Trump unlikely to win bid to shut down consumer financial watchdog

WASHINGTON (CN) — The full D.C. Circuit appeared unlikely to let the Trump administration make good on its plans to shut down the Consumer Financial Protection Bureau.

The en banc panel decided the rehear the case after a three-judge panel, led by Donald Trump appointees, determined the National Treasury Employees Union and its nearly 1,500 employees should have brought their claims before the Merit Standards Protection Board and that the U.S. District Judge Amy Berman Jackson had no jurisdiction to order an injunction in the case. 

Justice Department attorney Eric McArthur argued Tuesday that Jackson’s injunction has effectively forced the Trump administration to maintain the agency at the same staffing level former President Joe Biden had. 

“Our system of government cannot function the way it is supposed to if courts overstep their own authority and prevent the executive branch from carrying out lawful reforms for which the American people voted,” McArthur said. 

“We are now more than a year into a new presidential administration and still the injunction entered by the district court in this case last March prevents the bureau’s leadership from exercising their lawful discretion to carry out the president’s deregulatory agenda by downsizing the CFPB,” he told the en banc panel. “That injunction rests on a series of legal, factual and equitable errors, and it represents a serious affront to the separation of powers.”

The union's attorney Jennifer Bennett of Gupta Wesler urged the court to reject that argument, noting the clear record in the case that showed the Trump administration's efforts to undercut Jackson and kneecap the agency before she could hear the union's case.

U.S. Circuit Judge Robert Wilkins, an Obama appointee, asked Bennett what the potential harm would be if the court were to side with the government and allow it to dismantle the agency.

“Why can’t Humpty Dumpty be put back together?” Wilkins asked. “Why can’t the agency just, at the end of the litigation, be stood up again?” 

She pointed to testimony by the government’s own witness, Chief Operating Officer Adam Martinez, who said explicitly that the harm to the public would be irreparable as no other agency conducts the CFPB's functions. Further, there was a full year between Congress' passage of the Dodd-Frank Act in the wake of the 2008 global financial meltdown and the agency’s first day.

“Of course you can build an agency, but it would take a very long time to do it, and in the interim, what you would have is consumer not being able to use the Consumer Complaint Database, which means they would have things like foreclosures happening to them with nobody to help, they would be unable to get car loans because they have inaccurate credit reporting,” Bennett said. 

McArthur directly targeted Jackson's order blocking the agency’s leadership from implementing reduction in force, or RIF, orders. 

He added that, under the Civil Service Reform Act the union's claims had to be “channeled” to the employment board, where employees could only challenge their terminations on an individual basis. 

U.S. Circuit Judge Cornelia Pillard noted that the Office of Personnel Management — led by Russell Vought, who has been the acting director of the CFPB since last February — has a pending rule that would remove RIFs entirely from the employment board’s jurisdiction. 

McArthur said that the rule had not taken effect and had no impact on the case. 

U.S. Circuit Judge Patricia Millet posited a hypothetical, where CFPB employees receive clear notices that the agency would be shut down within two months, and asked whether they could obtain preliminary relief from a federal judge to prevent the agency’s full abolishment as they pursue their claims at the Merit Standards Protection Board.

McArthur quibbled about her use of “abolish,” but answered that any relief would need to be narrow, no more than keeping an agency director on staff. 

“It just seems to me, the concern is that process to which they are being channeled, will not be able to function because their agency is getting abolished,” the Obama appointee said. “There’ll be no capacity for them to get due process or relief, unless there is an agency for them to go back to and be reinstated.”

On Aug. 15, a three-judge panel ruled 2-1 that the National Treasury Employee Union should have brought their claims to the Merit Systems Protection Board, which is meant to handle “adverse personnel actions” under the Civil Service Reform Act. 

U.S. Circuit Judge Gregory Katsas, joined by fellow Trump appointee U.S. Circuit Judge Neomi Rao, vacated Jackson’s preliminary injunction that blocked Department of Government Efficiency and White House Office of Management and Budget personnel from terminating employees, canceling contracts and enforcing a stop-work order. 

McArthur repeatedly cited the Supreme Court’s ruling last summer in Trump v. Casa Inc. in which the justices significantly limited federal courts' ability to issue “nationwide” or universal injunctions. He asserted that Jackson’s ruling did not match the injury asserted in the case.

Bennett slammed that theory, stating the Barack Obama appointee's injunction blocking the government from gutting the agency clearly matched the potential injury to the employee union, their members and the millions of Americans who use its services. 

U.S. Circuit judges Florence Pan, Justin Walker, Bradley Garcia, Michelle Childs and Karen Henderson, along with Chief U.S. Circuit Judge Sri Srinivasan, rounded out the panel.

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