Charging that Acting CFPB Director Russell Vought has been attempting to close down the CFPB by any means necessary, Democratic Attorneys Generals (AGs) from 21 states and the District of Columbia have filed suit, asking a federal court to require Vought to seek State AGs file suit to force CFPB to request funding from the Federal Reserve funds from the Federal Reserve to operate the bureau. 

The AGs filed suit against Vought, in his official capacity, the CFPB and the Fed. 

“Opening another front in his effort to unlawfully close the CFPB, Defendant Vought has now decided to starve the agency of funds based on the implausible proposition that Congress, in enacting the Dodd-Frank Act, intended for the CFPB to periodically shut down whenever the Federal Reserve’s interest expenses exceeded its interest income,” the Plaintiffs said, in the suit, filed in the U.S. District Court for the District of Oregon. “That argument cannot be squared with the text or the structure of the CFPB’s statutory funding provisions and thus neither can the Challenged Decisions,” the Judge wrote

The AGs are asking for declaratory and injunctive relief related to Vought’s interpretation, which relies on an opinion from the Justice Department’s Office of Legal Counsel (OLC). That legal opinion was filed in a recent and similar lawsuit by the National Treasury Employees Union, which represents CFPB employees.

The OLC opined that it would be unlawful under Dodd Frank (which requires that the CFPB may be funded only out of the “combined earnings of the Federal Reserve System”) for the Fed to fund the CFPB because “earnings” means “profits” and the Fed has had no combined profits since September 2022. Shortly after the plaintiffs filed their complaint in the Circuit Court for the District of Columbia, and the Defendants even responded to the complaint, the plaintiffs filed a motion for summary judgment for which the court already has established a briefing schedule.

In their lawsuit, the AGs say that OLC’s determination is contrary to the meaning of “combined earnings” in Dodd-Frank. They allege that the Trump Administration’s decision not to seek funds from the Federal Reserve is “arbitrary and capricious” because it relies on a “legally erroneous determination.”  

In a likely effort to establish standing to bring the lawsuit, the AGs devote a significant portion of their complaint to addressing how the CFPB is critical to the consumer protection efforts of their respective states and to detailing the significant monetary relief that the CFPB has obtained for consumers in their respective states. The AGs state in their lawsuit that the CFPB has been a “critical partner to the States as the States have performed their many consumer-protection functions. The States have relied on the CFPB’s use of its resources and authorities in jointly carrying out consumer protection work, resulting in efficiencies, cost savings, and improved outcomes for consumers.” 

State agencies are given access to consumer complaints and any response from a company to the complaint, they said. 

“Unlike other complaint systems, the CFPB Consumer Response System requires certain covered persons to respond to the consumer complaints,” the Plaintiffs said. “States make regular use of the company complaint responses, which can include explanations of the companies’ behavior or admissions of wrongdoing.” 

“The failure to request funding will cripple or entirely shut down the CFPB’s Consumer Response System to Plaintiffs’ detriment,” the Plaintiffs said. “Much of the damage will be irreversible.”  

The AGs also state that they “also rely on Home Mortgage Disclosure Act (“HMDA”) data maintained by CFPB to support a range of ongoing investigations and enforcement actions.” They add that “[l]osing access to the data will prejudice the Plaintiffs by depriving Plaintiffs of a tool on which they are presently relying,” and note specific efforts by the states of Maryland, Michigan and New Jersey. 

The AGs filing the lawsuit are from Arizona, California, Colorado, Connecticut, Delaware, Hawaii, Illinois, Maine, Maryland, Massachusetts, Michigan, Minnesota, Nevada, New Jersey, New Mexico, New York, North Carolina, Oregon, Rhode Island, Vermont, Wisconsin, and the District of Columbia. 

Various points made by the AGs in their complaint are consistent with many of the points set forth by Judge Amy Berman Jackson of the DC Federal District Court in her recent ruling clarifying her injunction in the lawsuit brought by the National Treasury Employees Union and others challenging the planned reductions in force and other other deregulatory actions at the CFPB. In particular, Judge Jackson determined that “combined earnings” means simply combined revenues and that, as a result, the CFPB may not refuse to request additional funds from the Fed in order  to perform statutorily required functions. However, the AGs raise a constitutional separation of powers argument not addressed by Judge Jackson. The AGs state that “[h]ere, where Congress has created the CFPB, given its statutory mandates, and authorized it without exception to obtain funding by requesting it periodically from the Federal Reserve, the [decisions of the CFPB regarding its funding being challenged by the AGs] have violated constitutional and statutory mandates, contravened Congressional intent, and are unlawful.” 

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