CFPB to run out of money early next year after Justice Department rules funding illegal

The Consumer Financial Protection Bureau, a Wall Street cop signed into law by President Obama, is about to run out of money after the Justice Department ruled its funding design illegal, potentially putting it on a path to extinction.

CFPB, the brainchild of Democratic Sen. Elizabeth Warren of Massachusetts, was set up to take money from the Federal Reserve, in theory putting it beyond the reach of Congress’ power of the purse. But the Justice Department’s Office of Legal Counsel said its money can only flow when the Federal Reserve’s balance sheet shows a profit, and the central bank hasn’t shown one since 2022.

Without more money, the CFPB will run out of cash “in early 2026,” the department told a federal court in a filing this week.

Charles E.T. Roberts, a department lawyer, said the agency could still go back to Congress to ask for a direct appropriation of money. But Republicans, who control Capitol Hill, have never been fans of the agency and President Trump has sought to shut it down, making any new money a tough sell.

Indeed, Russell Vought, Mr. Trump’s budget chief and acting director of the CFPB, has attempted to fire much of the agency’s staff and wind down its activities. Federal courts have put those efforts on hold.

The Biden administration had argued the law allowed CFPB to draw money from the Federal Reserve’s revenue, which would mean a steady income.

Now under Mr. Trump, the agency changed its stance and asked the Office of Legal Counsel, whose legal opinions control government functions, for a ruling.

OLC lawyers said they read the law to require the money come from the Fed’s profits, not just revenue.

“Therefore, we understand that the Federal Reserve currently lacks combined earnings from which the CFPB can draw,” OLC said.

The OLC said it might be unconstitutional to even request more money from the Federal Reserve.

Justice Department lawyers told federal judges in Washington on Monday about the OLC’s ruling.

“Under the Office of Legal Counsel’s opinion, issued on Friday, ‘the Federal Reserve currently lacks combined earnings from which the CFPB can draw,’” Mr. Roberts said.

The CFPB was part of the major legislation that cleared a Democrat-controlled Congress and Mr. Obama signed into law in 2010 to clean up the excesses that led to the 2008 Wall Street collapse.

Ms. Warren, at the time a Harvard professor, urged creation of a watchdog insulated from political pressure. That included the odd funding design, where it gets its budget directly from the Federal Reserve rather than the U.S. Treasury, and protections against its director being fired by the president.

The Supreme Court erased the firing protections in a 2020 ruling but, in a 2024 decision, upheld the Federal Reserve financing design.

Ms. Warren had hoped to be tapped as the first director of the CFPB, but it was clear she couldn’t win Senate confirmation.

She would go on to leave her law professor’s position and run for — and win — a Senate seat from Massachusetts.