Signage is seen at the Consumer Financial Protection Bureau (CFPB) headquarters in Washington, D.C., U.S., August 29, 2020. REUTERS/Andrew Kelly/File Photo

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By Douglas Gillison

WASHINGTON (Reuters) -A divided federal appeals court on Friday cleared U.S. President Donald Trump to resume mass firings at the Consumer Financial Protection Bureau, ruling that a lower court had lacked jurisdiction in temporarily blocking this.

However, the U.S. Court of Appeals for the District of Columbia Circuit said its decision would not take immediate effect, allowing lawyers representing CFPB workers and pro-consumer organizations to seek reconsideration by the full court of appeals, meaning any dismissal notices were likely to have to wait for now.

The decision nevertheless imperiled the employment of perhaps 1,500 workers at the CFPB whose mass firing was blocked in April by a trial court, which found the attempted purge violated a March injunction temporarily halting the administration's efforts to shut the CFPB down.

Representatives for the CFPB did not respond to a request for comment.

Attorney General Pam Bondi hailed the decision, saying on the social network X that it marked "another win for President Trump" and would free the CFPB "to right-size itself." She also referred to "our effort to dismantle" the agency, though the administration has asserted in court they plan to let it live on in some reduced form.

Jennifer Bennett, an attorney for the plaintiffs, said the decision threatened to leave the public unprotected from the misdeeds of bad actors in the market for consumer finance.

“Without the full force of the Consumer Financial Protection Bureau - an agency Congress created specifically to protect consumers - millions will lose critical safeguards against predatory financial practices. If this decision is allowed to stand, it will shift the balance of power toward corporations at the expense of American families’ financial security," Bennett said in a statement without addressing plans for further appeal.

In the ruling, U.S. Circuit Court Judge Gregory Katsas, who was joined by Circuit Judge Neomi Rao, said that, despite factual findings that the Trump administration intended to destroy the CFPB, the lower court had acted outside its authority.

"We hold that the district court lacked jurisdiction to consider the claims predicated on loss of employment, which must proceed through the specialized-review scheme" under laws governing the civil service, Katsas wrote for the majority.

Other objections raised by the plaintiffs did not concern final decisions made by the agency and so could not be reviewed in court, according to Katsas and Rao, both Trump appointees.

In a dissent, Circuit Judge Cornelia Pillard said the lower court had acted properly in blocking the Trump administration from eradicating the CFPB entirely as the lawsuit played out.

"But it is emphatically not within the discretion of the President or his appointees to decide that the country would benefit most if there were no Bureau at all," wrote Pillard, who was appointed by former President Barack Obama.

Two watchdog organizations, the Federal Reserve's inspector general and Congress's Government Accountability Office, launched investigations earlier this year into the Trump administration's actions at the CFPB.

In her own post on X, Senator Elizabeth Warren, the top Democrat on the Senate Banking Committee and an early driver in the CFPB's creation, said the court had wilfully ignored the Trump administration's "lawless attempt" to destroy the agency. But she noted officials were still barred from resuming mass firings for now: "The fight continues."

Congress created the CFPB in the wake of the 2008 financial crash to police consumer finance industries whose activities generated the toxic assets underlying that crisis. Conservatives and industrial lobbies have long reviled the agency, accusing it of weighing on free enterprise and acting outside the bounds of the law to pursue politicized enforcement.

Trump officials have appeared to vacillate this year concerning their plans for the CFPB, with Trump and erstwhile adviser Elon Musk saying it should be eradicated outright, even though senior officials have said in court they plan to shrink the CFPB, not eliminate it.

Lawyers representing workers and consumer groups, however, rejected this, saying witness testimony showed top officials did not intend to maintain a functioning CFPB but instead to wipe it out completely.

In court, they produced evidence and testimony showing the attempted mass dismissals of March and April were so rushed and widespread they completely vacated entire offices or left them so understaffed as to be incapable of performing functions required by law.

(Reporting by Douglas Gillison in Washington; Editing by Marguerita Choy)