21 States Challenge CFPB Defunding Strategy in Federal Court

A coalition of 21 states and the District of Columbia filed suit on Monday seeking to block what they describe as the Trump Administration’s unlawful defunding of the Consumer Financial Protection Bureau (CFPB). The lawsuit targets actions taken by CFPB Acting Director Russell Vought, who has refused to request additional funding from the Federal Reserve despite statutory requirements governing the Bureau’s operations.

Under the Dodd-Frank Act that created the CFPB, the Bureau is funded through transfers from the Federal Reserve’s “combined earnings,” rather than by annual appropriations from Congress. The Trump Administration has argued that because the Federal Reserve has been operating at a loss, the Bureau is legally prohibited from accessing additional funds. A legal opinion from the Justice Department’s Office of Legal Counsel adopted that interpretation, prompting the CFPB to announce in November that its current funding would only last through at least the end of 2025.

The states filing suit are challenging that interpretation, arguing that the Administration is unlawfully narrowing the meaning of “combined earnings” and placing the CFPB on a path toward total defunding. In their complaint, filed in federal court, the attorneys general contend that the CFPB is legally required to collect and process consumer complaints and share that data with state enforcement agencies—functions they say cannot be fulfilled without adequate funding.

The lawsuit is the latest in a series of legal challenges to the administration’s efforts to curtail the bureau’s operations. Other cases involve attempts to dismiss the majority of CFPB staff and to halt enforcement activity. With appellate courts already weighing related disputes, the funding fight adds another front to the broader legal battle over the CFPB’s future and statutory independence.