Court Rejects CFPB Shutdown Challenge as Constitutional Funding Battle Escalates

A U.S. district judge ruled against the Consumer Financial Protection Bureau for failing to request funding from the Federal Reserve. 

According to a district court ruling, Russell Vought, Acting Director of the CFPB, in an attempt to “close down the agency,” took the position that he could not request money to operate the CFPB from the Federal Reserve because the Federal Reserve did not have earnings sufficient enough to fund it. 

But U.S. District Judge Edward J. Davila, of the U.S. District Court for the Northern District of California called this tactic a “transparent display of partisanship.” Vought decided not to request money for the CFPB in November. And a court has now ordered him to do otherwise. 

This is the second such ruling. A federal district judge ruled in December that the CFPB must continue to request funding from the Federal Reserve.

Response From Consumer Advocacy Groups

Rise Economy, the National Community Reinvestment Coalition, and Woodstock Institute together brought the lawsuit against the CFPB.

“The Trump administration tried to cut off the CFPB’s funding to prevent the agency from carrying out its vital work protecting American consumers,” said Stephanie Garlock, attorney at Public Citizen Litigation Group and lead counsel for the plaintiffs.

“Today’s court decision puts an end to that unlawful gambit and ensures that the CFPB will have a stable source of funding to support its work going forward, as Congress intended.”

A U.S. Senator Responds to The Court Decision

U.S. Senator Elizabeth Warren, (D-MA) had this to say about the court ruling against the CFPB.

“Today, a second court ruled that the Trump Administration illegally attempted to shut down the Consumer Financial Protection Bureau by starving it of funds. The court ordered Russ Vought to request the funding CFPB needs to protect families from getting cheated,” Warren said in a statement. 

“We’re not going to stop fighting to defend the agency that has returned more than $21 billion to Americans who have been tricked and trapped by big banks and giant corporations.” 

Cap on CFPB Funding 

There is a cap on the funding the CFPB receives from the Federal Reserve, namely the amount transferred to the CFPB cannot be greater than a fixed percentage of the total operating budget of the Federal Reserve. In July, this fixed percentage was lowered from 12% to 6.5% in the One Big Beautiful Bill. 

So opponents of keeping the CFPB going, already won a victory last summer. Will Vought follow the latest court ruling and request funding? If so, how much will he request? Will it be for 6.5% or a much lower amount that would hinder the CFPB fulfilling its regulatory duties?

In January, Vought submitted a request for $145 million in funding from the Federal Reserve. This amount would allow the CFPB to operate until the end of March.

What Less Funding Would Mean to the CFPB

Started in 2008 after the financial crisis, the CFPB regulates consumer finance and enforces consumer protections. A big slash in its funding would mean there would be less money to allocate toward its regulatory mission. 

CFPB oversight includes payday lending, credit reporting, and debt collection, all issues affecting the subprime market. Without strong federal oversight, there may be a greater reliance on state regulators and litigation from consumer attorneys and consumer advocacy groups.

In addition, scams and predatory lending may become more prevalent without a strong federal oversight in place in areas such as high-interest loans, credit repair scams, and instances of debt settlement abuses.

The Bottom Line

The CFPB was handed another legal defeat when a U.S. district judge ruled against it for failing to request funding from the Federal Reserve. Another judge made a similar ruling in December. 

In January, the Acting Director of the CFPB submitted a request for $145 million in funding from the Federal Reserve. This amount is enough to keep the CFPB operating until the end of March.

How much funding will be requested for the remainder of 2026 is uncertain and more will be known in the coming weeks. One thing is clear. A CFPB with a greatly slashed budget would not have the necessary funding to fulfil its regulatory mission.