Fox Rothschild | The GAO Report on the CFPB Reorganization: What Banks and Financial Services Providers Should Know

Key Points

• The GAO’s report on the CFPB reorganization confirms that mass workforce reductions, dismissed enforcement actions and a congressionally slashed budget cap have fundamentally reshaped federal consumer finance supervision.
• The pending en banc D.C. Circuit decision in National Treasury Employees Union v. Vought will likely determine whether the CFPB’s proposed 88% reduction in force proceeds.
• Financial services providers should prepare for fewer federal CFPB enforcement actions offset by aggressive multistate regulatory oversight and a rise in private consumer finance litigation invoking CFPB-developed legal theories.

The Government Accountability Office (GAO) released its first comprehensive report analyzing the Consumer Finance Protection Board’s (CFPB) downsizing in January. For banks, lenders, and other financial services companies, the report is a roadmap for how the current administration is reshaping industry supervision and enforcement, and consumer-finance litigation. Stop-work orders, mass contract terminations, an attempted 88% workforce reduction, dismissed enforcement actions, a slashed funding cap, and a fast-moving series of court orders have left the Bureau a fundamentally different agency than the one that existed under the Biden administration and even a year ago.

The Big Picture: The GAO’s Snapshot Assessment of the CFPB Reorganization

GAO reports that acting CFPB leadership framed its reorganization as an effort to fulfill statutory duties through a leaner operation. In practice, the Bureau largely stood down as early as February 2025, when most staff were directed to cease work unless tasks were explicitly approved or required by law. Headquarters and regional offices closed that month, and the General Services Administration terminated leases (for example Atlanta, Chicago, New York, and San Francisco). Some courts intervened quickly, restoring workforce and operational capacity, preserving employee system access and requiring the rescission of certain termination notices — though these courts generally allowed the Bureau to halt work and to pursue narrower personnel actions.

On April 16, 2025, the Bureau issued new supervision and enforcement priorities directing staff to defer to state and other regulators, conduct fewer examinations, and — most significantly for the regulated community — refocus from nonbanks to banks. As of Aug. 16, 2025, the federal court enforcement docket active on Jan. 20, 2025 reflected 16 enforcement actions petitions dismissed with prejudice, one additional dismissal, five judgments, two plaintiff withdrawals, two matters in mediation or settlement, and nine ongoing matters. The Bureau also moved to vacate or terminate certain consent orders.

CFPB Funding: $0 Quarterly Request and a Reduced Statutory Cap

The acting director notified the Federal Reserve the Bureau would request zero dollars for Q3, FY25. A district court then ordered the Bureau not to transfer, relinquish or reduce reserve funds during the litigation. In July 2025, Congress reduced the statutory cap on the Bureau’s budget request from 12% to 6.5% of the Federal Reserve System’s total 2009 operating expenses (adjusted for labor costs) — a structural change that would likely constrain the agency well beyond this administration.

CFPB Workforce Cuts, RIFs and the NTEU v. Vought Litigation Track

Consequential litigation ensued associated with the cost to the CFPB reductions in force (RIFs) sought by the Bureau, specifically the proposed reduction of 1,482 of approximately 1,689 onboard employees — roughly 88% — concentrated in Supervision, Enforcement, Research/Monitoring/Regulations and Operations. The Bureau also initially terminated 117 probationary employees who were later reinstated by court order.

The litigation has been volatile. A D.C. Circuit panel first permitted RIFs based on “particularized assessments” that specific employees were not necessary to statutory duties; the district court suspended those RIFs over compliance concerns; the panel vacated that suspension in August 2025; and in December 2025 the full court granted rehearing en banc and vacated its own August order.

The Feb. 24, 2026 En Banc Argument in National Treasury Employees Union v. Vought

On Feb. 24, 2026, the en banc D.C. Circuit heard nearly three hours of argument in National Treasury Employees Union v. Vought before all 11 active judges. The case turns on principally what amounts to a jurisdictional question: whether the Civil Service Reform Act (CSRA) funnels the plaintiffs’ claims exclusively through the Merit Systems Protection Board or whether the district court properly heard the suit because the challenged actions amount to a constructive shutdown of a congressionally established agency. The Department of Justice pressed the CSRA-channeling theory; the NTEU argued that stop-work orders, funding cutoffs, and mass terminations cannot be recharacterized as personnel actions immune from Administrative Procedure Act (APA) review.

Some key takeaways from the argument:

• No decision yet. The en banc court has not ruled and timing remains uncertain.
• Mass RIF remains blocked. The partial stay leaves the district court’s injunction against the mass RIF in place.
• Jurisdiction is the pivot. How the court resolves the CSRA-channeling question will likely dictate the outcome — and may set broader precedent on judicial review of executive efforts to wind down independent agencies.
• A new “streamlining” plan is on the table. In early April 2026, the government introduced a revised RIF plan pitched as a reduction in scope rather than a shutdown and asked the D.C. Circuit either to modify the stay or to remand to the district court on an expedited 45-day schedule.
• NTEU is fighting the timeline, not the remand. Plaintiffs have agreed to a limited remand but oppose the accelerated schedule as “self-inflicted urgency.”

Three CFPB Scenarios for Which Financial Firms Should Plan

Planning needs to account for at least three plausible scenarios:

• Scenario 1 — RIFs broadly authorized. An en banc decision validating the RIFs would solidify the current limitations on the CFPB, and likely jump-start and accelerate an expected transition of consumer finance enforcement activity to state regulators, as well as an increase in private plaintiff litigations (including “following” class action tracking CFPB themes and allegations).
• Scenario 2 — RIFs significantly constrained. A decision limiting RIFs could produce a partial rebuild of supervisory and enforcement capacity — though, given the large funding cap reductions, this would likely remain materially smaller than historical activity.
• Scenario 3 — Interim stay modification or remand. The D.C. Circuit could modify the stay or order a remand permitting a scaled-down “streamlined” RIF to proceed before the en banc court rules on the merits.

Financial services institutions should be modeling and accounting for all three in their 2026 compliance, examination-readiness, accounting and budgeting processes.

Other CFPB Developments for Financial Institutions and Consumers to Monitor

The GAO has also indicated it will publish a follow-on report on the effects of the reorganization, which may trigger additional, congressional oversight activity. New rulemakings and rescissions are likely to generate APA challenges from consumer advocacy groups and state attorneys general. And state regulators — particularly the New York Department of Financial Services, the California Department of Financial Protection and Innovation, and active state AGs — will again likely act to fill perceived federal “gaps,” often with legal and equitable theories and remedies that extend beyond what the CFPB may have previously advanced.

For financial services-related enforcement litigation, the next 12 to 24 months are likely to bring fewer federal enforcement actions but more complex multi-regulator and private litigation, often invoking CFPB-developed theories without the Bureau as a party. Institutions should ensure their litigation reserves, disclosure controls, and where appropriate, settlement strategies account for this shifting judicial, administrative, regulatory and political landscape.