CFPB Does An About-face On Its Funding From Fed

On January 9, CFPB Acting Director Vought notified Judge Amy Berman Jackson that, in response to her December 30, 2025 opinion in National Treasury Employees Union v. CFPB (DDC), he had just requested $145 Million from the Federal Reserve Board to operate the CFPB from January through March of this year.

That seemingly brought to a conclusion a disagreement over the extent to which the CFPB could be funded by the Fed. Based on an opinion given to the CFPB by the Office of Legal Counsel of the Department of Justice, Vought had previously notified the District Court that it would be unlawful for the CFPB to request funds from the Fed because the Federal Reserve System has been losing money since September 2022 and the Dodd-Frank Act only allows the CFPB to be funded out of "combined earnings of the Federal Reserve System."

The CFPB had then requested the Court to clarify how an injunction issued by Judge Jackson last year enjoining the CFPB from executing a reduction-in-force (RIF) and taking certain other actions to minimize the agency would apply should the CFPB decline to request funding from the Fed. Judge Jackson refused to modify or clarify the injunction after she concluded that "earnings" as used in the funding language of Dodd-Frank means revenues and that the Fed's losses were irrelevant to the question of whether the CFPB could request funding from the Fed.

We published two blogs about Judge Jackson's opinion. In the first blog, we described the opinion. In our second blog, we explained why Judge Jackson's opinion was wrong. Initially, we thought that the CFPB would appeal her decision. Indeed, in the interest of judicial economy and the avoidance of conflicting opinions, we had thought that the CFPB had a reasonably good shot at getting the DC Circuit Court of Appeals to consolidate an appeal of the new issues in the case with the already existing en banc rehearing.

Why did Vought seek funding instead of appealing Judge Jackson's opinion? Although we may never know the answer, we have the following conjectures:

1. There is a belief in some circles that due to the heavy subsidization of the Federal Reserve Banks by the Treasury, through the Treasury lending the Federal Reserve Banks billions of dollars of interest-free loans, the Federal Reserve System on a combined basis was profitable in the 4th quarter of last year. If so, then it would now probably be lawful for the Fed to fund the CFPB even under the CFPB's definition of "earnings" being "profits". (That is not completely clear because there is an argument that before resuming the funding of the CFPB, the Federal Reserve Banks would first need to recover their enormous accumulated losses which began to accrue in September 2022.) Thus, what is the point of continuing to litigate the issue of whether "earnings" means profits or revenues if it would now be lawful for the Fed to fund the CFPB because the Federal Reserve System is now profitable on a combined basis?

2. By requesting $145 Million in funds from the Fed, the CFPB may have mooted the two other lawsuits raising the funding issue, one pending in Federal District Court for the Northern District of California filed, by Public Citiizen and the other pending in the District of Oregon filed by a consortium of Democratic Attorneys General. In both lawsuits, the plaintiffs are seeking a mandatory injunction requiring the CFPB to seek funding from the Fed. Since the CFPB has now made the request for funds, it would seem that it has satisfied the claims in both lawsuits.

3. If the CFPB had decided to appeal Judge Jackson's decision, the CFPB would have had to seek a stay of her order which required the CFPB to seek funding and there was no certainty how long that would take or whether it would ever be granted by the DC Circuit (either a 3-judge panel or en banc) or the Supreme Court. That separate process would have consumed a great deal of time — time which the CFPB did not have because it was running out of money. That might have put Vought between a rock and a hard place. If the CFPB ran out of money, it would have had to lay off the many employees that it is now enjoined from laying off (which would have subjected Vought to being in contempt of Judge Jackson's order) or it would have had to eventually seek funds from the Fed, which may have mooted the CFPB's appeal.

4. The CFPB has been the subject of a lot of pressure from banks and other consumer financial services providers to finalize many of the items on its semiannual regulatory agenda includes, among other things, a final rule under Section 1033 of Dodd-Frank (open banking), Section 1071 of Dodd-Frank (data collection on small business loans) and the Equal Credit Opportunity Act. The CFPB had been hinting that it was about to run out of money and that it might have to issue interim final rules as a result. It is anticipated that consumer advocacy and other groups will sue the CFPB to challenge any final (or interim final) rules that the CFPB issues. Any rules that were rushed out because of funding running out at the CFPB would likely be more vulnerable to being successfully challenged. Now that the CFPB has requested funding, it is hoped that the CFPB will not issue interim final rules but instead will issue final rules after reviewing and dealing with all substantive comments and engaging in the deliberative process contemplated by the Administrative Procedures Act.

The CFPB on January 9 filed its opening brief in the en banc rehearing in the DC Circuit Court of Appeals which is considering whether to vacate, affirm or modify Judge Jackson's injunction against the CFPB. That brief raises no concerns about CFPB funding issues.

Although the CFPB seems to have abandoned its argument that it can't request funding from the Fed, there still remains the question about the lawfulness of CFPB funding while the Federal Reserve was unprofitable and it seems likely that any rules, enforcement initiatives and other actions taken by the CFPB during the period from September 2022 until at least the end of last year will be challenged in court as being invalid because done with unlawful funding.

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