The Reality Behind CFPB Contradictions That Raised Judge’s Ire

A lawsuit challenging the Trump administration’s efforts to kneecap the Consumer Financial Protection Bureau exposed top officials attempting to freeze the agency’s work while assuring a judge the watchdog is still doing tasks mandated by Congress.

Take the CFPB’s consumer complaint database, required by the 2010 Dodd-Frank Act that created the agency.

The CFPB on Feb. 12 canceled a contract with a small vendor called Adaptus—part of a cost-cutting move under acting chief Russell Vought to end more than $100 million in procurement spending.

The Adaptus contract, valued at around $280,000 in transactions this year, called for the company to scan documents submitted electronically to the consumer complaint database and check for viruses, according to documents viewed by Bloomberg Law.

Removing that virus check stopped the automated forwarding of complaints to companies required to respond, according to multiple sources with knowledge of the situation who asked for anonymity out of fear of retaliation.

The CFPB restarted the contract with Adaptus on Feb. 20. But during the eight-day interruption, 150,000 to 165,000 documents never made it to companies because they went unscanned, the sources said.

After the contract was canceled, complaints sent to companies dropped as low as 591 on Feb. 15 and the daily average tumbled by 80% after Feb. 13, according to a report from Senate Banking Committee Democrats released Feb. 25.

Around 6,000 complaints were transmitted to companies on Feb. 20, the day the contract was restored, the report said.

The CFPB, however, said in court documents that it’s been processing complaints throughout Vought’s tenure.

“Operations related to the Consumer Complaint Database are continuing,” CFPB Chief Operating Officer Adam Martinez said in a Feb. 24 declaration filed in litigation brought by the National Treasury Employees Union and other plaintiffs. “Contracts needed for work related to the Consumer Complaint Database have remained intact and operational.”

Martinez’s declaration is just one example of statements made by the agency’s leadership in court filings that conflict with other public statements and actions. In one instance, another senior employee gave a sworn statement that one of the declarations was “blatantly false.”

CFPB leaders made similar statements about other congressionally mandated operations, such as the agency’s supervision of big banks and other companies and the continued operation of its student loan ombudsman’s office. The CFPB, largely through Martinez, said the operations were up and running even when work wasn’t being completed.

Martinez is set to appear March 10 for an evidentiary hearing before the federal judge in Washington who’s weighing whether to block the agency shutdown moves.

The CFPB didn’t respond to requests for comment.

Stop-Work Order

The CFPB, established after the 2008 financial crisis, is charged with policing large banks as well as mortgage, credit card, credit reporting, and other financial companies to ensure they comply with consumer protection laws.

Many Republicans oppose the agency, arguing it imposes undue burdens on industries serving US consumers and lacks accountability because it’s funded through the Federal Reserve, outside of lawmakers’ reach. The US Supreme Court upheld the CFPB’s funding in a May 2024 decision.

The Trump administration’s Department of Government Efficiency descended on the CFPB last month and moved quickly to dismantle it, following Elon Musk’s mantra to move fast and break things.

CFPB staff was first told to hold off on all work in a Feb. 8 email from Vought. That escalated to a Feb. 10 order that instructed all CFPB employees to halt their work unless they got clearance from Vought or Chief Legal Officer Mark Paoletta.

Nearly the entire CFPB staff was put on administrative leave later that week.

The orders led to key bureau functions being understaffed or halted altogether, despite CFPB claims they are functioning, according to sworn statements and internal emails from current and former agency personnel submitted in the NTEU litigation.

One example is supervision. Dodd-Frank requires agency examiners to look closely at the books and records of banks with $10 billion or more in assets as well as consumer credit reporting companies, nonbank mortgage lenders, and companies in a host of other markets.

Vought included the CFPB’s supervision staff in his stop-work order, leading examiners to pause some mandatory work, internal emails show.

Martinez forwarded a message from Paoletta to CFPB staff on March 2, just ahead of a hearing before Judge Amy Berman Jackson in the NTEU litigation, expressing surprise that employees weren’t doing legally mandated work.

“Employees should be performing work that is required by law and do not need to seek prior approval to do so,” the message said.

The judge herself then raised questions about the directive in light of the previous stop-work orders.

“We can’t have edicts issued with people’s fingers crossed behind their backs,” Jackson said at the March 3 hearing.

During that hearing, CFPB examiners received an email from Cassandra Huggins, the CFPB’s principal deputy assistant director for supervision policy and operations, telling them they were still on administrative leave and required “express permission to work on a task.” The email was obtained by Bloomberg Law.

Paoletta, the agency’s chief legal officer, sent an email to supervision staff the following day raising “significant concerns” about Huggins’ message and questioning who leaked it to the press. “You are authorized and directed to work on matters specifically required by statute,” he said in his email, according to the court filing.

But rather than order supervisors to conduct examinations, Paoletta’s email instructed Huggins to prepare a report of what the statute requires.

Consumer Response

The problems with the CFPB’s consumer response operation, also mandated by Dodd-Frank, go beyond the cancellation of the Adaptus contract.

The agency also ended a contract for its call center before restarting it. When people submitted complaints, CFPB employees weren’t available to assist because of Vought’s stop-work orders, according to a Feb. 26 declaration submitted by Matthew Pfaff, the chief of staff for the CFPB’s Office of Consumer Response.

“Escalated issues are not being addressed” because the team is on administrative leave, Pfaff said. “Consumer Response’s Escalated Case Management team responds to consumers who are facing imminent foreclosure, may be a risk to others or themselves, and other sensitive issues,” he noted.

Martinez said in a subsequent declaration that Paoletta activated “critical statutory responsibilities” in the consumer response unit.

“Thus, as of February 27, 2025, members of the Escalated Case Management team, for example, are working,” Martinez said in the March 2 declaration.

Pfaff’s response that same day said that the escalated case management team wasn’t operating.

“The first sentence is misleading,” Pfaff said of Martinez’s message. “The second sentence is blatantly false.”

Martinez’s declaration also doesn’t answer why the CFPB only addressed the questions regarding consumer response and other legally mandated operations beginning on Feb. 27, as the hearing before Jackson drew closer.

Civil Penalty Fund

Dodd-Frank mandated that the CFPB create a civil penalty fund to distribute financial settlements to victims of fraud committed by companies that are either too small to pay up or have ceased operating.

Martinez said in his Feb. 24 declaration that the CFPB had taken steps to ensure claims to the civil penalty fund would be processed.

And that’s true, up to a point, Chris D’Angelo, a top official in the office of New York Attorney General Letitia James (D), told Jackson at the March 3 hearing.

Verified claims already in the process of being sent out weren’t affected, he said.

But new claims that require verification and other steps performed by outside firms with canceled contracts and CFPB staff on administrative leave were on hold, D’Angelo said.

One example is a $30 million settlement the CFPB and 11 states reached with bankrupt tech “boot camp” provider Prehired in November 2023.

Victims of the fraud have yet to be identified and the payments aren’t being processed, including $4.3 million earmarked for New Yorkers, D’Angelo said.

“That puts all of that money on hold,” he said.

The case is NTEU v. Vought, D.D.C., No. 1:25-cv-00381.