A federal judge has ruled that the consumer watchdog must continue requesting funding from the Federal Reserve, cutting off a route that would have sidelined the agency while legal challenges to its future remain unresolved.
A US federal judge has ruled the Consumer Financial Protection Bureau cannot halt its operations by claiming its funding has lapsed, delivering a significant legal setback to efforts to dismantle the agency without congressional approval.
In a decision issued on 30 December, Judge Amy Berman Jackson of the United States District Court granted a motion to clarify an existing injunction, finding that the CFPB’s leadership had no legal basis to refuse to request funding from the Federal Reserve while litigation over the agency’s future remains unresolved.
The ruling prevents what the court described as a “manufactured” funding lapse that would have effectively shut down the consumer watchdog by administrative means rather than legislation.
The case stems from a November notice issued by acting CFPB director Russell Vought, who informed Congress that the Bureau would be unable to continue operating in fiscal year 2026 because, in his view, no funds were legally available for the agency to draw from the Federal Reserve.
This position relied on a legal opinion from the US Department of Justice’s Office of Legal Counsel, which argued the CFPB could only be funded if the Federal Reserve was operating at a profit. Because the Fed has been recording accounting losses due to higher interest expenses, the opinion concluded that no “combined earnings” were available to transfer.
Judge Jackson rejected this interpretation, finding it inconsistent with the text, purpose and historical application of the Dodd-Frank Act, which established the CFPB in the aftermath of the 2008 financial crisis.
Court rejects reinterpretation of Dodd-Frank
Under Dodd-Frank, the CFPB receives funding directly from the Federal Reserve rather than through the congressional appropriations process, a structure designed to insulate the agency from political pressure.
The court found that “combined earnings” refers to the Federal Reserve’s gross income, not net profit after expenses, noting that the Fed has continued to fund the CFPB every year since its creation in 2011, including during periods when expenses exceeded income.
The ruling also highlighted that Federal Reserve Chair Jerome Powell has previously testified to Congress that the Fed is legally required to provide funding to the CFPB and has never denied a request.
Judge Jackson concluded that declining to request funding would amount to a work stoppage that directly contradicts an existing injunction requiring the agency to continue performing its statutory duties.
A long-running political fault line
The CFPB has faced sustained political opposition since its creation, particularly from Republican lawmakers and industry groups who argue that its structure concentrates too much power in an unaccountable regulator.
Those challenges reached the Supreme Court in 2020, when the court ruled that limits on the president’s ability to remove the CFPB director were unconstitutional, but left the agency otherwise intact. More recently, in 2024, the Supreme Court upheld the CFPB’s funding mechanism as constitutional, rejecting arguments that it violated the appropriations clause.
Against that backdrop, the latest funding dispute represents a shift in strategy, from constitutional challenge to administrative constraint. The court explicitly noted that nothing in the law governing CFPB funding has changed, nor has the Federal Reserve’s willingness to pay.
The agency has returned more than $21bn to consumers since its inception through enforcement actions and remediation, according to court filings, and continues to supervise banks, fintechs and non-bank payment providers.
While the underlying case over staffing and restructuring remains before the courts, the decision removes a key mechanism that could have rapidly paralysed the regulator.
The injunction remains in force while the broader litigation continues in the US Court of Appeals. The CFPB is legally required to request funding, and the Federal Reserve is required to provide it.
