Legal Challenge Against CFPB Defunding
On Monday, a group of 21 states under Democratic leadership, along with the District of Columbia, initiated legal action in federal court in Oregon. They aim to stop the Trump administration from withholding funds from the U.S. Consumer Financial Protection Bureau by declining to seek money from the Federal Reserve.
The lawsuit contends that this decision is illegal and infringes on congressional authority as outlined in the U.S. Constitution. New York Attorney General Letitia James, a Democrat, stated, "The administration's actions are a handout to those who drive up costs by cheating hardworking Americans, and I will keep fighting to ensure they follow the law and our Constitution."
Background and Impact
Since President Trump, a Republican, resumed office in January, he has moved to dismantle the CFPB, appointing budget director Russell Vought as its acting head. Vought has largely suspended the agency's operations, though efforts to dismiss most staff are entangled in legal disputes.
Established in 2011 under Democratic President Obama after the 2008 financial crisis, the CFPB is responsible for safeguarding consumers in the financial sector. Supporters report it has recovered over $21 billion wrongfully taken from consumers. Unlike many federal agencies, it receives funding directly from the Fed, not through annual congressional appropriations.
Under Vought's leadership, the CFPB recently claimed it cannot request additional funds from the Fed because the 2010 Dodd-Frank Act mandates funding from the central bank's "combined earnings." With the Fed operating at a loss since 2022, the administration argues no earnings are available. A court filing on November 10 indicated the CFPB expects its funds to deplete by early 2026.
Constitutional and Legal Concerns
States including California, Colorado, New Jersey, New York, and Oregon argue in the lawsuit that denying funding would hinder the CFPB from fulfilling its legal duty to provide consumer complaints. They also assert that the administration's actions breach the Constitution's separation of powers, as Congress established the agency and its funding mechanism.
In related developments, a federal employees' union and several nonprofits have filed separate lawsuits in Washington, D.C., and California to compel the CFPB to resume funding requests. The CFPB has not yet responded to requests for comment on these matters.
