In the Trump administration’s fight to kill the Consumer Financial Protection Bureau, it deployed this week a new weapon: a novel legal argument that the agency’s funding is unlawful.
Unlike most federal agencies, which are funded by congressional appropriations, the consumer bureau gets its money from the Federal Reserve. On a quarterly basis, the agency’s director requests from the Fed the funds the bureau needs to operate.
Russell T. Vought, the White House budget director who also serves as the consumer bureau’s acting director, has not requested any funding this year, which left the agency with dwindling cash to pay its roughly 1,400 workers.
In a legal filing on Monday, the bureau warned that it would run out of money early next year and said it could not obtain more from the Fed.
The filing included a memo sent to Mr. Vought on Friday from the Justice Department’s Office of Legal Counsel that declared the agency’s funding stream illegal. The 2010 law that created the bureau ordered it to draw its funding from the “combined earnings” of the Federal Reserve. Lawmakers intended that funding structure to insulate the independent agency from partisan swings in Congress.
But the Fed has operated at a loss since 2022, leaving it with no “earnings” to spend on the bureau, the Justice Department said.
“If the Federal Reserve has no profits, it cannot transfer money to the C.F.P.B.” T. Elliot Gaiser, the assistant attorney general who leads the influential Office of Legal Counsel, wrote in the memo.
That argument has been promulgated for years in conservative legal circles. Versions of it have been published by the American Enterprise Institute, a conservative think tank, and the Federalist Society, a conservative legal group.
Senator Elizabeth Warren, the Massachusetts Democrat who helped create the consumer bureau, called the argument a “fringe theory” and urged federal judges to reject it.
“This absurd maneuver by Russ Vought is plainly illegal,” she said.
The consumer bureau has requested — and received — more than $1 billion from the Fed since 2022. Mr. Gaiser’s memo said that the bureau, under Mr. Vought’s leadership, “now takes a different view from the one it held in 2024” about the legality of that funding.
Mr. Vought has gutted much of the consumer bureau’s work and tried to fire more than 90 percent of its staff. Federal judges have paused that plan, leaving most of the agency’s work force intact, but Mr. Vought halted most of the bureau’s operations and barred many employees from carrying out their usual duties.
Only Congress has the power to abolish the agency, and the Justice Department has argued in court that the Trump administration intends only to shrink the bureau, not to eliminate it. But Mr. Vought has openly contradicted those claims and said he is working to shutter the bureau.
“We don’t have anyone working there except our Republican appointees and a few career that are doing statutory responsibilities while we close down the agency,” Mr. Vought said last month on the “Charlie Kirk Show” podcast. “We want to put it out — and we will be successful probably within the next two, three months.”
The new funding skirmish has intensified a cash crisis at the bureau, which was already facing the likelihood of sharp staffing cuts to stay within a reduced budgetary limit.
President Trump’s signature domestic policy bill lowered the cap on the bureau’s operating budget to 6.5 percent of the Fed’s operating expenses, from 12 percent. That would limit the amount the agency can request to around $446 million for the 2025 fiscal year, the Congressional Research Service estimated — far less than nearly $730 million the agency received from the Fed in 2024.
Stacy Cowley is a Times business reporter who writes about a broad array of topics related to consumer finance, including student debt, the banking industry and small business.
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