Trump bid to defund CFPB is crippling the agency, US states say

PORTLAND, Oregon – The Trump administration is illegally trying to cripple the Consumer Financial Protection Bureau (CFPB) by refusing to ask the Federal Reserve for funds needed to run the independent regulator, a group of mostly Democratic-led states said in a federal lawsuit.

CFPB acting director Russell Vought’s decision will “virtually guarantee” the agency runs out of money in January, preventing it from carrying out legally mandated responsibilities that include fielding thousands of customer complaints about financial institutions and their products, 21 states and the District of Columbia said in a suit filed on Dec 22 in Portland, Oregon.

Mr Vought, who is also the director of the US Office of Management and Budget, has wrongly concluded that the CFPB can’t request funding because Treasury has no profits with which to grant it, the suit alleged.

The states, led by New York Attorney-General Letitia James, seek a court order barring the administration from completely defunding the CFPB.

“Vought has worked tirelessly to terminate the CFPB’s operations by any means necessary,” the states said in the complaint.

“The CFPB is the only federal agency authorised to supervise the nation’s largest banks for their compliance with consumer financial protection laws.”

According to Ms James’ office, the agency collected 208,305 complaints from New York consumers alone, resulting in companies returning US$8.5 million (S$10.94 million) to state residents.

Eradicating the CFPB has long been a goal of conservatives, and Mr Vought has worked to strip the agency of staff and funding.

He said in October that he hoped to shut it down “in the next two or three months.” In November, the CFPB told a federal court in a different case that the Justice Department had declared the agency’s funding mechanism illegal.

The suit marks the latest clash between the administration and Democratic state attorneys general who’ve repeatedly sued over efforts by President Donald Trump to defund departments and agencies disfavoured by Republicans.

The states say CFPB, created by Congress after the 2008 financial crisis, must maintain funding because it’s required under US law to send the states data on consumer complaints, and it can’t do that without money.

“Beyond its own consumer protection actions, CFPB is legally mandated to provide vital information to states to aid their own consumer protection efforts,” Ms James said in a statement.

“States rely on consumer complaints from CFPB to investigate wrongdoing, secure refunds and restitution for consumers, and support their own litigation against financial institutions.”

Spokespersons for the CFPB and the Treasury Department didn’t immediately respond to messages seeking comment on the suit.

The states allege Mr Vought’s determination that he cannot seek funding from the Federal Reserve reverses years of precedent in violation of the federal Administrative Procedure Act, which prohibits “arbitrary and capricious” agency actions.

The complaint alleges that Mr Vought’s actions violate US law and the Constitution. 

“Defendants have changed their position on how and when the CFPB can request funds to operate without an adequate explanation for the change in position,” the states said.

According to Ms James, the CFPB has “returned more than US$21 billion improperly taken from over 205 million Americans throughout its 14-year existence.”

Her office has raised the alarm about CFPB walking away from probes and lawsuits after Mr Trump returned to office.

The CFPB has collected 208,305 complaints from New York consumers alone, resulting in companies returning US$8.5 million to state residents, according to the attorney general’s office.

In May, New York sued Capital One Financial Corp for allegedly misleading customers about savings-account interest rates, in claims that mirrored a federal case dropped by the CFPB. BLOOMBERG