In a packed courtroom on Monday, a federal judge questioned the Trump administration about whether statutorily required work was being done at the Consumer Financial Protection Bureau. The administration's answers were unclear.
District Court Judge Amy Berman Jackson of the U.S. District Court for the District of Columbia asked whether employees had come back to work and suggested that an evidentiary hearing was necessary to determine if the CFPB under acting Director Russell Vought — who is also the director of the Office of Management and Budget — is following the law.
"We need to know what's going on," Berman Jackson said to Liam Holland, a lawyer for the Justice Department. "I want an answer to questions. I want to know whether work is being done."
To that end, Berman Jackson set another hearing for next Monday, at which she ordered Adam Martinez, the CFPB's chief operating officer, to testify. Berman Jackson also extended a consent order from Feb. 14 barring Vought from mass firings of employees and from deleting or altering the bureau's data. She left the lawyers representing the CFPB union and consumer groups along with the ones representing Vought and the government to come up with an agreement for the CFPB's alleged canceling of more than 100 contracts that the union says the bureau needs to operate.
The National Treasury Employees Union is seeking a preliminary injunction in its lawsuit against acting Director Vought, claiming he has illegally dismantled the agency by firing hundreds of employees, closing its Washington, D.C., headquarters, canceling contracts and halting all legally required functions. The union maintains that these actions can only be done
"The essence of this lawsuit is that the executive can't erase something … you can't disable and dismantle an agency in such a short time," Berman Jackson said during the hearing. "You can't blow it up."
"Does the public interest of upholding the president's prerogative outweigh the public interest in having this exist at all?" she asked Holland.
Holland said some statutorily required work, such as the operations of the Office of Consumer Response, are being performed, but that a work-stoppage order has not been rescinded. Holland sought to portray the Trump administration's actions as a normal part of a government transition, saying that CFPB employees were "against the president's agenda."
On Saturday, the CFPB's Chief Legal Officer Mark Paoletta sent an email to employees whose work, he said, is required by statute. The email, obtained by American Banker, told employees: "You are authorized to perform the statutorily required functions," and identifyed the specific statute and work they were asked to resume.
The moves to bring employees back to work are part of the Trump administration's efforts to claim in court that the CFPB is complying with the 18 consumer protection statutes that the independent agency is required to enforce.
However, it is unclear how many staff will be returning to work because the Trump administration has cancelled more than 100 contracts, including for data intake and monitoring of the CFPB's call center. Vought also cancelled contracts for all expert witnesses, cybersecurity and research.
"There are statutorily required functions that simply aren't happening," Deepak Gupta, a lawyer for the NTEU union and consumer groups, said at the hearing. The CFPB has
Several CFPB offices are required by law, including the Office of Fair Lending and Equal Opportunity, Office of Servicemember Affairs, Office for Older Americans and Office of Minority and Women Inclusion. The bureau is required to have a student loan ombudsman and the functions of the Office of Consumer Response are directed under the Dodd-Frank Act.
Gupta argued that Berman Jackson should grant the preliminary injunction because the CFPB could be, in a very real practical effect, dismantled by the time the courts can weigh on the legality of the Trump administration's actions. He warned that there is likely to be an attempt to "rehabilitate the facts" of the bureau's unwinding in a future court case that makes the agency's preservation vital.
"If the court doesn't order to preserve the status quo, the status quo will change," he said.
Christopher D'Angelo, chief deputy attorney general for economic justice at the New York attorney general's office, said that while enforcement is up to the discretion of the current leaders, supervision, consumer response and the civil penalty fund are not being manned.
Last week, the CFPB
"This is not just an ordinary pause," D'Angelo said. "We're seeing our own consumers being harmed. Residents of our state do not have the benefit of the full consumer response function."
D'Angelo also raised concerns about potentially hundreds of millions of dollars in payouts to consumers who have been harmed by financial firms, including
He also claimed that audits are not being performed under supervision, which have been disrupted by all CFPB employees being put on administrative leave by Vought.
"The statute says the CFPB shall periodically examine the institutions that are within its jurisdiction," D'Ángelo said. "The CFPB is the only entity with supervisory authority for the largest banks in the country, the only entity that has the ability to supervise for consumer financial protection issues to conduct these regularized audits that Congress thought was necessary to give them to this new agency in the wake of the financial crisis.
"There's no cop on the beat, there's no supervisory function today for those companies, and that's a real, substantial irreparable harm to consumers," he said.
Gupta claimed in court filings that the intention of the CFPB's senior executives was to fire everyone except five staff positions required by the Dodd-Frank Act.
Berman Jackson asked Holland to explain how the CFPB was still operating if no one was working.
"What the plaintiffs are trying to argue is there are some things that you're calling temporary that have such dramatic effects and have permanent consequences," Berman Jackson said.
"How does that work if humans aren't working? What is abstract about 'do no work'?"
The government had previously claimed in court documents that the CFPB's headquarters was shuttered because of protests by the union, which the judge disputed.
"Protests are not the reasons we're here. It's not the reason you shut down the agency," Berman Jackson said to Holland. She also said that Vought is "the person who's already running one of the biggest agencies in the country," referring to OMB.
At the hearing, Gupta and Berman Jackson discussed whether Vought was illegally appointed under the Federal Vacancies Reform Act. Gupta has claimed that President Trump's statements and actions seeking to gut the CFPB were "arbitrary and capricious," under the Administrative Procedure Act. He specifically cited the cancellation of all of the CFPB's contracts as "tantamount to an abdication of the statutory functions."
"This is an unusual situation where the executive has unilaterally decided not to undertake the required statutory functions," Gupta said, citing the U.S. Agency for International Development, or USAID, a case also being tried Monday in the same court. "The government has never done this before."
Berman Jackson agreed, in part.
"I agree with you, about the unprecedented [aspect of the administration's actions]. And the question isn't whether it's normal, it's when does it get to the point where it's actionable?" she said. "When have we crossed the line?"
Gupta responded saying: "That is not a difficult legal proposition, and that is what has occurred here. It's a complete shutdown."
She was less committal about the APA legal argument made by Gupta.
"I'm not sure that the APA works here," she said.
Berman Jackson noted that the president has nominated Jonathan McKernan to be the CFPB's permanent director.
Holland also claimed that none of the consumer agencies, who sued the CFPB along with the NTEU, have standing in the case. He also claimed that CFPB employees have not suffered irreparable harm.
Near the end of the more than three-hour hearing, Berman Jackson said she had to weigh dueling priorities.
"Elections have consequences, and it's not appropriate for me to get into the middle and tell the government how to run an executive agency," she said. "New administrations can make new policy choices, change priorities and directions."
Berman Jackson also asked the government to provide a response to the current state of the CFPB's Office of Consumer Response, including the escalation case management team, the student loan ombudsman, and its national disaster team.
"That's what I want to know about," Berman Jackson said.
