CFPB Shifts on Wage Advances While Funding Battle Heats Up

The Consumer Financial Protection Bureau is going through an eventful period. The agency is wrestling with the future of its funding, a new role for a former CFPB director, and an advisory opinion on earned wage advances. And all this is happening with the bureau’s funding set to run out early this year.

The biggest hot button issue with the CFPB has to do with maintaining its funding.

In December, a federal district court judge ruled that the CFPB must try to obtain funding for the consumer watchdog agency, NPR reports.

The Trump Administration has said that, because the CFPB gets its funding from the Federal Reserve and because the Fed is operating at a loss, there is no money to fund the CFPB, NPR reports.

But U.S. District Judge Amy Berman Jackson rejected this argument. This is not the first time Jackson and the Trump Administration have clashed. According to NPR, Jackson issued an earlier injunction that told the Trump administration to stop actions that would close down the CFPB such as laying off staff. 

And the Trump Administration has more than a federal judge to face on this matter. In December, 21 states and the District of Columbia sued the Trump Administration to prevent defunding the CFPB. New York Attorney General Letitia James is taking the lead on this lawsuit.

“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,” James said in a press release.

“My office and attorneys general across the country rely on the CFPB for consumer complaints and other data to get justice for consumers. 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.”  

All this legal action takes place as the current funding for CFPB winds down. According to a report from Politico, the CFPB only has enough money to last through early 2026.

And the press release from James, Attorney General in New York, states that funding for the CFPB will run out in January 2026.

The Democratic Attorneys General Association has hired Rohit Chopra, the former director of CFPB, to lead its Consumer Protection and Affordability Working Group, according to Bloomberg. 

Chopra will oversee a team that will make recommendations for tackling abusive practices by lenders and other businesses. Once the recommendations are made, Democratic attorneys general can choose whether to apply them in their states.

Earned wage advances on paychecks do not resemble consumer loans, according to an advisory opinion from the CFPB.

This means they would not be protected under the Truth In Lending Act. Workers taking these advances will not be required to receive disclosures such as the cost of credit. 

This advisory opinion revises CFPB guidance from 2024 under President Joe Biden when the CFPB stated the earned wage advances were the equivalent of consumer loans, Reuters reports.

An advisory opinion from the CFPB is not legally binding but offers clarity for the industry. Congress has passed no federal law on the matter. But states, including Nevada and Wisconsin, have passed laws in their states that specify earned wage advances are not loans, Reuters reports. 

Started after the Great Recession, the CFPB writes and enforces rules that regulate financial institutions, collects economic data, and accepts consumer complaints. The CFPB oversees big banks and credit unions, debt collectors, and credit reporting agencies among others.

Defunding the CFPB would mean less federal oversight of lenders, debt collectors, and credit reporting agencies going forward. These industries would be able to operate without the costs that any federal oversight may entail.  

With a court ruling from a federal district judge and a separate lawsuit from 21 states and the District of Columbia, it has been a busy time at the CFPB.

The main focus is on its funding which may run out by the end of January. Will the Trump Administration successfully defund the CFPB or will efforts to stop this prevail? The next few weeks will tell. 

Chopra, the former director of CFPB, is already focusing on state consumer protection practices with his new position at the Democratic Attorneys General Association. 

CFPB continues its advisory role by offering an advisory opinion that notes that earned wage advances do not resemble loans and would not require the disclosures as stipulated in the Truth in Lending Act.