A federal judge on Friday ruled that the Trump administration unlawfully refused to request funding for the Consumer Financial Protection Bureau, ordering Acting Director Russ Vought to continue seeking money from the Federal Reserve to keep the agency operating.
The decision from District Court Judge Edward J. Davila of the District Court for the Northern District of California marks another legal setback for the administration’s effort to wind down the CFPB, though the ruling may not immediately change the Bureau’s day-to-day operations because a similar order from another federal court is already in place. The case was brought by Rise Economy, the National Community Reinvestment Coalition, and the Woodstock Institute, organizations that rely on CFPB programs and data to support their work.
Why it matters
- The CFPB’s funding structure has been at the center of the administration’s broader effort to curtail the agency.
- The ruling reinforces a growing series of court decisions rejecting the administration’s interpretation of the law governing CFPB funding.
What’s happening
Unlike most federal agencies, the CFPB does not rely on annual congressional appropriations. Instead, it receives funding from the Federal Reserve.
Under the Dodd-Frank Act, the Federal Reserve must transfer funds that the CFPB director determines are “reasonably necessary” for the agency’s operations, using the Fed’s “combined earnings.”
The legal dispute centers on what that phrase means.
Last year, Vought adopted a new interpretation that “combined earnings” should be calculated by subtracting the Federal Reserve’s interest expenses from its revenues. Under that formula, the Fed was considered unprofitable, leading the administration to argue it could not legally provide funding to the CFPB.
Judge Davila rejected that argument.
In his ruling, the judge concluded that “combined earnings” refers simply to the Federal Reserve’s revenue and that the CFPB director does not have authority to redefine the term.
“Given that the Director has no authority to define or calculate the Federal Reserve’s ‘combined earnings,’ Defendants’ entire basis for not requesting funding from the Federal Reserve crumbles,” Davila wrote.
The order directs the CFPB to continue requesting funding necessary to carry out its statutory responsibilities.
The bigger picture
The decision is one of several court challenges tied to the administration’s attempt to dismantle or weaken the consumer watchdog agency.
- A separate federal lawsuit brought by the CFPB’s employee union previously resulted in a similar court order.
- That ruling is currently under review by a federal appeals court.
- Another challenge brought by more than 20 Democratic-led states was argued in court last week.
Even with the new ruling, the immediate impact may be limited. Government lawyers have recently said the Federal Reserve has returned to profitability, meaning funding could resume even under the administration’s disputed interpretation.
Still, Judge Davila warned that the issue may not be resolved.
The court noted that the end of the federal government’s second fiscal quarter in 2026 is approaching and that officials have provided “no assurances” they will continue requesting funds from the Federal Reserve going forward.
For financial institutions and companies across the credit ecosystem, the outcome of these cases could determine whether the nation’s primary consumer-finance regulator remains fully operational in the months ahead.
