NEW YORK – A group of 21 Democratic state attorneys general launched a lawsuit against the Consumer Financial Protection Bureau (CFPB) and its director, Russell Vought, on Monday. The legal action challenges the White House’s stance on withholding funds from the agency, arguing that this move is unconstitutional.

The case stems from the Trump administration’s position that the CFPB should solely rely on the Federal Reserve’s profits for funding. Since 2022, however, the Federal Reserve has been operating at a loss. This situation arose as a consequence of the Federal Reserve’s interest rate hikes aimed at curbing inflation. The Fed is currently paying higher interest rates on bank deposits despite holding bonds with lower pandemic-era interest rates.

For several months, the White House has contended that the CFPB cannot legally draw funds from the Fed if those “combined earnings” are unavailable. Without additional resources, the CFPB is projected to exhaust its operational budget by January.

The term “combined earnings” is a key component of the Dodd-Frank Act, which established the CFPB over a decade ago. Legislators and policymakers involved in drafting Dodd-Frank argue that this term was never intended to mean the Fed must generate a profit to fund the CFPB. The White House’s interpretation of this legislation is also being contested in a separate lawsuit filed by the CFPB employees’ union against Vought.

The Democratic attorneys general assert that Congress legitimately created the CFPB, and the White House does not have the authority to selectively decide which government entities to fund. They also emphasize that the CFPB plays a crucial role in providing consumer complaint data to states, aiding in the prevention of fraudulent activities. Without the CFPB’s operations, 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,” remarked New York Attorney General Letitia James.

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