Dem-Led States Sue to Block Consumer Watchdog's Defunding

A coalition of Democrat-led states filed a lawsuit on Monday seeking to prevent President Donald Trump's administration from defunding the U.S. Consumer Financial Protection Bureau by refusing to request money from the Federal Reserve.

Democrat attorneys general from 21 states and the District of Columbia filed the lawsuit in federal ‍court in Oregon, arguing that the administration's decision not to seek additional funding for ‍the consumer watchdog is unlawful and undermines Congress' authority under the  Constitution.

"The administration's actions are a handout to those who drive up costs by ⁠cheating hardworking Americans, and I will keep fighting to ensure they follow the law and our Constitution," New York Attorney General Letitia James, a Democrat, said in a statement.

The CFPB did not ​immediately respond to a request for comment.

Trump, a Republican, has sought to dismantle the CFPB since returning to office in January and has installed Russell Vought, his budget director, as the acting head of the agency. While efforts to ‍fire most of its employees are tied up in litigation, Vought has effectively halted most CFPB activities.

The ⁠agency, which is tasked with protecting consumers in the financial sector, began operations in 2011 under Democrat President Barack Obama following the 2008 financial crisis. It has since returned more than $21 billion improperly taken from consumers, its supporters say.

It receives its funding directly from the Fed, unlike federal agencies for which Congress appropriates money annually. Last month, ⁠the CFPB under Vought's leadership said ​it could not request more money ⁠from the Fed because the Dodd-Frank Act of 2010 requires that funding come from the central bank's "combined earnings."

Since the Fed had ‍been operating at a loss since 2022, the Trump administration said no earnings were available.

The CFPB in a Nov. 10 court filing ‌said it expected its funds would run out in early 2026. States led by California, Colorado, New Jersey, New York and Oregon said in Monday's lawsuit that denying funding would prevent the CFPB from meeting ⁠a legal obligation ​to provide them with consumer assistance. 

They ‍said the administration's actions also violate the Constitution's principle of separation of powers, since Congress created the agency and the process by which it is funded. A federal employees' ‍union and several nonprofits are seeking in two separate lawsuits in Washington, D.C., and California to similarly force the CFPB to resume requesting funding.