District Court Finds that CFPB Must Request Funding from Federal Reserve: Will this Saga End with the CFPB On the Loose?

On December 30, 2025, the District Court in NTEU v. CFPB held that the CFPB must request funds from the Federal Reserve, despite the CFPB’s contention before the court that the Federal Reserve has no “combined earnings” (i.e., profits) from which to fund the CFPB and therefore it could not request funds.  In addition, there was a new lawsuit filed against the CFPB on December 22, 2025, in the U.S. District Court for the District of Oregon by a group of 22 state attorneys general led by the New York Attorney General that also challenges the CFPB’s plan to let the CFPB run out of funds in January 2026.  This lawsuit cites the role that the CFPB’s consumer complaint database and other resources serve in the plaintiff states’ own consumer protection work.  This is a similar objective as the recently filed Rise Economy v. Vought case against the CFPB, which I wrote about here, and which also has some recent activity worth discussing.  I discuss all of this below.

I.  District Court Decision in NTEU v. CFPB Requiring CFPB to Request Funding

As I wrote about here and here, the CFPB informed the District Court in November 2025 in the NTEU v. CFPB case that the CFPB would run out of funds in early 2026 because it could not request funding from the Federal Reserve.  The CFPB’s reasoning was that the Dodd-Frank Act’s funding structure for the CFPB funds the agency through the Federal Reserve’s “combined earnings,” which the Acting Director determined to mean profits and the Federal Reserve was not generating a profit.  The CFPB provided to the court a memorandum from the Department of Justice (DOJ) that interpreted the phrase “combined earnings of the Federal Reserve System” to mean essentially the Federal Reserve’s profits, on which the Acting Director’s determination was based.  The CFPB’s Acting Director also submitted a notice to the President and Congress that the CFPB would run out of funding in early 2026, which it provided to the court as well.  After the CFPB’s notices to the District Court regarding its funding, the plaintiffs filed a motion asking the court to clarify the court’s preliminary injunction in the case, which orders the CFPB to not take certain actions to shut down the agency, such as firing most of its staff and terminating its contracts.  The plaintiffs argued that the CFPB’s Acting Director is required to request funding from the Federal Reserve, the CFPB’s new interpretation of “combined earnings” is novel and incorrect, and that it cannot justify violating the preliminary injunction by not requesting funding from the Federal Reserve.

The District Court granted the plaintiffs’ motion to clarify and concluded that the “defendants’ interpretation of the Dodd-Frank Act is contrary to the text and intent of the statute and the way it has been consistently interpreted by both the Federal Reserve and the CFPB.”  In sum, the court stated that following the DOJ’s interpretation of “combined earnings” would “contravene the plain terms and implicit requirements of this Court’s Order.”  The District Court found that “the CFPB’s obligations under the injunction would be directly and profoundly affected by a lapse in funding” and would be “impossible to fulfill.”  The District Court then described the CFPB’s plan to follow the DOJ’s interpretation and let the CFPB’s funding lapse as “the intended result of the defendants’ own actions,” and found that the CFPB’s decision to not request funding “will deliberately frustrate, their obligations under the injunction.”  This decision would essentially require the CFPB to request funding to avoid violating the preliminary injunction in the case.

The District Court addressed certain arguments and issues specifically in its decision.  Regarding the CFPB’s argument that the preliminary injunction does not contain a provision expressly addressing the CFPB’s funding, the District Court stated that the preliminary injunction “sets out clear duties derived from the statute.”  The court stated that it “defies common sense” that the court would have to modify its order to require the CFPB to request funding, which the CFPB argued. 

The District Court viewed the CFPB’s plan to not request funding as another attempt to shut down the agency, despite the CFPB’s claims in the case that it was merely reviewing policy objectives and streamlining the CFPB, not shutting it down.  The court stated that “the defendants are actively and unabashedly trying to shut the agency down again, through different means.”  The District Court noted that the CFPB had argued in the case that it was performing its statutory functions and not planning to shut down the agency, but that this was inconsistent with the “facts on the ground.”  The court noted the CFPB’s repeated attempts to conduct a reduction in force (RIF) throughout the case.  The court also stated that the CFPB’s assertions that the Acting Director and CFPB leadership were not planning to shut down the agency were “belied…by their actions” and statements.  The court quoted the Acting Director as stating on a fall 2025 podcast, “we don’t have anyone working there except our Republican appointees and a few career [employees] that are doing statutory responsibilities while we close down the agency . . . We want to put it out – and we will be successful probably within the next two, three months.” 

The District Court also laid out its reasoning why the CFPB’s plan to not request funding would violate the court’s preliminary injunction.  First, the District Court noted that the preliminary injunction contains a provision providing that the CFPB “shall not reinstitute or seek to achieve the outcome of a work stoppage, whether through a stop-work order, an order directing employees to take administrative leave, or any other means.”  The District Court described this as “the first impediment” to the CFPB’s plan to not request funding.  The court stated that “declining to ask the Federal Reserve for funding unquestionably achieves the outcome of a work stoppage,” and stated that not requesting funding is “directly contradictory” to this provision.  Second, the District Court stated that the CFPB is obligated to perform certain statutory functions, and to maintain the staff, physical space, and technology to do so, and that not requesting funds “undermines those provisions as well.” 

