plaintiffs’ motion to clarify a preliminary injunction in litigation challenging actions taken by Acting Consumer Financial Protection Bureau Director Russell Vought, holding that a claimed “lapse” in CFPB funding does not justify noncompliance with obligations imposed by the injunction. The court clarified that defendants’ notice announcing an intention not to seek funding from the Federal Reserve System was inconsistent with the text and purpose of the injunction as modified by the D.C. Circuit’s partial stay pending appeal (National Treasury Employees Union, et al. v. Vought, et al., No. 25-0381-ABJ (D.D.C. Dec. 30, 2025)).

NTEU filed this action on Feb. 9, 2025, and the court issued a preliminary injunction on March 28, 2025, designed to ensure the CFPB “would continue to exist as Congress mandated and perform its statutorily required duties” while the merits were litigated. In early November, the Bureau notified the court that it cannot lawfully draw funds from the Federal Reserve System, following an opinion issued by the Department of Justice’s Office of Legal Counsel (OLC). On Nov. 23, 2025, plaintiffs filed a motion to clarify the preliminary injunction after defendants filed a notice asserting that, under an OLC memorandum, the Fed “currently lacks combined earnings from which the CFPB can draw” and the CFPB anticipated exhausting available funds in early 2026. The plaintiffs then sought clarification that defendants may not justify violating the preliminary injunction by refusing to request funding from the Fed, which NTEU maintain the Dodd-Frank Act requires. The court has now granted the motion to clarify.

Injunction obligations and funding. The court stated that a lapse in funding “would render those obligations impossible to fulfill,” and it further stated that defendants’ decision not to seek funding would “deliberately frustrate” their obligations under the injunction. The court pointed to injunction language barring defendants from “seek[ing] to achieve the outcome of a work stoppage … by any other means,” and stated that declining to ask the Federal Reserve for funding “unquestionably achieves the outcome of a work stoppage.” The court stated that the preliminary injunction imposed specific duties drawn from Dodd-Frank, including requirements related to maintaining complaint intake and response functions, preserving personnel and operational capacity, and maintaining contracts and facilities needed to perform statutorily required functions. The court stated that these duties require funding and noted that the agency did not dispute that.

Meaning of “combined earnings.” The court framed the dispute as turning on the meaning of “combined earnings” in 12 U.S.C. § 5497, which provides that the Federal Reserve Board “shall transfer” to the CFPB the amount the Director determines is “reasonably necessary” to carry out the Bureau’s authorities under federal consumer financial law. The court stated that plaintiffs contended “combined earnings” means the total amount the Federal Reserve earns, including interest, fees, and investment income, and that the statute does not require subtracting expenses. The court stated that defendants, relying on the Office of Legal Counsel (OLC) memorandum, argued that “combined earnings” should be calculated as Federal Reserve income minus interest paid on deposits, and that if interest expenses exceed income, no funds may be transferred to the CFPB. The court rejected that construction, stating that defendants’ interpretation was contrary to the statute’s text and purpose and inconsistent with how the Federal Reserve and CFPB had consistently interpreted and implemented the funding mechanism. The court concluded that “combined earnings” means everything the Federal Reserve earns and stated that construing the term in that manner aligns with Congress’s purpose of providing the CFPB with a stable funding source independent of the annual appropriations process. The court stated that, under the OLC approach advanced by defendants, CFPB funding could fluctuate based on interest rates, which the court said would undermine the statutory objective and place the Fed in the position of choosing between monetary policy decisions and ensuring a “profit” to fund the Bureau.

The court concluded that the claimed funding “lapse,” which it characterized as “manufactured … based solely on the OLC Memo,” was not a valid justification for the agency’s unilateral decision to abandon obligations under the injunction. The court stated that the statutory text “prescribes a process” under which the CFPB requests funding needed to carry out its mission and the Federal Reserve provides that funding from its “combined earnings,” and the court stated that this process had operated since the CFPB was established in 2011, including after 2022 when Federal Reserve interest expenses exceeded earnings.

Congressional reaction. Following the December 30 district court decision, Senate Banking Committee Ranking Member Elizabeth Warren stated that a federal court rejected what she described as the administration’s attempt to starve the CFPB of funding and stated that courts continuing to uphold the law would block what she characterized as efforts to “close down” the agency. Warren argued that the CFPB has returned $21 billion directly to Americans. House Financial Services Committee Ranking Member Maxine Waters also issued a statement that the ruling rejected the claim that the CFPB lacked lawful funding available from the Federal Reserve and highlighted that the claim could not be used to close the agency or impede its ability to carry out statutory duties. Waters also noted that the CFPB has returned over $21 billion to over 205 million consumers since its creation.

Attorneys: Deepak Gupta (Gupta Wessler LLP) for National Treasury Employees Union. Brad P. Rosenberg, U.S. Department of Justice, for Russell T. Vought.

Companies: National Treasury Employees Union

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