Federal Judge Orders Feds to Restore CFPB Funding

A federal judge has ruled that the director of a federal agency tasked with protecting consumers in the financial marketplace violated federal law by effectively seeking to defund the agency.

“The court concludes that the challenged decisions were contrary to law, constitute unlawfully withheld agency action, and violate the constitutional separation of powers,” U.S. District Judge Ann Aiken, a Bill Clinton appointee, wrote Friday in a 40-page order.

According to Courthouse News Service, those decisions refer to two determinations made by Russell T. Vought, acting director of the Consumer Financial Protection Bureau. First, Vought concluded he can’t request funds from the Federal Reserve when the Federal Reserve’s interest expenses exceed its income. Second, Vought decided not to request funding for the bureau for the 2026 fiscal year, Courthouse News said.

In December, 22 states sued the bureau, Vought, and the Board of Governors of the Federal Reserve System, CNS reported.

According to Courthouse News, the states accuse Vought of refusing to request necessary funding for the protection bureau from the Federal Reserve — a violation of the Dodd-Frank Wall Street Reform and Consumer Protection Act.

The CFPB was created from the fallout of the 2008 financial crisis, and it enforces certain federal consumer protection laws. The CFPB has an online complaint system and database for consumers to report issues with financial services and products, and in turn receive responses.

Interest Expenses

In their complaint, the states say the CFPB has returned over $20 billion to consumers since its inception.

Reversing a decade of precedent, Vought claimed the Fed’s interest expenses exceed its interest income, so he can’t legally request funding for the bureau.

However, the court did not agree.

The defendants argued the case is moot because the Federal Reserve returned to apparent profitability — a point Aiken found to be irrelevant because a major aspect of the states’ claims concerns whether Vought had the authority to unilaterally make a determination on the reserve’s profitability in the first place.

“A possible return to profitability does nothing to resolve this issue,” Aiken wrote.

According to Courthouse News, the defendants also argued the states didn’t challenge a final agency action, which is required to find an Administrative Procedure Act violation. The judge disagreed and cited the agency’s November 2025 statement that it wouldn’t request funding for the Consumer Financial Protection Bureau.

“This is not a tentative statement, an abstract plan, a mental process of the agency head or an interlocutory decision,” the judge wrote.

Dodd-Frank Act

She found the state’s challenge was directed at a specific and discrete decision made by the defendants.

The defendants argued that there isn’t a requirement that the Consumer Financial Protection Bureau director affirmatively request the amount needed from the Federal Reserve, but the court concluded the Dodd-Frank Act says otherwise.

The parties also disputed the definition of “combined earnings” as used in the Dodd-Frank Act, CNS reported.

The Dodd-Frank Act states that the Board of Governors “shall transfer to the bureau from the combined earnings of the Federal Reserve system, the amount determined by the director to be reasonably necessary to carry out the authorities of the bureau under federal consumer financial law.”

CNS noted that the judge sided with the state’s interpretation, concluding the “combined earnings” of the Federal Reserve refers to its revenue before expenses are subtracted. The defendants had argued it referred to the amount remaining after deducting the Federal Reserve’s interest expenses from its revenues.

The judge disagreed with the defendants’ argument that the states were trying to “dress up” their statutory claim that they acted beyond their authority as a constitutional one.

“The court concludes that the actions of Vought and the CFPB constitute an attempt to arrogate to themselves the constitutional authority of Congress and so constitute a violation of the separation of powers,” Aiken wrote.