CFPB Acting Leadership Terminates 1,500 Employees and NTEU Plaintiffs Challenge the Action in Court: Appears to be Predicated on Internal Memorandum Reducing Supervision and Enforcement Activities
On April 17, 2025, the Consumer Financial Protection Bureau’s (“CFPB”) acting leadership reportedly initiated a Reduction in Force (“RIF”), terminating 1,500 of the agency’s employees. This will leave about 200 employees at the agency. The notice to employees reportedly stated that the RIF is “necessary to restructure the Bureau’s operations to better reflect the agency’s priorities and mission.” The employees will reportedly be locked out of the computer systems this Friday and separated from the agency in June. This RIF is apparently predicated on a reduced set of supervision and enforcement priorities outlined in a prior internal memorandum from acting leadership to staff. I will describe the legal challenge to the RIF in NTEU v. CFPB, and the internal memorandum on supervision and enforcement priorities below.
Will the RIF Be a Whiff?
After news of the RIF notices came out, the plaintiffs in the NTEU v. CFPB lawsuit attempting to stop the dismantling of the CFPB (which I wrote about here and here) filed an emergency motion in D.C. District Court for an order to show cause “why the defendants have not violated its preliminary injunction order and schedule a hearing as soon as possible.” As my blog post on the D.C. Circuit’s partial stay of the district court’s preliminary injunction in the case describes, the CFPB leadership was prohibited from RIF’ing employees unless the agency conducted a “particularized assessment” determining that the employees were “unnecessary to the performance of defendants’ statutory duties.” The emergency motion argues that:
It is unfathomable that cutting the Bureau’s staff by 90 percent 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.
As I wrote in my blog post on the D.C. Circuit’s partial stay, the term “particularized assessment” is not defined in the D.C. Circuit’s order. I wrote that an assessment by the CFPB “would certainly be the subject of new litigation if it were the basis for a RIF of most of the CFPB’s staff, and it would likely need to be sufficient to pass muster before the court.” It appears the court will be in a position to decide on that soon.
In response to the plaintiffs’ emergency motion, the judge, Amy Berman Jackson, ordered a hearing for April 18, 2025 at 11:00AM, and for the CFPB to file by 10:00AM copies of the RIF notices, as well as “any letters, memoranda, or emails sent to CFPB staff from Chief Legal Officer Mark Paoletta and/or Acting Director Russell Vought this week.” It is possible that she finds the CFPB in contempt.
The acting leadership’s RIF appears predicated on the April 16, 2025 internal leadership memorandum to the CFPB staff noted above. A copy of this memorandum was posted on X (formerly Twitter) by media. The memorandum appears to greatly reduce the CFPB’s supervisory and enforcement priorities. The internal memorandum states that the CFPB’s supervision office is directed to decrease the overall number of “events” (which is not defined in the memorandum) by 50%, and that the CFPB will “focus on actual fraud against consumers, where there are identifiable victims with material and measurable consumer damages.” It appears that the acting leadership will use, at least in part, this smaller focus as a reason for the CFPB needing far fewer employees.
How will this play out in district court? Judge Amy Berman Jackson was highly critical of the acting leadership’s plans for a wholesale RIF of the agency’s employees in the opinion issued on March 28, 2025 on the preliminary injunction. This type of RIF appears to be what the judge was concerned about, as she stated that without the preliminary injunction, “the RIF notices that have already been prepared will go out before the ink is dry on the Court’s signature… and the defendants will pull the plug on the CFPB.” While the case will depend on whether the CFPB conducted the “particularized assessment” that was required by the D.C. Circuit’s partial stay, the fact that the judge was concerned about preventing this very type of RIF likely means the judge will view the action with great skepticism. One of the questions will be, can the remaining employees still conduct the 50% fewer examinations?
What Does the Internal Memorandum on Supervision and Enforcement Priorities Say?
The acting leadership’s memorandum to CFPB staff about the agency’s reduced supervision and enforcement priorities begins by stating that the agency will focus on “pressing threats consumers,” “tangible harms to consumers,” and matters that are “clearly within its statutory authority.” To that point, the memorandum also specifically states the agency will not pursue enforcement under “novel legal theories.” As I’ve said before, former Democrat-appointed directors of the agency have focused heavily on novel legal theories and expanding the jurisdiction of the CFPB, rather than plain vanilla bad actors. The memorandum’s statements on this topic appear could be read as a swipe at the former directors.
