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Judge rules White House can't cut off funding and states weigh in, saying CFPB is essential to their operations

• Judge rules in favor of laid-off employees of the Consumer Financial Protection Bureau (CFPB)
• Attorneys general from 21 states file suit to force Trump White House to restore funding
• The agency has been essentially closed since shortly after Trump's inauguration

It was one of the most active federal agencies, sort of a contemporary Robin Hood. The Consumer Financial Protection Bureau (CFPB) patrolled the consumer beat, suing businesses that mistreated borrowers and other customers, winning case after case and returning millions of dollars to consumers.

Most consumers were unaware of it and, not enjoying acronyms, usually just scrolled past stories about the CFPB's exploits on their behalf. But businesses and bankers didn't ignore it. They had a strong case of the hates for the CFPB and wanted it gone. When Donald J. Trump took office, their dreams seemed to come true.

Trump named his budget director, Russell Vought, as acting director of the bureau and Vought lost no time firing and layiing off employees and basically putting the agency into a coma. The name was chipped off the building and its offices were largely abandoned. Settlements that companies had agreed to were reversed and manycompanies got their money back, their settlements reversed on grounds consumer advocates called unfair.

But things may be starting to turn around, thanks to two new developments:

1. A federal judge this weekruled in a case brought by the CFPB employees unionthat the White House cannot cut off funding to the agency;and
2. Democratic Attorneys Generals (AGs)from 21 states and the District of Columbia filed suit, asking a federal courtto require Vought to seek State AGs file suit to force CFPB to request funding from the Federal Reserve.

Funding mechanism is questioned ... again

The suit filed by the National Treasury Employees Union had already resulted in an injunction stopping the layoffs while the case worked its way through the courts. Then, earlier this week, U.S. District Judge Amy Berman ruled that the White House cannot stop funding the CFPB, rejecting the Trump administration's claim that the fundiing method is not valid.

When the CFPB was established by Congress during the Obama administration, it was set up to receive funding through the "combined earnings" of the Federal Reserve. The White House has argued that the Fed does not have any earnings since it has been operating at a loss since 2022 as a result of its efforts to combat inflation.

That argument is not new and has been floated in conservative legal circles for years but had never been tested in court, until now. In her opinion, Judge Berman said the White House was using the theory to get around the injunction instead of arguing the case on its merits. Her ruling is likely to be appealed but, for the moment, should result in the laid-off employees being paid.

The states weigh in

Meanwhile, Democratic Attorneys Generals (AGs)from 21 states and the District of Columbia have filed suit, asking a federal courtto require Vought to request funding from the Federal Reserve to operate the bureau.

Opening another front in his effort to unlawfully close the CFPB, DefendantVought has now decided to starve the agency of funds based on the implausibleproposition that Congress, in enacting the Dodd-Frank Act, intended for the CFPBto periodically shut down whenever the Federal Reserves interest expensesexceeded its interest income, the AGs said in their suit.

The AGs argue that, besides the funding question, the CFPB is essential to their efforts to protect consumers, as information about complaints filed with the CFPB are forwarded to the states.