CFPB contract negotiations come at uncertain time for agency funding

Bloomberg News

The union representing employees of the Consumer Financial Protection Bureau is locked in contentious negotiations with senior management over a new pay contract, but the outcome of those negotiations could depend on another interested party: congressional appropriators.

The CFPB's contract with Chapter 335 of the National Treasury Employees Union expired on Dec. 31. The CFPB and union said the negotiations are ongoing to determine raises over three years for rank-and-file employees. Of the CFPB's roughly 1,700 employees, about 1,000 are members of the local NTEU. 

Union officials said they believe the bureau's latest proposal does not meet the CFPB's obligations under the Dodd-Frank Act to offer pay and benefits comparable to Federal Reserve Board employees. The local union wants the CFPB to agree to pay increases of 6% to 7% because of high inflation and to put the bureau on par with employees of other federal financial regulators. 

"Dodd Frank requires bureau compensation to be comparable to the other federal financial regulators," said Solange Hilfinger-Pardo, a CFPB attorney and chair of the NTEU 335 bargaining committee. "If you look at the raises at many of our sibling agencies in 2023 and 2024, they are above where we are. Our raises need to be comparable in 2024 to make sure we're not falling behind."

But those demands come as the very mechanism by which the CFPB pays its employees is under scrutiny by the Supreme Court, whose decision could invite greater congressional scrutiny — and likely a tighter budget.

The court heard oral arguments in October in a case challenging whether the CFPB, which was created after the 2008 financial crisis, is unconstitutionally funded via allocations from the Federal Reserve. That ruling, expected by early summer, may not eliminate the CFPB altogether, but could invalidate its structure and ask Congress to choose a new funding mechanism. 

Brian Johnson, managing director at Patomak Global Partners and a former deputy director at the CFPB, said that taxpayers should have a seat at the bargaining table during union contract negotiations. He said more attention needs to be paid to the compounding effect of the annual pay raises.

"Only Congress can ensure agency spending discipline through regular annual appropriations," Johnson said. "CFPB employees are doing very well compared to the average U.S. worker and now it's even higher because it jumped up because of the pay reset, which was a very generous benefits package.  

The pay reset

The current contract negotiations follow a separate compensation reform agreement that took effect in mid-2023 to address long-standing pay differences that the union claimed disproportionately harmed women and minorities. That agreement, known as a pay reset, raised the average salaries of union employees by 18.5%, or more than $17,000 a year. Under the expired union contract, rank-and-file union employees received automatic pay raises of 3% in 2021, 2022 and 2023. 

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The CFPB said that in the past 18 months, the agency has reached agreements with the union on two significant issues: its return to office policies and the pay reset of staff salaries. 

"The CFPB values our working relationship with our NTEU partners," said Sam Gilford, a CFPB spokesman. "We are in active negotiations with NTEU on a new compensation agreement and are hopeful that we can reach an agreement on the important issues before us in the near future." 

In its fiscal 2023 financial report, the CFPB said that salary and benefit costs rose $50 million from 2022 to 2023 due to a combination of higher staffing levels and the pay reset.

CFPB employees are paid more than most civil service employees, who are compensated according to the federal general schedule classification system. The maximum CFPB salary tops out at $269,000 for executives and $255,000 for non-executives, though employees below those maximum thresholds in certain geographic areas can receive higher pay. Employees based in Washington, D.C., for example, get a so-called locality rate that can push their overall salary up by nearly 25%, though no CFPB employee pay can exceed the salary caps. Many agencies and private companies incorporate similar pay raises for areas with higher cost-of-living indices.  

The court decides

These pressures pushing the CFPB's overhead costs up comes as the agency's funding mechanism is at the heart of a case that is to be decided by the Supreme Court in the coming months. 

The high court is developing its opinion in Community Financial Services Association of America v. CFPB, which is considering whether the U.S. Court of Appeals for the 5th Circuit erred last year when it found that the CFPB violated the appropriations clause of the constitution. A three-judge panel of the 5th Circuit — all appointed by President Trump — found that the agency's funding through the Federal Reserve System meant it was "doubly insulated" from congressional control.

The Federal Reserve Board is funded from assessments on the Federal Reserve banks — transfers that occur outside of congressional appropriations. The CFPB, in turn, is funded through a transfer from the Fed board to the CFPB for its operations, a sum that is capped by Dodd-Frank at 12% of the Federal Reserve System's 2009 budget, adjusted for inflation. The CFPB received $642 million in fiscal year 2022. 

Plaintiffs argued, among other things, that this arrangement violated the constitution's appropriations clause, which holds that "no money shall be drawn from the Treasury, but in consequence of appropriations made by law." While the court seemed skeptical of the most sweeping implications of the plaintiffs' interpretation of the law, there is room for the court to invalidate the structure itself and direct Congress to design another. Such an outcome could pit the pressure the bureau is feeling to raise its wages against pressure from Congress to keep costs down. 

Johnson, who served as the CFPB's No. 2 executive during the Trump administration, suggested there is public interest in understanding the compensation agreements and its impact on the bureau's budget and funding.

"There is no meaningful oversight of CFPB spending, and it really shows in these unsustainable compensation deals," said Johnson, who has written about the CFPB's funding. "The rate of growth of average pay and benefits of CFPB employees is higher compared to employees at the Federal Trade Commission and the Office of the Comptroller of the Currency."

Moving forward

CFPB Director Rohit Chopra has not been involved directly in the current negotiations over the union contract. Last month, the CFPB raised the pay cap for all executives as part of the pay reset that took effect last year. That change led some in the local union to claim that Chopra was raising salaries for upper management even as the pay contract expired at year-end. Chopra ultimately has to approve any final agreement once the union and management agree on terms. 

"Our goal here is to reach an agreement with the bureau that not only helps employees deal with the rising costs this year but also encourages them to stay with the CFPB in the future," said Jasmine Hardy, a CFPB examiner and executive vice president of NTEU 335. 

The pay reset came after several years of contentious negotiations aimed at adjusting the basic pay scale and salaries of nonexecutive employees based on their past work histories. The reset required the CFPB to readjust pay bands, pushing many employees into higher bands with higher salaries. The pay reset, which union officials noted was about making up for past inequities, required the CFPB to readjust pay bands, including minimum and maximum salary ranges within pay bands.  

Last year the CFPB agreed to pay $6 million last year to settle a discrimination lawsuit brought by 85 current and former Black and Hispanic employees who alleged they were paid lower wages than their white counterparts and faced retaliation. 

Union officials said workers would prefer to focus on the agency's mission.

"I would much rather be spending my time and energy focused on the work that I think is extremely critical and what we do every day," said Hilfinger-Pardo. "It feels like we are all on the same team and yet here we are at odds with one another."