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Lawsuit Filed by Coalition of States Against Trump Administration

A coalition of Democratic-led states initiated a legal battle on Monday aimed at blocking the Trump administration’s attempt to defund the U.S. Consumer Financial Protection Bureau (CFPB). This act involves the administration’s refusal to engage the Federal Reserve for necessary funding, which has raised significant concerns about the financial watchdog’s ability to operate effectively.

States Challenge Administration’s Funding Decisions

Democratic attorneys general from 21 states alongside the District of Columbia have filed the lawsuit in federal court located in Oregon. They contend that the administration’s choice to forgo additional funding for the U.S. consumer watchdog is not just improper but fundamentally undermines the authority granted to Congress by the U.S. Constitution. This legal motion underscores the tension between state authorities and the federal administration regarding the oversight and regulation of consumer financial protection.

Statements from legal Leaders

Letitia James, the Democratic attorney general of New York, voiced her concerns regarding the administration’s actions, labeling them as detrimental to the interests of everyday Americans. “The administration’s actions are a handout to those who drive up costs by cheating hardworking Americans. I will remain committed to ensuring that they adhere to both the law and our Constitution,” she stated emphatically.

CFPB’s New Leadership and Changes

At present, the Consumer Financial Protection Bureau has not yet issued a response to this unfolding situation. Former President Donald Trump has been on a mission to dismantle the CFPB since he returned to office in January. He has assigned Russell Vought, the budget director, as the acting head of the agency. Though Vought’s attempts to terminate a substantial number of the CFPB’s employees are entangled in ongoing litigation, his leadership has effectively ceased most activities at the agency.

Background of the CFPB

The CFPB, established in 2011 under President Barack Obama as a response to the 2008 financial crisis, has a critical role in safeguarding consumers in the financial sector. Supporters argue that since its inception, the agency has returned over $21 billion that was improperly taken from consumers, highlighting its importance in consumer protection.

Funding Mechanism and Current Challenges

Distinct from other federal agencies that rely on annual congressional appropriations, the CFPB receives its funding directly from the Federal Reserve. Recently, under Vought’s guidance, the CFPB indicated in a statement that it could not procure additional funds from the Fed. The limitation stems from the Dodd-Frank Act of 2010, stipulating that funding must derive from the central bank’s “combined earnings.” Since the Federal Reserve has been operating at a loss since 2022, the Trump administration declared that no earnings were available for distribution.

In a court filing dated November 10, the CFPB projected that its funding might deplete by early 2026, a timeline that raises significant alarms about its operational viability. The lawsuit filed by states including California, Colorado, New Jersey, New York, and Oregon contends that the refusal to allocate funding impedes the CFPB’s legal duty to process consumer complaints adequately.

Concerns About Separation of Powers

Moreover, the lawsuit argues that the administration’s stance violates the constitutional principle of separation of powers. Since Congress established the CFPB and the mechanism by which it is funded, the states believe that the administration’s actions overstep its bounds. Additionally, a federal employees’ union and various nonprofit organizations are pursuing two separate lawsuits in Washington D.C. and California, aiming to compel the CFPB to resume its funding requests.

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