- Key Insight: The Justice Department filed a motion with a court about a "potential lapse in appropriations." The CFPB said it has enough money to operate through Dec. 31st.
- Supporting Data: The Justice Department's Office of Legal Counsel made the decision that the central bank lacks "combined earnings" to fund the CFPB, as required by the Dodd-Frank Act.
- What's at Stake: The funding dispute is part of a larger, ongoing political and legal fight against the CFPB's unique funding structure, and efforts by the Trump administration to shut down the agency.
The Department of Justice told a court that the Consumer Financial Protection Bureau cannot legally request funding from the Federal Reserve System because the central bank technically has no profits. The CFPB said it only has enough money to continue operating through Dec. 31, leaving its future in limbo, according to the filing.
On Monday, the DOJ filed a notice with the U.S. District Court for the District of Columbia, and and United States Court of Appeals for the D.C. Circuit, announcing a "potential lapse in appropriations to pay the expenses of the bureau."
The letter states that due, in part, to the government shutdown, the CFPB's appropriations may lapse, and the bureau may have to lay off employees.
The DOJ said that Acting CFPB Director Russell Vought plans to prepare a report to the President and to congressional appropriations committees identifying the "funding needs of the Bureau." Without appropriations from Congress, the CFPB apparently would stop functioning, according the legal filing.
"The Bureau does not know whether and the extent to which Congress will appropriate funding to pay the expenses of the Bureau," wrote Brett A. Shumate, an assistant attorney with the DOJ's civil division.
The CFPB said that it had informed the court that the DOJ's Office of Legal Counsel "has determined that the bureau may not legally request funds at this time from the Federal Reserve under Dodd-Frank."
"OLC made this conclusion on the basis that the Federal Reserve System currently lacks any 'combined earnings' from which the Bureau may draw funding, as required by Dodd-Frank," the CFPB said in an emailed statement.
The CFPB said the Office of Legal Counsel's decision is "binding" on executive branch agencies, including the bureau. The legal counsel's office is headed by T. Elliot Gaiser, an assistant attorney general and a former solicitor general of Ohio, who has clerked for Justice Samuel Alito.
When the Federal Reserve first failed to report a profit in 2022, some legal scholars postulated the idea that the CFPB cannot be funded because the Dodd-Frank Act states that the bureau must be funded from the "profits" or "combined earnings" of the system. The law requires the Federal Reserve Board make quarterly transfers to the CFPB, as requested by its director.
The NTEU has called the CFPB's funding issue a
Sen. Elizabeth Warren, D-Mass., the ranking member of the Senate Banking Committee, who is credited with creating the CFPB after the 2008 financial crisis, said the move was another attempt by Vought to illegally shut an agency created by Congress.
"This absurd maneuver by Russ Vought is plainly illegal, and federal judges have already rejected his fringe theory," Warren said in a press release. "If the courts continue to uphold the law, Vought will fail again."
Some experts said that Vought is trying to evade an existing court injunction that keeps him from firing employees and instead plans to close the bureau by refusing to request funds.
"Having created the funding problem, the Administration now seeks to use the problem it created to shut down the CFPB," wrote Manny Newburger with the lawfirm Barron & Newburger, about the filing. "It remains to be seen how the courts (and the [National Treasury Employees Union] will respond."
Vought's move is likely to play a role in the ongoing legal battle.
The next move will come when the full D.C. Circuit to decides whether
In the broader scheme, Republicans have long sought to constrain the CFPB by focusing on its unique structure that included being funded through the Federal Reserve System rather than congressional appropriations. This year, Republicans lawmakers slashed the agency's funding and Vought has neutered the CFPB through stop-work orders and deregulation.
Under President Trump's
The novel theory about the CFPB not being able to get funding from the Federal Reserve gained traction in some circles in 2024, when Harvard Law School professor emeritus Hal Scott
Even after the Supreme Court's 7-2 decision, which was written by Justice Clarence Thomas, several companies immediately filed challenges to
Despite the contentions, the Fed has continued to provide funding at the request of the CFPB's director. Vought has refused to request funding, and now claims he cannot, referring to the decision by the Office of Legal Council.
In the case, NTEU v. Vought, Vought has stated in court filings that the CFPB only needs 200 employees to conduct its statutorily-required functions. Some employees think he will try to issue an administrative furlough, putting employees on temporary, unpaid leave that after 30 days could become a reduction in force. The union is likely to challenge such an action.
Some CFPB employees are still working though many describe their work as designed to further the goal of closing the agency. The bureau is revising or repealing regulations, closing out existing investigations and exams, and defending itself in litigation.
Under Vought, the CFPB has dismissed nearly all pending enforcement cases, with a few exceptions. The CFPB also has been closing out "matters requiring attention," from past exams.
