The D.C. Circuit Court of Appeals stayed portions of a preliminary injunction imposed by a district court last month to halt actions aimed at dismantling the Consumer Financial Protection Bureau (CFPB). The appeals court ruled the bureau must maintain adequate resources to perform its statutory duties.
The court expanded on the lower court’s interpretation of the government’s obligation to fulfill the CFPB’s mission as defined by the Dodd-Frank Act by amending multiple directives of the original preliminary injunction regarding major personnel changes at the bureau.
In its March 28 ruling, the U.S. District Court for the District of Columbia found CFPB acting director Russ Vought’s decisions to order staff to stop working and to later lay off probationary and term employees, with plans to make much deeper staff cuts, were part of an effort to unlawfully eliminate the bureau. The court determined the same to be true of reports indicating Vought intended to delete large amounts of sensitive information stored on CFPB data servers.
Former CFPB Senior Counsel Rich Horn, co-managing partner at Garris Horn LLP, summarized the circumstances and implications of the case in a post on the firm’s website.
“In the court’s view, the mass termination of employees, the dismantling of internal infrastructure, and the suspension of virtually all agency operations were not permissible exercises of discretion — they were ultra vires actions in direct conflict with the agency’s statutory purpose,” Horn wrote. “The court also found that work to dismantle the agency continued after the Feb. 14 consent order that froze the CFPB in place.”
He further noted the district court’s contention that “the record also establishes that even with the consent order in place, the effort continued over the next two weeks; the work stoppage remained in effect, and the shutdown was very much alive, although temporarily stalled by the court.”
The Trump administration appealed the ruling to the D.C. Circuit Court. In its April 11 ruling on the matter, the appeals court addressed some key provisions of the preliminary injunction:
- Per the district court, the CFPB was required to reinstate all probationary and term employees terminated between Feb. 10 and the date of the order. The circuit court stayed this directive and stated, “insofar as it requires defendants to reinstate employees whom defendants have determined, after an individualized assessment, to be unnecessary to the performance of defendants’ statutory duties.”
- The preliminary injunction prohibited the CFPB from issuing any reduction-in-force (RIF) notice to any CFPB employee and from terminating any CFPB employee, except for cause related to the individual employee’s performance or conduct. The circuit court stayed this provision and stated, “insofar as it prohibits defendants from terminating or issuing a notice of reduction in force to employees whom defendants have determined, after a particularized assessment, to be unnecessary to the performance of defendants’ statutory duties.”
- The circuit court determined the provision ordering the CFPB not to enforce its Feb. 10 order for employees to stop work-related tasks or to take administrative leave should remain in effect. This determination is based on the court’s understanding that this provision is intended “to allow work stoppages that defendants have determined, after a particularized assessment, would not interfere with the performance of defendants’ statutory duties.”
Horn said it is notable the district court’s preliminary injunction requires the bureau to ensure employees can perform their statutorily mandated functions but, technically, it does not require them to actually do so or to do so “at any particular speed or amount.”
“This only requires that the CFPB’s employees are able to perform such functions, e.g., not be subject to a stop-work order,” he wrote. “… [E]ven with the preliminary injunction, CFPB operations under the current acting leadership, and soon its permanent leadership, can and will look very different than under former Director [Rohit} Chopra.”
David Friend, owner of Friend Mortgage Consulting, told Dodd Frank Update he would not be surprised if the CFPB were to “limp along doing the absolute minimum” while waiting either for the court process to play out or for Jonathan McKernan to be confirmed as its new director, which is expected to come up for a vote sometime in May.
“It’s unfortunate, but CFPB employees are right now just in limbo,” Friend said via email. “As far as predictions, anything could happen, but my guess is that there’s not much appetite to do anything since other events seem to have taken most of the spotlight off the day-to-day at CFPB.”
Despite being in an apparent state of “limbo” the CFPB was able to make 2024 Home Mortgage Disclosure Act (HMDA) data available at the end of March, but Friend said, “it will be interesting when the annual report to Congress on HMDA data is submitted.”
Wolters Kluwer Compliance Solutions Director of Market Strategies Jason Keller noted financial institutions rely on up-to-date HMDA data to evaluate their annual lending activities for compliance compared to their peers.
He asserted that covered entities should not become complacent about their compliance obligations during this uncertain time for the bureau.
“This is an important step in allowing lenders to understand their work in helping meet the lending needs of the markets in which they operate, including majority minority census tracts as well as those areas designated as low- and moderate-income,” Keller told Dodd Frank Update. “Financial institutions specifically covered by the CFPB, as well as those that are only subject to its rulemaking must stay the course, remain vigilant in ensuring consumer compliance within their institutions, while remaining reliant on the policies, procedures, and limits set forth within their compliance management requirements. In an environment of regulatory uncertainty, it is important to continue to monitor developments and look to the regulators’ statements as the official source of truth.”
Briefings on the CFPB’s appeal are set for late April and early May, with oral arguments to be held on May 16.