CFPB in danger of closing after Trump administration says its funding source is illegal

The fate of the Consumer Financial Protection Bureau (CFPB) seems sealed, and bleak, after Trump administration officials claimed it couldn’t legally acquire any funding from its source, the Federal Reserve.

The CFPB, a consumer watchdog of the financial services industry that Elizabeth Warren proposed before Congress passed the Dodd-Frank Act, filed a notice in federal court this week that the Justice Department’s Office of Legal Counsel said the agency “may not legally request funds at this time” from the Fed, according to a news release.

Without additional funding, the regulator said it should be able to continue operations “until at least” the end of the year.

At the center of the issue is how the Justice Department now interprets CFPB’s funding mechanism. Dodd-Frank states that the agency is to receive funding from the Fed’s “combined earnings.” The Justice Department now claims “combined earnings” means profit, and therefore noted if “the Federal Reserve has no profits, it cannot transfer money to the CFPB,” Politico reported. This is an argument CFPB opponents have been making since the Supreme Court ruled the agency was constitutional last year, although “several federal justices have rejected that theory,” according to Politico.

“This is terrible for the American economy, because it’s terrible for the American consumer,” Mayra Rodríguez Valladares, a financial risk consultant and trainer, told CFO Brew. Rodríguez Valladares said the CFPB is meant to prevent consumers from falling for predatory lending products, which led to the global financial crisis nearly two decades ago.

The Trump administration has targeted the CFPB, among other federal agencies, since the start of the president’s second term in January. By March, the CFPB had already dropped about a dozen enforcement cases under Trump, according to the New York Times. In August, a federal appeals court gave the administration the go-ahead to fire the vast majority of its workforce, which it first set out to do in the spring, NPR reported.

Rodríguez Valladares said the CFPB’s dismantling was “long in coming,” since members of the GOP have tried to scrap the agency since its inception. She said nonprofit consumer advocates like Americans for Financial Reform will continue to spotlight issues that the CFPB focused on, but lack the weight (and financial penalties) of a government regulator.