Finally, the District Court discussed the DOJ’s interpretation of “combined earnings.”  The court found that the DOJ’s interpretation was “entirely inconsistent with the way the Dodd-Frank Act has been consistently interpreted by all the parties involved.”  The court noted that the CFPB took the opposite position in other litigation, and that Federal Reserve Chair Jerome Powell had noted in Congressional testimony that the Federal Reserve looked at the issue “very carefully” and determined that it was clear that the Federal Reserve is required to make the payments to the CFPB even when it is operating at a loss.  The court also looked at the plain meaning of “combined earnings” and found that it generally means something earned, rather than profits.  The court also noted that the CFPB’s funding arrangement “would be unworkable” if the term meant profits and the CFPB’s director could not predict when funding would be available.  In addition, the court stated that such an interpretation would not work with the Dodd-Frank Act’s mandatory language regarding the funding, including that the funds “shall” be transferred by the Federal Reserve.  The court also found that Congress intended the CFPB to “be able to rely upon a stable, independent source of funding.” 

In conclusion, the District Court stated that “the defendants’ unilateral decision to decline to request funding, based on an unsupported interpretation of the Dodd-Frank Act, contravenes the preliminary injunction.”  This is not the end of the story, however.  One would expect the CFPB to appeal this decision to the Court of Appeals, and then potentially to a more sympathetic Supreme Court if necessary.  In addition, the Court of Appeals is rehearing en banc the CFPB’s appeal of the District Court’s preliminary injunction (which I wrote about here), which decision could also end up being taken to the Supreme Court.  In the end, this case is not over, as there are more than a few balls still up in the air.  The saga of the CFPB continues. 

II.  Federal Reserve Officials Weigh In Again in Rise Economy v. Vought

On January 5, 2025, in Rise Economy v. Vought, a case pending in the U.S. District Court for the Northern District of California challenging the CFPB’s plans to not request funding, the same group of former Federal Reserve officials that filed an amicus brief in NTEU v. CFPB (I discuss both here) filed a nearly identical amicus brief in Rise Economy v. Vought as their brief in NTEU v. CFPB.  This time, the group was joined by a sixth former official—a former general counsel to the Board of Governors and the Federal Open Market Committee who provided legal and technical assistance to Congress on the Dodd-Frank Act and the Federal Reserve Act.  As I wrote about here, these former Federal Reserve officials argue that OLC’s interpretation of “combined earnings” is based on private-enterprise concepts that don’t apply to a central bank, and that Congress could have foreseen that the Federal Reserve would at times lack “profits.”  The Rise Economy brief appears to add some additional nuance not present in the NTEU brief: that OLC “provides no persuasive reason to treat transfers to the CFPB—expenses that the Federal Reserve is required by law to pay—as anything other than ‘necessary expenses’ under [the statute], as OLC acknowledges the Federal Reserve has long done.”

III.  State AGs Sue the CFPB

On December 22, 2025, a new lawsuit was filed by the state attorneys general of New York, Oregon, New Jersey, Colorado, California, Arizona, Connecticut, Delaware, Hawaii, Illinois, Maine, Maryland, Massachusetts, Michigan, Minnesota, Nevada, New Mexico, North Carolina, Rhode Island, Vermont, Wisconsin, and the District of Columbia (the state AGs) against the CFPB challenging ts funding plans.  This case highlights the broader consequences of defunding the CFPB and the role the agency plays in state-level consumer protection efforts.

The state AGs allege that the Acting Director’s decisions to not request funding violate the Administrative Procedure Act and the Constitution. They argue that the Acting Director’s determination that the CFPB cannot request funds when the Federal Reserve’s interest expenses exceed its interest income is based on an erroneous interpretation of “combined earnings” in the Dodd-Frank Act.  The state AGs contend that “combined earnings” refers to the Federal Reserve’s gross revenues without any deduction for expenses, not its profits.  They also argue that even if the Acting Director’s interpretation were correct, nothing in the statute bars the CFPB from requesting funds.   The state AGs assert that the Acting Director’s failure to request funding is an arbitrary and capricious agency action because it represents a sudden reversal from the CFPB’s longstanding position without adequate explanation, is pretextual, and ignores the serious reliance interests of the states.

The complaint alleges the states will suffer extensive harm if the CFPB is defunded.  The states argue that they rely heavily on the CFPB’s consumer complaint database, which collected over 3 million complaints in 2024 and over 5.3 million complaints in 2025.  State consumer protection agencies use this database to identify potential violations of state and federal law, locate witnesses for investigations and litigation, and monitor marketplace trends.  As an example, they state New York has relied on hundreds of thousands of consumer complaints from the CFPB database to open and conduct investigations and support litigation.  The complaint alleges that without the CFPB’s consumer complaint system, the states will lose access to critical information necessary for their consumer protection work, including complaints that companies are required to respond to and documentation submitted by consumers and companies.  Many states also rely on Home Mortgage Disclosure Act data compiled by the CFPB to investigate discriminatory lending practices.

The state AGs ask the court to grant several forms of relief.  First, they seek declaratory relief that the Acting Director’s decisions violate the APA and the Constitution, that the decision to not request funds is ultra vires, that “combined earnings” means the Federal Reserve’s gross revenues without any deduction for expenses, and that the Federal Reserve is required to transfer funds to the CFPB as determined by the Director.  Second, they seek to have the Acting Director’s decisions set aside and permanently enjoined.  Third, they ask the court to compel the CFPB to request funding.  Finally, the state AGs request that the court retain jurisdiction to monitor compliance with its judgment and award reasonable attorneys’ fees and costs.

IV.  Looking Ahead

The legal battles over CFPB funding continue to intensify across multiple fronts.  The District Court in NTEU v. CFPB has required the agency to request funding from the Federal Reserve, while 22 state attorneys general as well as consumer advocacy groups are challenging the CFPB’s refusal to do so in their own separate lawsuits.  These cases raise fundamental questions about statutory interpretation, agency authority, and the limits of judicial and executive power.  The saga of the CFPB continues, and we’ll have to wait longer for the outcome, which will determine whether the Acting Director will be constrained or “On the Loose.”

If you have questions about these developments or how they may affect your business, please email me at rich@garrishorn.com.