CFPB Funding Question Threatens to Upend New Deregulatory Agenda

The Consumer Financial Protection Bureau’s argument that it’s running out of money and can’t request additional funding brings more chaos for banks, financial technology firms, and other companies overseen by the agency.

The CFPB “anticipates exhausting its currently available funds in early 2026” after the Justice Department’s Office of Legal Counsel determined the bureau can’t draw any further funding from the Federal Reserve because the central bank hasn’t had “profits” since 2022, according to a Nov. 10 court filing from the Trump administration.

Questions over the CFPB’s legitimacy are still lurking, even after the US Supreme Court ruled in May 2024’s CFPB v. Community Financial Services Association of America that the agency’s funding, through the Fed rather than Congress, is constitutional.

Acting CFPB Director Russell Vought’s decision to bring up the novel question over the agency’s funding and Fed revenue now—more than nine months after assuming his role—raises uncertainty about his other moves, including his efforts to largely shutter the bureau.

It also comes as the CFPB embarks on an ambitious, 24-item deregulatory agenda, much of which is supported by the consumer financial services industry, on issues such as fair lending enforcement.

Raising existential funding questions now jeopardizes much of that rulemaking, as well as other CFPB functions vital to mortgage and other markets, said Alan Kaplinsky, a senior counsel at Ballard Spahr LLP who advises banks and other lenders.

“The CFPB has thrown a big monkey wrench into whether or not they’re going to be able to finish the work on the agenda,” said Kaplinsky, who has argued that the CFPB can’t receive money from the Fed if the central bank’s revenue is less than its expenses.

The CFPB didn’t immediately respond to a request for comment.

All or Nothing

Vought had asked the Justice Department whether the CFPB could get future funding from the Fed despite the central bank’s lack of profitability, leading to the OLC’s memo cited in the Nov. 10 filing.

If that theory holds any water, the CFPB shouldn’t have been able to get any money from the Fed since September 2022, when the central bank’s net income turned to net losses for the first time amid high interest rates, said Adam Levitin, a Georgetown University Law Center professor who writes about consumer finance issues and follows the CFPB.

The CFPB has a stacked rulemaking agenda including the proposed rewrite of fair lending enforcement, a slimming of a Biden-era small business lending data collection rule, the reshaping of a Biden-era open banking rule, and a host of other consequential changes.

If the Trump administration is correct and the CFPB runs out of money, it likely won’t be able to finish most, if not all, of its rulemaking agenda, said Mike G. Silver, a Spencer Fane partner and former CFPB regulatory attorney.

“It seems at odds to amplify your rulemaking agenda while at the same time taking other actions that will force the bureau to run out of money,” he said.

Even if the rules are finalized, they’re all at risk because opponents can now argue that Vought shouldn’t have had the funds to do any of that work in the first place, Levitin said.

“If you get one decision saying a previous bureau action was illegal, that will open the door to a lot of others,” he said.

Novel Theory

The 2010 Dodd-Frank Act, which created the CFPB, says the agency is funded through the Fed’s “combined earnings.”

The question of whether combined earnings means all of the Fed’s revenue or profits gained traction after the Supreme Court upheld the CFPB’s funding setup, as several defendants used the new argument to challenge the agency’s enforcement and regulatory actions.

But even federal judges in Texas courts frequently skeptical of US agency authority have declined to endorse the claim.

In one case, Texas Attorney General Ken Paxton—facing a challenge from a land developer accused of discrimination who alleged the CFPB couldn’t have received a required notification about Paxton’s suit because it wasn’t properly funded—said in court filings that Congress didn’t intend for the CFPB to be funded only when the Fed takes in more money than it puts out.

“The relevant statute imposes no such ‘surplus’ limitation,” Paxton said last year. “Far from it—the Supreme Court recognized that the statute ‘authorizes the Bureau to draw money from the combined earnings of the Federal Reserve,’ full stop.”

‘Burning the Whole Building’

Vought had the opportunity to raise the latest funding issue when he declined to draw money from the Fed in February, but he was silent on the matter.

And Congress didn’t address it when GOP lawmakers slashed the amount of money the CFPB can receive from the Fed by around half in the tax-and-spending package President Donald Trump signed into law in July.

“If you didn’t like the definition of ‘combined earnings,’ why didn’t you put it in the bill?” said Joann Needleman, who leads Clark Hill PLC’s financial services and compliance practice.

The CFPB also didn’t bring it up in many rounds of court filings in cases challenging Vought’s moves to dismantle the agency.

The CFPB’s deferral to the OLC’s opinion added even more confusion to a financial regulatory landscape that has seen waves of upheaval under Trump’s second term.

“These guys are just burning the whole building down,” Levitin said. “They don’t give a damn about what the consequences are.”