Catherine Leffert/ American Banker
A federal judge will
A lawyer for the National Treasury Employees Union on Thursday filed an emergency motion for an order to show cause with the U.S. Court of Appeals for the D.C. Circuit. The union is asking why the CFPB’s leaders should not be held in contempt for violating portions of an injunction that were not stayed by the court.
U.S. District Court Judge Amy Berman Jackson ordered the CFPB’s leadership to have a person with personal knowledge of the scope of the reduction in force, and the decision to implement it, present at the hearing.
On Friday, Chief Legal Officer Mark Paoletta, said in a declaration to the court that he had determined that the CFPB only needed 50 employees to conduct supervision functions, and that those employees would be concentrated in a headquarters in the Southeast to keep costs low.
“Both the quantity and scope of supervision matters would be significantly reduced,” he said. “I therefore determined that 50 employees would be sufficient to allow the bureau to perform its statutory supervision functions. bureau leadership also determined to reorganize supervision to concentrate all personnel in the Southeastern region due to proximity to headquarters and relatively lower cost of living. “
Paoletta and acting CFPB Director Russell Vought were required to file copies of any letters, memos or emails with the court and a list of employees and their job titles, which will be kept under seal for privacy reasons.
The threat of a court holding Vought or Paoletta in contempt comes at the same time that the Trump administration is being threatened with a criminal contempt finding for defying a court order to return Kilmar Abrego Garcia from a prison in El Salvador, setting the stage for a showdown between President Trump and the judicial branch.
On Thursday, the CFPB emailed nearly the entire agency’s staff
The reduction in force goes well beyond what the court had allowed, said Deepak Guptak, who represents the CFPB’s union. The CFPB, under court order, was prohibited from issuing a notice of reduction-in-force to employees without first conducting a “particularized assessment” that the employees are “unnecessary to the performance of the defendants’ statutory duties.”
“It is unfathomable that cutting the Bureau’s staff by 90% in just 24 hours, with no notice to people to prepare for that elimination, would not ‘interfere with the performance’ of its statutory duties, to say nothing of the implausibility of the defendants having made a ‘particularized assessment’ of each employee’s role in the three-and-a-half business days since the court of appeals imposed that requirement,” Gupta said in the filing.
In addition to violating the provisions of the court’s order regarding terminations and work stoppages, Gupta said the evidence “demonstrates that the defendants have violated other provisions too,” including ensuring that they do not “impair any data or other CFPB records.”
In response, Paoletta said in a declaration to the court that the bureau’s new leadership has been undertaking a review of the agency’s activities and staffing.
“Over the course of this review, leadership has determined to take the Bureau in a new direction that would perform statutory duties, better align with Administration policy, and right-size the Bureau,” Paoletta said. “Leadership has discovered many instances in which the Bureau’s activities have pushed well beyond the limits of the law.”
As an example, he claimed that the CFPB has conducted “many enforcement and supervision actions on the basis of mere statistical disparities without the slightest evidence of intentional discrimination.”
He also said the CFPB “engaged in intrusive and wasteful fishing expeditions against depository institutions and, increasingly, non-depository institutions,” including pushing “into new areas beyond its jurisdiction such as peer-to-peer lending, rent-to-own, and discrimination as [an] unfair practice.”
Paoletta claims the CFPB “engaged in supervisions with other federal agencies and supervision outside of the Bureau’s authority, and also duplicative enforcement with State law enforcement and regulatory authorities.”
Vought and Paoletta have “been developing new enforcement and supervision priorities seeking to align the Bureau’s practices with a much more limited vision for enforcement and supervision activities, focused on protecting service members and veterans, and addressing actual tangible consumer harm and intentional discrimination.”
The union claims that every employee from the team that oversees the contractors managing the CFPB’s computer network, including the system in which CFPB data is stored, which requires regular maintenance and back-up, have been fired, Gupta told the court.
“The defendants also must continue to fulfill their statutory obligations in the Office of Consumer Response and provide escalated case management,” he said. “But they’ve just fired all but 8 of the employees that work in the Office of Consumer Response, including the supervisor of the escalated case management team and at least 6 of his 7 direct reports.”
Gupta’s legal team made declarations to the court stating that as recently as Monday, the CFPB was telling employees that leadership had not made a decision on any reduction-in-force plan, according to an email from the Office of Human
Resources, but that employee “has herself received a [RIF] notice and will have her access shut off,” according to legal filings.
Vought and Paoletta repeatedly told the CFPB’s chief operating office that they would not consult managers in determining who would be terminated—and that managers were not, in fact, consulted, the court documents state.
Virtually all of the CFPB staff in nearly every office received a RIF notice except the heads of the offices.
The offices include Enforcement, External Affairs, the Office of Community Affairs, the Office of Research; Regulations; the Office of Consumer Population; the Office of Supervision Policy; the Office of Supervision Examinations; the entire Office of Servicemember Affairs and the Office of Older Americans; the Office of Fair Lending, the Home Mortgage Disclosure Act operations team; the Office of Civil Rights; the entire general law and ethics staff; the Office of Financial Education; the Disability and Accessibility Program, which ensures that the bureau can reasonably accommodate people with disabilities and that its public materials are in compliance with the Rehabilitation Act.
In addition, offices dealing with Freedom of Information Act requests, privacy, records, security, and cybersecurity were also affected.
Claire Williams contributed to this article.