CFPB Funding Saga Continues With Vought’s Fed Funding Request  

Vought disclosed the request in a January 9 notice to U.S. District Judge Amy Berman Jackson in National Treasury Employees Union v. CFPB, a case that includes a court order limiting the bureau’s ability to carry out layoffs and other steps to shrink itself. The funding dispute turned on language in the 2010 Dodd-Frank law saying the CFPB can draw its budget from the Fed’s “combined earnings.”

The Federal Reserve System has been losing money since September 2022, and the CFPB had cited a Justice Department legal opinion to argue that “earnings” should be read as profits, meaning the bureau said it could not lawfully request new funds while the Fed was in the red.

A post from law firm Ballard Spahr says Vought’s request “seemingly brought to a conclusion” that disagreement, at least for now, after Judge Jackson rejected the CFPB’s reading in a December 30 opinion. The firm highlights the judge’s central interpretation that “‘earnings’ as used in the funding language of Dodd-Frank means revenues.” In practical terms, Ballard Spahr says Jackson concluded the Fed’s losses were not a legal obstacle to the CFPB asking for money.

Per Ballard Spahr, several reasons Vought may have decided to request funds rather than appeal. One is that the Federal Reserve Banks may have returned to profitability on a combined basis in the fourth quarter of last year, potentially because of support from the Treasury. If that’s true, the payoff from continuing to litigate “profits versus revenues” drops.

Read more: Senator Urges CFPB to Finalize New Open-Banking Rules ‘As Soon As Possible’

The firm also suggests the request could take the wind out of two other cases — one filed by Public Citizen in Northern California and another filed in Oregon by a group of Democratic attorneys general, both of which sought court orders requiring the CFPB to ask for Fed funding. And it notes the clock: an appeal would likely require a separate push to pause Judge Jackson’s order while higher courts reviewed it, time the agency may not have had if it was running low on cash.

The funding move also affects what the CFPB does next in terms of policy. Ballard Spahr points to pressure from banks and other financial services providers for the bureau to finalize major items, including a rule under Section 1033 of Dodd-Frank on open banking that creates standards for how consumers can share their financial data with third-party apps and services. The post also flags Section 1071, which covers data collection on small-business loans, and work under the Equal Credit Opportunity Act. With funding secured, the firm suggests the bureau is less likely to rush out stopgap rules and more likely to complete the regular public-comment process.

What comes next won’t be confined to the budget line. Ballard Spahr notes the CFPB filed its opening brief on Jan. 9 in the D.C. Circuit Court of Appeals, which is rehearing the case as a full court and could throw out, uphold, or change Judge Jackson’s order. The brief does not raise new funding issues. Still, the firm warns that CFPB rules and enforcement actions taken during the period when the Fed was unprofitable — from September 2022 through at least the end of last year — are likely to be challenged as invalid because opponents will argue they were carried out under unlawful funding.