California Leads Multistate Suit Over CFPB Funding Freeze

California is helping lead a coalition of 21 states and the District of Columbia suing the Trump administration over a freeze on funding for the Consumer Financial Protection Bureau (CFPB). The states argue the administration is illegally trying to defund the agency by refusing to request money from the Federal Reserve, which could force the CFPB to halt key consumer protection work as early as January 2026.​

What the lawsuit is about

• The CFPB is normally funded directly by the Federal Reserve’s “combined earnings,” rather than through Congress’s annual budget, to keep it insulated from political pressure.​

• Under Acting Director Russell Vought, the CFPB has stopped requesting those funds, citing the Federal Reserve’s current operating losses as a reason there are no “earnings” to transfer.​

• The suing states say this is an unlawful reinterpretation of the law that effectively “defunds” the CFPB without Congressional approval.​

Who is involved

• A group of 21 Democratic-led states plus Washington, D.C., has filed the case in federal court in Oregon.​

• The coalition includes large states such as California, New York, Colorado, New Jersey, Oregon, Illinois, and Massachusetts.​

• California’s Attorney General is one of the lead plaintiffs, and New York Attorney General Letitia James is also playing a prominent role in the filing and public messaging.​

What the states are asking the court to do

• The lawsuit seeks an injunction requiring the administration and CFPB leadership to resume requesting and accepting funding from the Federal Reserve so the agency can keep operating.​

• The states argue that cutting off funds violates the Dodd‑Frank Act’s design for stable CFPB financing and undermines the separation of powers by overriding Congress’s chosen funding mechanism.​

• They warn that without intervention, the CFPB could run out of money in early 2026 and be unable to process consumer complaints or share complaint data and investigations with state enforcers.​

Why it matters for consumers

• The CFPB handles millions of complaints about banks, credit cards, mortgages, student loans, and other financial products, and has returned tens of billions of dollars to consumers since its creation.​

• If the funding freeze continues, states say they will lose access to the CFPB’s complaint database and coordinated enforcement tools, making it harder to pursue fraud and abusive financial practices in their own jurisdictions.​

• Consumer and worker advocates warn that weakening or shuttering the CFPB would largely benefit big financial institutions by reducing oversight and enforcement risk.​

What happens next

• The coalition is asking the Oregon federal court for emergency relief; if granted, that could force funding to restart and set up a fast‑track appeal that may reach the Supreme Court in 2026.​

• If the court denies an injunction, analysts say the CFPB could become a “zombie” agency that still exists on paper but lacks money to carry out investigations, issue rules, or respond to complaints.​

• Separate lawsuits by nonprofits and a federal employee union in other courts are also trying to compel CFPB leadership to request funds, adding pressure and legal complexity around the agency’s future.​