NEW YORK – On Monday, a group of 21 attorneys general from states led by Democrats initiated legal action against the Consumer Financial Protection Bureau (CFPB) and its director, Russell Vought. The lawsuit challenges the White House’s justification for withholding financial support from the agency, arguing this stance is unconstitutional.

The legal dispute centers on the Trump administration’s claim that the CFPB should only receive funding through the Federal Reserve’s profits. Since 2022, the Federal Reserve has been experiencing financial losses, primarily due to its decision to significantly raise interest rates to counteract inflation. This situation arose because the Fed holds low-interest bonds from the pandemic era but must pay higher interest rates to banks for their deposits.

For several months, the White House has maintained that the CFPB cannot legally access funds from the Fed unless there are “combined earnings” available. Should no additional funds be secured, the CFPB is projected to exhaust its financial resources by January.

The term “combined earnings” originates from the Dodd-Frank Act, the legislation responsible for establishing the CFPB over ten years ago. Lawmakers and policymakers involved in crafting the Dodd-Frank Act argue that the term was never intended to imply that the Fed needed to generate profits to fund the CFPB. Meanwhile, the White House’s reading of the Dodd-Frank Act is under scrutiny in a separate legal case filed by the CFPB employees’ union against Vought.

The Democratic attorneys general contend that Congress lawfully established the CFPB, and the White House lacks the authority to selectively fund government entities. They emphasize that the CFPB plays a critical role in providing consumer complaint information to states, which is essential for curbing unethical practices. Without an operational CFPB, these statutory obligations cannot be fulfilled.

“Defunding the Consumer Financial Protection Bureau will make it harder to stop predatory lenders, scammers, and other bad actors from taking advantage of New Yorkers,” said Attorney General Letitia James of New York.

A spokeswoman for Vought did not respond to an email for comment.