Judge orders feds to restore consumer watchdog funding

Created from the fallout of the 2008 financial crisis, the Consumer Financial Protection Bureau has returned over $20 billion to consumers since its inception, according to the plaintiff states.EUGENE, Ore. (CN) — A federal judge on Friday determined 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 in a 40-page order.Those decisions refer to two determinations made by Russell T. Vought, acting director of the Consumer Financial Protection Bureau. First, he concluded he can’t request funds from the Federal Reserve when the Federal Reserve’s interest expenses exceed its income. Second, he decided not to request funding for the bureau for the 2026 fiscal year.This past December, 22 states sued the bureau, Vought and the Board of Governors of the Federal Reserve System.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.Created from the fallout of the 2008 financial crisis, the bureau enforces certain federal consumer protection laws and has an online complaint system and database for consumers to report issues with financial services and products, and in turn receive responses. The states say it 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. The court did not agree with this conclusion.The federal 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.The federal defendants also argued the states didn’t challenge a final agency action, which is required to find an Administrative Procedure Act violation. Aiken disagreed, citing 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,” Aiken wrote.She found the state’s challenge was directed at a specific and discrete decision made by the defendants.The federal defendants argued there isn’t a requirement that the Consumer Financial Protection Bureau director affirmatively request the amount needed to 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. The 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.”Aiken sided with the state’s interpretation, concluding the “combined earnings” of the Federal Reserve refers to its revenue before expenses are subtracted. The federal defendants had argued it referred to the amount remaining after deducting the Federal Reserve’s interest expenses from its revenues.Aiken next disagreed with the federal defendants’ argument 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.Aiken vacated both of the challenged decisions and ordered funding restored to the bureau.Neither the states nor the federal defendants provided a comment before press time.Subscribe to our free newslettersOur weekly newsletter Closing Arguments offers the latest about ongoing trials, major litigation and rulings in courthouses around the U.S. and the world, while the monthly Under the Lights dishes the legal dirt from Hollywood, sports, Big Tech and the arts.Additional Reads