A coalition of 21 state attorneys general plus the District of Columbia filed a lawsuit on Monday seeking to prevent the Trump administration from defunding the Consumer Financial Protection Bureau. The legal action comes as the agency warns it could run out of money within weeks, potentially ending its ability to protect consumers from predatory financial practices.

The Lawsuit

Filed in Portland, Oregon, the lawsuit targets Acting CFPB Director Russell Vought's decision to stop requesting funding from the Federal Reserve—the agency's designated funding source under the Dodd-Frank Act.

The plaintiff states, led by New York Attorney General Letitia James, argue that Vought's interpretation of the law is incorrect and that his decision will "virtually guarantee" the agency runs out of money in January.

States Involved

The lawsuit brings together attorneys general from 22 jurisdictions:

  • New York, California, Illinois, Michigan, Massachusetts
  • New Jersey, Colorado, Minnesota, Oregon, Arizona
  • Connecticut, Delaware, Hawaii, Maine, Maryland
  • Nevada, New Mexico, North Carolina, Rhode Island, Vermont
  • Wisconsin, and the District of Columbia

The Funding Dispute

At the heart of the conflict is a legal interpretation of how the CFPB should be funded. When Congress created the agency in 2010, it deliberately set up an unusual funding mechanism:

Rather than relying on Congressional appropriations (which could be blocked by hostile lawmakers), the CFPB receives funding directly from the Federal Reserve's "combined earnings."

The Office of Legal Counsel (OLC) recently interpreted "combined earnings" to mean profits. Since the Federal Reserve is currently operating at a loss due to its interest rate policies, OLC concluded there are no funds from which the CFPB may lawfully draw.

Critics' Response

The states and consumer advocates argue this interpretation contradicts Congressional intent. Multiple members of Congress, including authors of the Dodd-Frank Act, have stated they meant "revenue," not "profit," precisely to ensure stable funding that couldn't be weaponized politically.

"The whole point was this was stable funding, so why would they write it in a way that it could just go away?" noted legal experts.

What the CFPB Does

The Consumer Financial Protection Bureau has been one of the government's most active consumer protection agencies since its founding. According to the lawsuit:

  • $21 billion returned to over 205 million Americans since the agency's creation
  • Oversight of banks, credit card companies, and other financial institutions
  • Handles thousands of consumer complaints about financial products
  • Enforces fair lending laws and consumer protection regulations

Separate Nonprofit Lawsuit

The states aren't alone in challenging the defunding. On December 10, three nonprofit organizations—Rise Economy, National Community Reinvestment Coalition, and Woodstock Institute—filed their own lawsuit in the Northern District of California seeking to force the CFPB to accept funding.

Political Context

The CFPB has long been a target of Republican lawmakers and financial industry groups who argue the agency is overly aggressive and lacks proper oversight. The Trump administration's apparent effort to defund the agency aligns with broader deregulatory goals.

Consumer advocates counter that the CFPB provides essential protection against predatory practices that cost American families billions of dollars annually.

What Happens Next

The lawsuit seeks immediate injunctive relief to prevent the funding cutoff. Key dates to watch:

  • January 2026: When the CFPB reportedly runs out of money if no action is taken
  • Court hearings: Expected in coming weeks given the urgent timeline
  • Potential appeals: Either side could appeal to higher courts

The Bottom Line

The CFPB battle represents one of the biggest consumer protection fights of the Trump administration's second term. At stake is an agency that has returned billions of dollars to American consumers and provides oversight of the financial industry. Whether the courts side with the states or the administration will have profound implications for consumer protection in 2026 and beyond. For now, the agency's future hangs in the balance.