Defense and Compliance Attorneys
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The Consumer Financial Protection Bureau (CFPB) is at significant risk of closing due to the Trump administration declaring its funding source—transfers from the Federal Reserve—unlawful. The Department of Justice’s Office of Legal Counsel now interprets the CFPB’s funding mechanism as only legal if the Federal Reserve earns a profit, which it has not done since 2022. This interpretation effectively blocks the CFPB from accessing new funds, leaving it able to continue operations only until its reserves run out, expected by early 2026.
Reasons for the Shutdown Threat
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The Trump administration argues that the Dodd-Frank Act only allows the CFPB to receive money from the Federal Reserve’s profit (“combined earnings”). With the Fed currently reporting losses, the Department of Justice claims CFPB cannot legally request funds, forcing it to rely on congressional appropriations, which are unlikely given political opposition.
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This legal reasoning counters both the original intent of the law and previous court rulings. Notably, in May 2024, the Supreme Court upheld the constitutionality of the CFPB’s unique funding structure, but now the administration is challenging the legality under a different interpretation.
Impact and Controversy
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Consumer advocates and financial experts warn that shuttering the CFPB would harm Americans by removing vital protections against predatory lending and unfair financial practices, an agency originally created in response to abuses that led to the global financial crisis.
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Many GOP members have sought to dismantle the CFPB since its inception, and the Trump administration accelerated enforcement rollbacks, workforce reductions, and now an institutional funding blockade.
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Legal challenges are ongoing, with federal employee unions suing over mass terminations and the funding mechanism’s legality, and it remains uncertain whether the courts will uphold this new interpretation.
What Happens Next
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The CFPB is expected to maintain limited operations until early 2026, after which it may shut down unless Congress intervenes with new appropriations or if the legal challenges overturn the administration’s decision.
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The situation has sparked broader debate about the future of federal regulatory oversight and protections for financial consumers in the U.S..
In summary, the Trump administration’s legal reinterpretation of CFPB’s funding endangers its continued operation, with far-reaching implications for consumer protections and federal financial regulation.
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