Judge Warns CFPB Defunding Would Breach Court Order as Funding Deadline Looms

Key Takeaways

• Court Order Reinforced: Judge Jackson ruled that failing to fund the CFPB would violate her prior injunction keeping the agency intact.
• Funding Argument Rejected: The administration’s reliance on a DOJ memo claiming no lawful funds were available was dismissed as unconvincing.
• Manufactured Lapse Alleged: The judge said the funding shortfall appeared to be deliberately created to justify dismantling the agency.
• Appeals Court Uncertainty: The full D.C. Circuit is now rehearing the case after vacating an earlier panel decision that favored the administration.
• High Stakes for Compliance: Letting the CFPB shut down due to lack of funds could expose the administration to further legal consequences.

Deep Dive

A federal judge has ruled that the Trump administration’s failure to fund the Consumer Financial Protection Bureau would violate an existing court order, according to the Economic Times, rejecting the administration’s argument that no lawful funding mechanism remains available to keep the agency operating.

In a 32-page decision issued Tuesday, U.S. District Judge Amy Berman Jackson said the administration had effectively “manufactured” a lapse in funding to justify what she described as a unilateral effort to abandon obligations imposed by the court. The ruling came just one day before administration officials said the CFPB expected to run out of sufficient funds to continue operations, a move that would have effectively shut the agency down.

The administration had pointed to a legal memorandum from the Department of Justice Office of Legal Counsel, which concluded that no funds were legally available for the CFPB to request from the Federal Reserve. Jackson dismissed that reasoning, writing that neither the governing statute, her injunction, nor the Federal Reserve’s willingness to provide funding had changed.

“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 a pen, even while the matter is before the Court of Appeals,” Jackson wrote.

The dispute traces back to March, when Jackson ruled that the administration could not dismantle the CFPB. At that time, she barred officials from halting the agency’s work or firing employees, ordered the reinstatement of workers who had already been terminated, blocked the destruction of CFPB records, and required the reversal of any “wholesale” contract cancellations issued on or after February 11. The agency had been an early target of Donald Trump’s administration and the Department of Government Efficiency, which had publicly questioned the CFPB’s continued existence.

While a three-judge panel of the U.S. Court of Appeals for the D.C. Circuit later overturned Jackson’s order barring the agency’s shuttering, the full court agreed earlier this month to rehear the case and vacated the panel’s ruling. That move reinstated uncertainty over the administration’s authority to defund or dismantle the bureau while the appeal is pending.

In her latest decision, Jackson was particularly critical of the administration’s reinterpretation of the CFPB’s funding formula. “It appears that defendants’ new understanding of ‘combined earnings’ is an unsupported and transparent attempt to starve the CFPB of funding and yet another attempt to achieve the very end the Court’s injunction was put in place to prevent,” she wrote.

The ruling sharply raises the stakes for the administration, signaling that allowing the CFPB to run out of money could amount to contempt of court. With the appellate court now reviewing the broader legality of the administration’s actions, the fight over the CFPB’s future appears far from settled.

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