A coalition of Democratic-led states has filed a lawsuit aiming to prevent the Trump administration from defunding the U.S. Consumer Financial Protection Bureau (CFPB) by not requesting funds from the Federal Reserve. This legal action, initiated on Monday in federal court in Oregon, includes attorneys general from 21 states and the District of Columbia. They argue that the administration’s failure to seek additional funding undermines Congress’s authority as outlined in the Constitution.
New York Attorney General Letitia James emphasized the implications of this action, stating, “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.” The CFPB, established in 2011 following the 2008 financial crisis under former President Barack Obama, has been pivotal in returning over $21 billion that was improperly taken from consumers, according to its supporters.
The CFPB’s funding model differs from that of typical federal agencies; it receives its funding directly from the Federal Reserve rather than through annual congressional appropriations. However, the agency has faced challenges under the current administration. A recent statement under the leadership of Russell Vought, the acting head of the CFPB and Trump’s budget director, indicated that the bureau could not request more funds from the Fed due to a provision in the Dodd-Frank Act of 2010, which dictates that funding be sourced from the Fed’s “combined earnings.”
The situation has been complicated by the Fed operating at a loss since 2022, leading the Trump administration to assert that no earnings were available for the CFPB’s funding needs. A court filing from the CFPB mentioned the potential for its funds to deplete by early 2026 if the current circumstances continue.
The lawsuit, spearheaded by states including California, Colorado, New Jersey, New York, and Oregon, contends that withholding funding would hinder the CFPB’s obligation to provide consumer complaint data to states. Moreover, they argue that the administration is violating the Constitutional principle of separation of powers, given that Congress was responsible for both the creation and funding process of the agency.
In addition to the states’ lawsuit, a federal employees’ union and several non-profit organizations have filed separate lawsuits in Washington D.C. and California, aiming to compel the CFPB to resume its funding requests to the Federal Reserve.
