The Shifting Role of the Federal Courts: Now More Than Ever, They Serve as a Critical Check on Lawless Attacks on Agencies
The federal courts have long played an important role in financial regulation. Until recently, their focus has largely been on resolving industry challenges to agency rules or adjudicating enforcement actions. Times have changed, however, and the role of the federal courts has shifted in two important ways. Cases involving rule challenges and enforcement actions are being abandoned or dismissed by the Trump Administration, while cases involving challenges to the Trump Administration’s assault on the regulatory agencies are multiplying at a dizzying rate.
The threat to investors, consumers, and the financial system is enormous. The Administration’s push to de-regulate the markets through weak rules and lax enforcement is bad enough. It signals a return to the era of “buyer beware,” in which financial firms will be able to bulk up their profits at the expense of investors and consumers without fear of accountability. Even worse is the Administration’s more fundamental attack on the ability of the agencies to function at all.
As a result of these trends, all Americans will be more vulnerable to financial predators, risky crypto offerings, and banks that endlessly seek to exploit their customers with junk fees and other abusive practices. And the ability of our financial system to avoid another financial crisis is undoubtedly being diminished. While the federal courts have little power to force the Administration to continue defending its rules or prosecuting its enforcement actions, they can prevent the Administration from engaging in lawless attacks on the regulatory agencies that Congress tasked with protecting the public from predatory and systemically risky financial activities.
The courts are seeing the Administration abandon the defense of rules and walk away from enforcement actions.
The courts are now presiding over the Trump Administration’s decision to abandon its defense of important rules under attack by industry. For example, the SEC recently dropped its defense of its climate risk disclosure rule, a reform that virtually all investors—including the world’s largest money managers—have long sought to help them determine which companies they should support with their investment dollars. State of Iowa v. SEC, Case No. 24-1522 (8th Cir.). The Department of Labor has signaled that it may abandon the defense of its fiduciary duty rule adopted in April of 2024. That rule was written to help protect retirement savers from financial advisers who recommend high-cost, high-risk, and under-performing investments so they can pocket large commissions at the expense of their clients. American Council of Life Insurers v. DOL, Case No. 4:24cv482 (N.D. Tex.); American Council of Life Insurers v. DOL, Case No. 24-10890 (5th Circuit) (granting a stay of the case so new DOL officials can decide “how to proceed”).
On the enforcement front, the SEC has abandoned at least a dozen enforcement actions against firms offering unregistered cryptocurrency investments, many of them allegedly fraudulent. The CFPB also continues to drop enforcement actions at an alarming rate, including its case against credit card company Horizon Card Services—also known as Reliant Holdings—for allegedly collecting more than $51 million in fees from consumers by trapping them in high-cost membership programs. And the new leadership at the CFPB has even asked a court to nullify a completed settlement in an enforcement action the agency brought years ago against a mortgage lender allegedly engaged in race discrimination. CFPB v. Townstone Financial, Case No. 1:20cv4176 (N.D. Ill.).
The courts are now being asked to hear a wave of challenges to the Administration’s campaign to dismantle or weaken the regulatory agencies.
The federal regulatory agencies protect Americans from a wide range of threats to their health, safety, and financial well-being. Yet in addition to abandoning specific rules and enforcement actions, the Administration is launching a more aggressive and fundamental assault on the ability of these agencies to do their jobs. It is slashing agency staff, halting or dramatically scaling back their work, and even firing some Democratic agency leaders for no legitimate reason. So now, the federal courts are facing a wave of cases in which employee unions, public interest organizations, and state attorneys general are fighting against this campaign to destroy or weaken the agencies. Here is just a small sample.
In National Treasury Employees Union v. Vought, Case No. 1:25cv381 (D.D.C.), the labor union representing employees at dozens of federal agencies, along with a number of public interest organizations, obtained an injunction against efforts by the new leadership at the CFPB to dismantle the agency through mass firings, contract cancellations, stop work orders, and other measures. The plaintiffs argue that the effort to abolish the CFPB violates the separation of powers doctrine embodied in the Constitution because only Congress, not the President or his appointees in the executive branch, has the power to dissolve an agency such as the CFPB that Congress created. The district court’s injunction is on appeal to the D.C. Circuit. National Treasury Employees Union v. Vought, Case No. 25-5091 (D.C. Cir.); see also, e.g., American Federation of Government Employees v. Office of Personnel Management, Case No. 3:25-cv-01780 (N.D. Cal.) (challenge to mass firings of federal employees across many agencies since OPM had no statutory authority to order such terminations).
Similarly, courts must now grapple with whether President Trump’s recent firings, without cause, of commissioners or board members at independent agencies violate the separation of powers doctrine. Those removals involve leadership at agencies such as the Federal Trade Commission, the Merit Systems Protection Board, the National Labor Relations Board, and the National Credit Union Administration. The challengers argue that the President cannot simply ignore Congress’s decision to establish fixed terms of office for those agency leaders and to prevent their removal absent a showing of neglect of duty or malfeasance. See, e.g., Slaughter v. Trump, Case No. 1:25cv909 (D.D.C.) (Federal Trade Commission); Harris v. Bessent, Case No. 25-5037 (D.C. Cir.) (Merit Systems Protection Board); Wilcox v. Trump, Case No. 25-5057 (D.C. Cir.) (National Labor Relations Board) (now consolidated with Harris v. Bessent under Case No. 25-5055); Harper v. Bessent, No. 1:25-cv-01294 (D.D.C.) (National Credit Union Administration). All of these cases are expected to test the continued viability of a nearly century-old Supreme Court decision known as Humphrey’s Executor, which held that Congress has the authority to impose for-cause restrictions on the removal of commissioners at multi-member independent agencies. See also Democratic National Committee v. Trump, Case No. 1:25-cv-00587 (D.D.C.) (challenge to Executive Order 14215 subjecting all independent agencies to presidential control).
What lies ahead.
We can expect to see more cases involving challenges to the Administration’s attacks on the agencies and their employees. For example, on April 9, President Trump issued an Executive Order entitled “Directing the Repeal of Unlawful Regulations,” which instructs the heads of all agencies to identify rules that are “facially unlawful” in light of recent Supreme Court decisions such as Loper Bright Enterprises v. Raimondo, 603 U.S. 369 (2024) (abolishing judicial deference to agency interpretations of law) and West Virginia v. EPA, 597 U.S. 697 (2022) (enshrining the “major questions doctrine”). The order further directs the agencies to “begin plans to repeal” those rules without notice and comment rulemaking, ostensibly under the “good cause” exception in the Administrative Procedure Act. This dramatic attempt to circumvent the normally transparent and inclusive public process for repealing rules is likely to be challenged in court as agencies begin to follow the President’s directive.
All of these cases, both pending and to be filed, warrant close scrutiny, as they will define the limits on how far the Administration can go to destroy or weaken the agencies we need to protect the public interest in the financial markets.