In addition, the memorandum describes several main focus areas that include actual fraud committed against consumers and redress for service members and veterans. Notably, mortgages are ranked as the “highest priority” in the Bureau’s focus on fraud against consumers. I will summarize below the specific areas outlined in the memorandum that the acting leadership wants prioritized, deprioritized, or left to other regulatory agencies:
1. Fewer Exams. Supervision is directed to decrease the overall number of “events” (again, which is not defined in the memorandum) by 50%. The office is also directed to focus on remediation of harms subject to consumer complaints through collaboration with supervised entities.
2. Focus on Big Banks. Supervision is also directed to prioritize examining depository institutions (particularly the largest institutions) over non-depositories, changing the proportion of such examinations to 70% on depository institutions and 30% on nonbanks.
3. Targeting Actual Fraud Against Consumers and a Focus on Mortgages. Priority will be given to cases involving actual fraud against consumers, where there are “identifiable victims with material and measurable consumer damages.” The memorandum states that mortgages will receive “the highest priority.”
4. Redress of Tangible Consumer Harm. The CFPB will focus on “redressing tangible harm by getting money back directly to consumers,” rather than penalties that fill the CFPB’s penalty fund.
5. Veterans and Service Members. Special emphasis will be put on redressing harm to military families and veterans.
6. Federalism. What can be left to the states, will be left to the states, which means that the CFPB will deprioritize:
Participation in multi-state exams, unless legally required.
Supervision where states already regulate effectively.
Enforcement matters in which state regulators or law enforcement authorities are currently engaged or have concluded an investigation into the same matter.
7. Streamlining Federal Oversight. The CFPB will aim to reduce regulatory fatigue at the federal level by:
Eliminating overlapping supervision with other federal regulators.
Coordinating exam schedules with other agencies.
Minimizing duplicative enforcement efforts.
8. No Unconstitutional Fair Lending Enforcement. In a clear nod to the CFPB’s Townstone Financial investigation and lawsuit (which our law firm worked on), the memorandum states that the CFPB “will not engage in redlining or bias assessment supervisions or enforcement based solely on statistical evidence and/or stray remarks that may be susceptible to adverse inferences.” The Bureau will only pursue cases involving clear, intentional racial discrimination with identifiable victims. Interestingly, the memorandum states that, “such matters shall be brought to the leadership's attention and maximum penalties will be sought.”
9. Deprioritized Areas. The CFPB will deprioritize the following areas:
Loans or initiatives for “justice involved” individuals.
Medical debt.
Peer-to-peer platforms and lending.
Student loans.
Remittances.
Consumer data.
Digital payments.
10. No Price Controls. The memorandum states that the CFPB’s primary consumer protection tool will be disclosures. The memorandum states that the CFPB will “not engage in attempts to create price controls.” This could mean that a focus of CFPB examinations will be on whether the required disclosures were accurately provided.
Looking Ahead
The NTEU v. CFPB lawsuit will be important for the industry to watch. Whether the CFPB will be able to conduct its statutorily-mandated duties after this RIF is an open question. The memorandum appears to indicate that there will be some amount of supervisory exams conducted by the CFPB, as it only reduces “events” by 50%, and not 100%. But it is unclear at this point, from what has been reported, whether the CFPB acting leadership has conducted any formal particularized assessment of whether these examinations, as well as other statutory mandates, could get done with only about 200 employees. This may come to light at the April 18th court hearing.
In addition, it will be interesting to see how the reportedly “imminent” full Senate vote on the nomination of Jonathan McKernan for permanent Director (which I wrote about in my last blog post and here) plays out. Based on his statements at his nomination hearing, it would be reasonable to predict that McKernan will be intent on satisfying the CFPB’s statutory mandates. At the hearing, McKernan emphasized the importance of fulfilling the CFPB’s statutory duties and following the law. It remains to be seen whether McKernan will have any employees left to do that when he takes the helm of the agency. Will any marketable employees decide to stay at the agency after this experience?
For the mortgage industry, note that if the CFPB continues to operate in some fashion, the internal memorandum states that mortgage will be the “highest priority.” This would be different from former Director Chopra, who seemed more interested in other issues and products, such as payments, credit cards, and overdrafts.
If you have questions or would like to discuss how these developments affect your organization, please email me at rich@garrishorn.com.
