Jacquelyn Martin/AP Photo
Russell Vought speaks during a Senate Budget Committee hearing on his nomination to lead the Office of Management and Budget, January 22, 2025, on Capitol Hill in Washington.
Declarations issued last week show that the acting director of the Consumer Financial Protection Bureau, Russ Vought, had a clear plan to break up the agency, and reduce it to as little as “five men in a room.” The revelation of this plan in federal court highlighted its clear illegality. So Vought and his team are now reverse engineering their plan to gaslight employees and the courts that it was always legal to begin with.
Over the weekend, acting chief legal officer and Clarence Thomas buddy Mark Paoletta sent all CFPB employees an email, exhibiting true concern that they were not “carrying out any statutorily required work.” Paoletta cites a February 8 email that prohibited any work except where “required by law” or approved by Acting Director Vought. But Paoletta only glancingly refers to a different email, received February 10, which stated, “Employees should not come into the office. Please do not perform any work tasks.” This email, which also closed the CFPB headquarters, did not distinguish between statutory and non-statutory tasks, but was taken as a stop-work order superseding everything CFPB did. Employees took it accordingly.
Now Paoletta says they got it all wrong. The pause in some work was merely “intended to ensure that new leadership could establish operational control over the agency while ensuring that it would continue to fulfill its statutory duties.” He reiterated that employees “should be performing work that is required by law and do not need to seek prior approval to do so.”
The same leadership saying that CFPB employees should have been working all along set up a tip line for regulated companies to inform on any CFPB officials engaged in supervision or enforcement, which are among the agency’s statutory duties. They canceled contracts that support statutorily required work. They cited specific statutory duties like supervision and examination activity as things that should not be conducted. Employees were told to enter “administrative leave/excused absence” on all time sheets. Yet they were supposed to perform statutorily required work that whole time?
The context for this unusual reversal is that the D.C. District Court in National Treasury Employees Union v. Vought has heard direct testimony that Vought and his colleagues illegally shut down the CFPB, including its functions that are required by law. Back-announcing that employees should be conducting those functions is a pathetic attempt to bamboozle the court.
Similarly, CFPB chief operating officer Adam Martinez issued an unusual “supplemental declaration” in the case on Sunday, responding to the charges by other employees that he had lied in his initial declaration. Martinez essentially agrees and tries to cover up the lies.
For example, Martinez admits that he said there would be a “closure of the agency” and that CFPB is in “wind down mode.” He even admits that a Vought functionary was trying to return agency funds back to the Federal Reserve, finding out that they could not. But Martinez adds that Vought somehow changed this trajectory, and is merely desirous of “running a substantially more streamlined and efficient bureau, refocusing its priorities, and ‘right sizing’ the agency.” He describes Vought as taking a “methodical approach” to the CFPB’s work—I guess shutting down every aspect of the agency is kind of methodical.
There is a way to eliminate the CFPB: through an act of Congress. But congressional Republicans don’t have the votes to do that.
But Martinez only cites one actual statutory obligation of CFPB in this declaration: the agency’s consumer complaints database. Martinez alleges that on February 27, the day after Matthew Pfaff, the chief of staff overseeing the complaint database, declared to the court that it was not functioning and had no staff to update it, Paoletta “activated work” and that members of the Escalated Case Management team, which follows up on consumer complaints with financial companies, are working.
Immediately, Pfaff responded with his own declaration to the court, calling Martinez’s statement “misleading, inaccurate, or both.” None of the activities of the database that have been mothballed—including escalated case management—are being performed, Pfaff said. He also stated that he sent a memo to Martinez two weeks ago about key statutory work that wasn’t being conducted and never got a response. The supervisor of the Escalated Case Management team, which Martinez claimed was working, also filed a declaration stating that “No member of the Escalated Case Management has performed any work since at least the February 10th stop-work order,” and that they weren’t told to go back to work on February 27.
According to other declarations, Martinez was sending emails to senior management on February 27 claiming that statutory work was authorized. But actual employees were not told to resume working, and indeed were told to “stand down until further notice.” As one declarer told the court on Sunday, Martinez’s internal emails were “a somewhat transparent effort—in advance of a hearing in this Court—to create the appearance that statutorily required work is taking place across the Bureau when in fact it is not.” Lying in declarations is a sanctionable offense, if that matters anymore.
Statutory offices that have not been working since the February 10 stand-down order include the Office of Servicemember Affairs, Office for Older Americans, Office of Financial Education, Office of Community Affairs, and Office of Student Loan Ombudsman. On the last one, Martinez had previously declared that the CFPB’s Ombudsman Office could handle student loan complaints that the Student Loan Ombudsman would normally. This was called out as false, since the Ombudsman Office is for complaints about the CFPB, not complaints about the companies it regulates. Martinez admitted that was true, but claimed that consumers could call the Ombudsman Office to complain that the Student Loan Ombudsman’s Office was vacant, which is absurd.
What this all indicates is that Russ Vought knows that he doesn’t have the power to shut down the CFPB like he wanted, and has his minions engaged in a multipronged effort to cover their asses.
That didn’t totally work. At a hearing this morning, Judge Amy Berman Jackson was irate at Justice Department lawyers arguing for Vought in the case, floating the idea of court-directed oversight “to make sure [CFPB] hasn’t been choked out of existence before I get to rule.” Martinez may be hauled into court for an evidentiary hearing.
There is certainly a way to eliminate the CFPB and fold its functions into a more business-friendly agency: through an act of Congress. But congressional Republicans don’t have the votes to do that, and furthermore it would be wildly unpopular. So they were hoping Vought could do it for them, until he ran into the inconvenient fact that it’s illegal.
The attempt to destroy the CFPB is failing miserably, and any reasonable analysis of these recent events is that when the new director, Jonathan McKernan, is confirmed, he will bring agency employees back on the job. That doesn’t mean they’ll be engaged in much of a serious effort to pursue wrongdoers and defend consumers; enforcement and supervision will likely be minimal, and rulemaking more focused on deregulation than regulation. But the agency will exist, amid transparently illegal efforts to kill it that are already being walked back. So a president who actually wants to stop scams and keep financial predators honest will have an agency of committed professionals available to do so.
UPDATE: By the close of the hearing, Judge Jackson called for an evidentiary hearing on Monday, March 10, where Martinez will have to testify personally. She cited the likelihood that agency leadership was making statements with “people’s fingers crossed behind their backs.” During the hearing, an email obtained by the Prospect shows precisely that, with supervision staff saying that the message to continue statutorily obligated work was not intended to authorize the reinstatement of supervision and enforcement activity, even though those functions are statutory. “It has been communicated to me that Supervision staff should continue to operate on administrative leave as directed by the Acting Director unless you have received express permission to work on a task,” the email from supervision staff managers reads. That is sure to come up in next week’s hearing.
