Alert

Chaos and Confusion at the Bureau: Current Litigation Surrounding the Unwinding of the CFPB

March 12, 2025

As we discussed previously, the Consumer Financial Protection Bureau (CFPB) is facing a threat to its very existence, and this time, the call is coming from inside the house.

After Acting Director Russ Vought and the Department of Government Efficiency (DOGE) moved to terminate most of the CFPB’s employees and implemented a freeze on all rulemaking, enforcement, and supervisory activities, the National Treasury Employees Union (NTEU) filed suit, seeking an injunction to prevent further efforts to “unwind” the agency. Pending a hearing on the merits, Judge Amy Berman Jackson issued an agreed order temporarily blocking further layoffs at the agency while she considered the merits of the union’s request for a preliminary injunction.

Can An Agency Pause all Work And Still Meet Statutorily Required Duties?

That hearing, featuring hours-long testimony, occurred earlier this week. The overall tenure and pointed questions by Judge Berman Jackson seemed to evidence her doubt that the anticipated cuts to the CFPB staff and continued freeze on operations were possible while the Bureau maintained its statutorily required duties.

According to CFPB Chief Operations Officer Adam Martinez, DOGE entered the Bureau in early February “with a very hard fist” and with the intent to quickly terminate 1,175 of the agency’s 1,700 employees. As Judge Berman Jackson pointedly asked Martinez, “[h]ow do you close the agency and do statutorily required work?” Martinez testified that it was his understanding that the CFPB might still have a small footprint, with a handful of statutorily required individuals, and that some of its required work would go to other agencies. And yet despite this, Martinez also admitted under questioning that DOGE had led him to believe that the agency would be closed, and he testified that, contrary to the Government’s position that these actions were typical in a presidential transition, it was anything but, and this “is obviously a very unique situation.”

During the hearing, the Government attempted to distinguish DOGE’s actions from actions taken by the Office of Management and Budget (OMB) and Acting Director Vought. Judge Berman Jackson appeared to be skeptical of these arguments. Testimony was also presented that, notwithstanding the pending lawsuit and Judge Berman Jackson’s temporary order pausing all terminations, the plan to fire most of the Bureau’s workforce remained intact. Judge Berman Jackson did not appear to accept the government’s position that the contemplated staff cuts and continued operating freeze are consistent with the Bureau’s statutorily required duties.

Chaos and Confusion Reign at the Bureau

Witnesses also testified regarding the chaos and confusion that ensued after DOGE entered the Bureau. Matthew Pfaff, Chief of Staff for the CFPB’s Office of Consumer Response, testified that “[c]haotic is generous… . People have been out of work for three weeks. There was a lot of confusion about what was happening.” Judge Berman Jackson highlighted that confusion in her questioning of witnesses as well, expressing skepticism that Acting Director Vought was not trying to dismantle the agency from within given the planned mass firings, the termination of hundreds of contracts, the dismissal of ongoing enforcement actions, and the order pausing all rulemaking, enforcement, and supervisory activities, which conflicts with the later orders requiring CFPB employees to continue their statutorily required work. As Judge Berman Jackson asked Martinez, “[i]t’s like shoot first and ask questions later,” to which Martinez responded, “[t]hat’s what it felt like.”

Martinez also testified to the hostility between CFPB employees and the DOGE team, noting that there was a significant amount of distrust between the two groups.

What Comes Next?

Judge Berman Jackson called the hearing “illuminating” after two days of testimony. However, she stated she had not yet decided how she would rule on the preliminary injunction, and she sought input from all parties regarding how to structure an order that would allow the Bureau to continue to “hobble” along while the ongoing litigation over the Bureau’s dismantling played out. Her goal, she said, was to “preserve an agency that could be revived, if necessary…” Those comments, coupled with her pointed questions of the Government’s witnesses, suggest that Judge Berman Jackson may thwart at least some of the attempts to dismantle the agency.

A ruling on the preliminary injunction should be issued in the next few weeks. As developments unfold, McGlinchey’s Financial Services team will publish additional updates.