DC Circuit needles feds over plans to gut consumer watchdog

WASHINGTON (CN) — President Donald Trump’s effort to dismantle the Consumer Financial Protection Bureau returned to the D.C. Circuit on Friday as an appeals panel grappled with the president’s public comments and the government’s assertion that the agency won’t be shut down.

A three-judge panel pressed the Justice Department and the National Treasury Employees Union to explain whether the effort to radically slim down the CFPB amounted to a final agency action a federal judge could block.

The Justice Department challenged a federal judge’s injunction preventing Department of Government Efficiency and White House Office of Management and Budget personnel from terminating employees, cancelling contracts and enforcing a stop-work order.

Justice Department attorney Eric McArthur argued that the stop-work order and subsequent reduction-in-force orders were not final actions and a federal judge had “erroneously” enjoined CFPB leadership from implementing those orders.

He said that U.S. District Judge Amy Berman Jackson’s ruling blocking the termination of employees and contracts wrongfully interpreted planning communications from CFPB General Counsel Mark Paoletta and acting director Russell Vought as final action.

“Agency heads all the time have goals or plans or intents in their mind that govern how they interact with their staff on a day-to-day basis and the sorts of directives they give,” McArthur said. “No one has ever thought that that is final agency action.”

U.S. Circuit Judge Neomi Rao, a Trump appointee, seemed to agree with McArthur’s position.

But U.S. Circuit Judge Cornelia Pillard, a Barack Obama appointee, found it difficult to accept that argument considering how many people have already been impacted by the termination of certain positions, contracts and programs.

“The notion that this was nothing more than a plan in somebody’s head is hard to credit when there were massive actions that dislocate hundreds of people’s lives and halt services that affect hundreds of thousands of people’s lives,” Pillard said.

McArthur argued that Jackson had failed to adequately consider communications from Paoletta to CFPB staff indicating that congressionally mandated services would continue, such as a directive for any employee with such functions to request an exemption from the stop-work order.

He asserted that Paoletta approved each request he saw.

Pillard again found that argument unconvincing, noting that the record was quite limited in the case.

“It just doesn’t compute to me that an administration that is serious about fulfilling its duty, granted a duty infused with top-down discretion, by asking employees to raise their hands if a case they’re litigating is within a statutorily mandated function,” Pillard said.

Jennifer Bennett, of Gupta Wessler and representing the employee union, argued the government intentionally failed to provide a full record to make it appear as though it was acting lawfully while trying to avoid judicial review.

She pointed to CFPB Chief Operating Officer Adam Martinez’s testimony as a government witness that he advised Paoletta amid the stop-work order to maintain three public-facing websites to avoid public backlash. Paoletta listened and kept attached hotlines up, but still eliminated the offices responsible for operating them.

“All three of them are examples of public-facing tasks that would have gone away, and it’s certainly not implausible that what they were doing is covering their tracks,” Bennett said.

During McArthur’s rebuttal, Pillard pressed him on his position that the only avenue for relief CFPB employees could seek is at the Merit Systems Protection Board, an independent agency itself mired in an ongoing legal battle.

The judge described the body as “inoperative” due to the lack of quorum caused by Trump’s termination of chairman Cathy Harris. McArthur rejected that characterization, noting that such cases could be addressed by administrative law judges — a position the Justice Department has argued should also be answerable to the president like Harris.

The case has already reached the D.C. Circuit once before, with the same panel hearing arguments on April 9 over the first iteration of Jackson’s injunction.

Parts of Jackson’s initial order was lifted by the D.C. Circuit on April 11, allowing CFPB leadership to implement “RIFs” so long as they conducted a particularized assessment to ensure no congressionally mandated offices, contracts or positions were affected.

Paoletta conducted the assessment by reviewing “line by line” each competitive area at the bureau, ultimately concluding that 200 people were enough to continue necessary functions.

That conclusion was quickly challenged, leading Jackson to further block the proposed RIFs and schedule an evidentiary hearing to hear testimony from Paoletta and DOGE agent Gavin Kliger.

An anonymous declarant described Kliger as “screaming” at the RIF team to send termination notices faster while working 36 hours straight.

On April 28, the three-judge panel blocked the CFPB’s leadership from implementing massive reduction-in-force orders that would have terminated the positions of 1,483 employees and cut the consumer protection bureau to just 200 people.

U.S. Circuit Judge Gregory Katsas, a Trump appointee, rounded out the panel.

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