CFPB staff layoffs can proceed, appeals court rules

A three-judge federal appeals court panel has ruled that the Consumer Financial Protection Bureau’s attempt to lay off the vast majority of its employees can proceed.

The case concerns the reduction in force that the Trump administration conducted at the bureau in mid-April, in which layoff notices were sent to more than 1,400 staffers, leaving only about 200 employees remaining. In a 2-1 ruling on Friday, the U.S. Court of Appeals for the D.C. Circuit says the Trump administration may continue its dismantling of the bureau.

“We hold that the district court lacked jurisdiction to consider the claims predicated on loss of employment, which must proceed through the specialized-review scheme established in the Civil Service Reform Act,” Judge Gregory Katsas wrote for the majority. The ruling vacates a preliminary injunction that had blocked the layoffs.

But Judge Nina Pillard disagreed. “It is untenable to hold that same Congress meant the agency’s continued existence to be a matter of unilateral and unexplained presidential edict,” she wrote in the dissenting opinion. Pillard was nominated to her post by former President Obama, while Katsas and Judge Neomi Rao were nominated by President Trump.

“Had the district court not acted, there is very little reason to believe that the CFPB would have existed by the end of March,” she continued.

The CFPB is an independent agency funded by transfers from the Federal Reserve System.

Congress created the CFPB in the wake of the 2008 financial crisis as part of the bipartisan Dodd-Frank Act, and the bureau has dozens of responsibilities it is legally obligated to perform to protect consumers. Its mandates range from its mission to regulate consumer financial products and services, to specific requirements like operating an office that collects and monitors consumer complaints.

The CFPB has become a target of the Trump administration as well as some in Silicon Valley and on Wall Street, who say it overreaches in its regulation. In court filings, the administration has said its aim is a “more streamlined” bureau. But consumer advocates say the massive job cuts would make it impossible for the CFPB to perform its Congressionally-required duties.

“The CFPB is now free to right-size itself in accordance with the law to best serve the American people,” U.S. Attorney General Pamela Bondi posted on social media.

The National Treasury Employees Union, which represents CFPB employees, argues that the Trump administration is dismantling the bureau unlawfully. “The Executive Branch may not unilaterally abolish an agency created by Congress,” the union’s attorneys wrote in a brief.

The union sued to stop the layoffs. But the DC circuit appellate court ruled on April 11 that CFPB officials could conduct a reduction in force if they made “a particularized assessment” to determine which employees were “unnecessary” for the bureau’s performance of its statutory duties.

Following that ruling, the administration swiftly moved once again to fire most of the bureau’s staff.

“An approximately 200 person agency allows the Bureau to fulfill its statutory duties and better aligns with the new leadership’s priorities and management philosophy,” CFPB chief legal counsel Mark Paoletta wrote in April.

Paoletta wrote in a memo sent to staff on April 16 that in order to “focus on tangible harms to consumers, the Bureau will shift resources away from enforcement and supervision that can be done by the States,” and would focus more on banks and mortgage fraud, while deprioritizing areas including medical debt, student loans, peer-to-peer lending and digital payments.

But federal Judge Amy Berman Jackson did not believe that the reductions in the second attempted layoff were “particularized” enough. “There is reason to believe that the defendants simply spent the days immediately following the Circuit’s relaxation of the Order dressing their RIF [reduction in force] in new clothes, and that they are thumbing their nose at both this Court and the Court of Appeals,” Jackson wrote, and blocked the layoffs by ordering an injunction.

The injunction means affected staff have been able to continue their employment at the agency. But there is seemingly less work to do: The CFPB has dropped a number of cases it was litigating and has deprioritized other enforcement.

With the passage in early July of the One Big Beautiful Bill Act, the CFPB’s budget was cut nearly in half, though it retains the ability to request funds from Congress.

The Supreme Court recently ruled that the Trump administration may continue its mass firings of federal workers, but that decision does not directly affect this case, according to the NTEU 335, the union representing CFPB employees.

An appeal by the workers’ union to the full DC Circuit and eventually to the U.S. Supreme Court is possible.