A group of 21 attorneys general from Democratic-led states filed a lawsuit Monday against the Consumer Financial Protection Bureau and its director, Russell Vought, arguing that the White House’s rationale for withholding funding from the agency violates the Constitution.
At the center of the case is the administration’s position that the CFPB may be funded only from the Federal Reserve’s profits. The Federal Reserve, however, has recorded losses since 2022—an outcome tied to its aggressive interest-rate hikes to curb inflation. Because the Fed holds large volumes of low-yield bonds purchased during the pandemic, it now pays higher interest to banks on reserve deposits while earning less on those older assets.
For months, the White House has contended that the CFPB cannot legally draw operating funds from the Fed unless the Fed has “combined earnings” available to transfer. Absent additional funding, the bureau is expected to exhaust its operating reserves in January.
The phrase “combined earnings” appears in the Dodd-Frank Act, the law that established the CFPB more than a decade ago. But lawmakers and policy officials involved in crafting Dodd-Frank have said the language was not intended to require the Fed to post an actual profit before the CFPB could be funded. That interpretation is also being challenged in a separate lawsuit brought by the CFPB employees’ union against Vought.
In their complaint, the state attorneys general argue that Congress lawfully created the CFPB and that the White House cannot selectively decide which parts of the federal government receive funding. They also say the bureau has statutory obligations to support states—such as providing consumer complaint data used to identify and stop misconduct—and that a nonfunctioning CFPB would be unable to meet those requirements.
“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,” New York Attorney General Letitia James said.
