A federal judge on Monday ordered the Consumer Financial Protection Bureau’s chief operating officer, Adam Martinez, to testify in court March 10 at a hearing to discuss how the bureau is carrying out its legally mandated functions, including responding to consumer complaints.
At issue are potentially mixed messages from within the agency.
Senior officials at the bureau confirmed that supervisory work is not to resume, Cassandra Huggins, the CFPB's principal deputy assistant director of supervision policy, said in an email seen by Reuters and Bloomberg Law. This comes even though employees were told over the weekend that they should still be performing all legally mandatory work.
“We have requested and received clarification that their message was not intended to authorize the reinstatement of supervision/examination activity, even though the Bureau is required by law to carry out these activities,” Huggins wrote in the email.
In a weekend email, the CFPB’s chief legal officer, Mark Paoletta, wrote employees to make sure “everyone is carrying out any statutorily required work.”
“You are authorized to perform the statutorily required functions,” Paoletta wrote, in a message seen by American Banker, identifying the specific statute and work that was meant to resume.
A spokesperson for the CFPB told Reuters on Monday that it is false that staff have been told not to resume supervisory work, adding that Paoletta's email “says the exact opposite.”
At Monday’s hearing, Judge Amy Berman Jackson of the U.S. District Court for the District of Columbia extended her order preventing the CFPB from destroying data or firing employees for reasons other than cause. That’ll be in place until she rules on whether a preliminary injunction, sought by the National Treasury Employees Union, is needed.
Liam Holland, a Justice Department attorney representing the CFPB, said such an injunction would essentially put the bureau under court control and block the Trump administration from reshaping the agency as it sees fit.
But Berman Jackson said “interim oversight,” in this case, would “make sure [the CFPB] hasn’t been choked out of existence before I get to rule.”
In his argument, Holland aimed to paint the Trump administration’s review of CFPB contracts and functions as part of a usual transfer of power and inferred that employees were “against the president’s agenda.”
However, Christopher D'Angelo, New York’s chief deputy attorney general for economic justice and a witness for the plaintiffs, said, “This is not just an ordinary pause.”
“We're seeing our own consumers being harmed,” D’Angelo said. “Residents of our state do not have the benefit of the full consumer response function.”
Holland told Berman Jackson that some legally mandated work, including operating the CFPB’s Office of Consumer Response, is being performed, but that a stop-work order from the bureau’s acting director, Russ Vought, has not been rescinded.
Deepak Gupta, the NTEU’s attorney, argued the CFPB has 87 required functions – “and if you shut them down, it causes irreparable harm.”
Gupta called the cancellation of more than 100 CFPB contracts “tantamount to an abdication of the statutory functions.”
“What the plaintiffs are trying to argue,” Berman Jackson told Holland, “is there are some things that you're calling temporary that have such dramatic effects and have permanent consequences.”
But she pushed back against the plaintiffs’ argument, too.
“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.”
Gupta cautioned that the defendants may try to “rehabilitate the facts” of a plan to put the CFPB in “wind down mode.”
“If the court doesn't order to preserve the status quo, the status quo will change,” he said.
Berman Jackson, for her part, ordered the CFPB and the plaintiffs to agree by Friday on a path forward for the more than 100 canceled contracts the NTEU asserts the bureau needs to operate, or how to narrow that list.
The “essence” of this case, from the plaintiffs’ view, Berman Jackson said, “is that the executive can't erase something.”
“You can't disable and dismantle an agency in such a short time,” she said. “You can't blow it up.”
The resolution, then, may lie in clarity of what the agency’s leadership is ordering. Of the stop-work order, Berman Jackson said, “What is abstract about ‘do no work’?”
But of the contradicting directives – for example, Huggins’ assertion vs. Paoletta’s – the judge said, “We can’t have edicts issued with people’s fingers crossed behind their backs.”
And on the issue of the CFPB’s existence – and in what form – Berman Jackson asked Holland: “Does the public interest of upholding the president's prerogative outweigh the public interest in having this exist at all?”
In another court Monday, the CFPB asked for a stay in its enforcement action against Comerica, according to documents seen by Reuters.
The CFPB sued the Dallas-based bank in December, alleging it “systematically fail[ed]” 3.4 million cardholders who received federal benefits such as Social Security through prepaid debit cards.
“There is good cause to stay this case to allow new agency leadership time to review the matter,” Paoletta said, according to Reuters.
It would hardly be the first action against a bank the bureau has abandoned since President Donald Trump took office. The CFPB last week dismissed a lawsuit accusing Capital One of obscuring a higher-paying savings product from some legacy savings account holders.