In a bold move that could reshape the funding of a key consumer watchdog, 21 attorneys general from Democratic-led states filed a lawsuit Monday against the Consumer Financial Protection Bureau (CFPB) and its director, Russell Vought. The coalition argues that the White House’s attempt to deny the agency money is unconstitutional.
The Lawsuit
The suit, lodged in U.S. District Court in Eugene, Oregon, seeks to compel the Trump administration to provide the CFPB with the funds it needs to operate. The attorneys general claim that the bureau was created by Congress and that the White House cannot selectively decide which parts of the federal budget to support.
Funding Dispute and the Fed’s Losses
At the heart of the dispute is the administration’s claim that the CFPB can only be funded by profits earned by the Federal Reserve. The Fed has been operating at a loss since 2022, a consequence of sharply higher interest rates that reduce the income on the bonds it holds from the pandemic era while it pays higher rates to banks that deposit with it.
White House Interpretation
The White House has maintained for several months that the CFPB cannot draw money from the Fed unless the central bank has “combined earnings” to allocate. The agency’s operating funds are projected to be exhausted by January if no additional money is released.
The “Combined Earnings” Clause
The phrase “combined earnings” appears in the Dodd-Frank Act, the legislation that established the CFPB. Lawmakers at the time of the act’s passage argued that the term was not intended to require the Fed to be profitable before it could support the bureau. That interpretation is now being challenged in a separate lawsuit filed by the CFPB employees’ union against Vought.
Legal Arguments by the Democratic AGs
The attorneys general contend that the CFPB’s statutory duties-such as providing consumer complaint data to states and preventing predatory lending-cannot be fulfilled if the agency is defunded. They assert that the White House’s selective funding strategy undermines the agency’s mandate and the protections it offers to consumers.
Impact on Consumer Protection
Defunding the CFPB could weaken enforcement against predatory lenders, scammers, and other bad actors. The agency’s ability to investigate and prosecute violations would be compromised, potentially leaving vulnerable consumers at greater risk.
Key Statements
California Attorney General Rob Bonta told a press conference: “We’re asking the court to order the Consumer Financial Protection Bureau to seek available funding and do its job.”
New York Attorney General Letitia James added: “Defunding the Consumer Financial Protection Bureau will make it harder to stop predatory lenders, scammers, and other bad actors from taking advantage of New Yorkers.”
Response from the CFPB
A spokeswoman for Russell Vought declined to comment after an email request.
Key Takeaways
- 21 Democratic attorneys general sued the CFPB to force funding.
- The lawsuit challenges the Trump administration’s claim that the bureau can only use Fed profits.
- The CFPB’s operations could cease by January if the funding dispute is not resolved.
The outcome of this legal battle will determine whether the CFPB can continue to serve as a watchdog for consumers or whether it will face a severe funding shortfall that could diminish its effectiveness.
