Executive Summary 

• The Consumer Financial Protection Bureau (CFPB) will likely run out of operational funds and close in early 2026 in the wake of a Trump Administration Department of Justice finding that the agency cannot legally seek new financing. 

• Congress created the CFPB in the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2008 as a centralized home for consumer protection in the wake of the financial crisis.  

• Since inception, the CFPB has been dogged by criticism of its unusual governance and funding structure; despite this shaky foundation, the agency has significantly expanded the scope of its role and responsibilities, notwithstanding consistent opposition from the financial services industry and conservatives in and out of Congress.  

Introduction 

In a move that may reshape the architecture of federal financial-regulation oversight, the Trump Administration has formally declared that the CFPB’s statutory funding mechanism—transfers from the Federal Reserve System’s “combined earnings”—can no longer support the agency while the Fed continues to report losses. This unprecedented financing method was created in the Dodd-Frank Wall Street Reform and Consumer Protection Act. Unless Congress appropriates funding, which is unlikely, the CFPB anticipates exhausting its cash reserves early in 2026, thereby risking a substantial curtailment or suspension of key functions. 

The History of the CFPB  

In the wake of the financial crisis of 2008, the federal government created new regulatory bodies to oversee aspects of the financial services industry, perhaps most notably the Consumer Financial Protection Bureau (CFPB). Tasked with regulating the consumer finance industry, the CFPB was designed to increase and improve transparency, accountability, and consumer protections. From inception, scholars have questioned the constitutionality of the agency, as it was designed to be significantly insulated from traditional oversight.   

Hoping to isolate the CFPB from political pressures, Congress designed it to be led by a single director. Under this system, the director is given near unilateral powers and can be removed by the president only for cause in cases of “inefficiency, neglect of duty or malfeasance in office.” This structure is quite unlike that of other financial regulators such as the Securities and Exchange Commission or Commodity Futures Trading Commission, which have bipartisan five-person boards. Congress also insulated the CFPB from the traditional budgetary process, instead requesting funding from the Federal Reserve.  

At inception, the CFPB created few if any new protections for consumers, instead replicating and duplicating a wide array of consumer-focused protections spread over other regulators, centralizing them in one place. Over time, many of the regulators that previously had consumer protection briefs have since shuttered these operations to make way for a highly active CFPB. In the two decades since its creation, the CFPB has led the development of its own portfolio, and under Democratic administrations has vastly expanded the scope of its powers, authorities, and responsibilities. To its defenders, the CFPB is the only regulatory body focused on protecting consumers from the excesses of Wall Street. To its detractors, the CFPB is a millstone around the neck of American industry and the broader economy—an unconstitutional, ever-growing burden on progress.  

The Constitutionality of the CFPB  

The Supreme Court has issued multiple rulings on the structure of the CFPB. In June 2020, the Court found the CFPB structure unconstitutional, given the inability of the president to fire the CFPB director at will, although it preserved the agency by severing the removal clause from the law. In May 2024, the Court ruled that the CFPB’s funding structure was constitutional. 

When the CFPB was founded in 2010, Congress authorized it to request desired funding from the Federal Reserve, up to a (inflation-adjusted) cap of $785.4 million. The plaintiffs in the case argued this was unconstitutional because of the Article I clause providing that money could be drawn from the Treasury only “in Consequence of Appropriations made by Law” – seemingly implying the need for an appropriations act. Justice Clarence Thomas, writing the opinion for a 7-2 majority, said that Congress has wide discretion in structuring the way federal agencies are funded.   

While these decisions seem to preserve the existence of the CFPB (or at least would make it difficult for any administration to “delete” the bureau without the assistance of Congress), the CFPB funding mechanism remains a nonsensical vulnerability. A first principle of budgeting is that all demands for funding be on a level playing field. Exempting CFPB from the appropriations process provides a favored status superior to that of the other financial regulators. There is no compelling reason for that preference, and it should be eliminated. A second principle is that Congress should use its oversight powers to ensure that agencies are using funds in the pursuit of their legislated missions and as efficiently as feasible.  

It was in this legal context that the Department of Justice revealed in a court filing its new interpretation of the CFPB’s funding mechanism. Under the Dodd-Frank Act, the CFPB is funded by transfers from the “combined earnings…of the Federal Reserve System.” The recent administration filing says that because the Fed has reported losses since 2022, no “earnings” exist, and thus no transfer may lawfully occur. Acting head of the CFPB Russell Vought had in February  declined to request funding for the CFPB, which has been running on reserves since. Without new funding, the CFPB is anticipated to exhaust its those reserves, and effectively close up shop, in early 2026—unless Congress intervenes. 

What To Keep an Eye On 

The administration’s declaration that the CFPB’s funding mechanism is unlawful sets in motion a series of institutional and market questions that will take months—if not years—to resolve. The implications go well beyond the CFPB itself. Several developments deserve particular attention as the situation evolves. 

Litigation and judicial clarification
The legal debate turns on the meaning of a few words—“combined earnings of the Federal Reserve System”—but the consequences are immense. Courts will need to determine whether Congress intended “earnings” to mean realized net income or whether it encompasses all receipts, including those offset by accounting losses. The Supreme Court upheld the CFPB’s funding structure as consistent with the Appropriations Clause, but that ruling did not contemplate a scenario in which the Fed operated at a loss. As such, new litigation could reach the Court again, reopening questions thought settled only months ago. How the judiciary handles this definitional issue will set a durable precedent for all agencies relying on nonstandard funding models. 

Congressional response and legislative options
While the courts may clarify the legality of the current funding flow, Congress ultimately controls the purse. Lawmakers could choose to appropriate funds directly to the CFPB, converting it to a conventional agency subject to annual appropriations. That step would resolve the immediate crisis but would also expose the agency to the political budget cycle it was designed to avoid. Alternatively, Congress could amend Dodd-Frank to redefine the funding source or expand eligible revenue categories. Both paths would require bipartisan cooperation—an unlikely prospect in a divided Congress, let alone for a politically divisive entity. 

Administrative and operational adaptation
Within the CFPB, senior leadership now faces the task of rationing resources under uncertainty. Expect the agency to freeze hiring, postpone or scale back rulemakings, and narrow enforcement priorities to focus on high-impact or ongoing cases. The CFPB may also lean on interagency coordination—particularly with the prudential regulators—to maintain a degree of oversight through joint actions or shared data. Observers should monitor which areas of supervision are quietly paused: Small-dollar lending, digital-finance practices, and student-loan servicing are all potential candidates. There is also a question of morale and institutional continuity. Staff departures, hiring freezes, or curtailed initiatives could erode the agency’s institutional memory, making any future restoration of capacity more difficult and costly. 

Industry behavior and market effects
Financial institutions, fintechs, and consumer-credit firms will respond to perceived enforcement risk. Some may view a weakened or distracted CFPB as a window to expand new products, push the boundaries of compliance interpretations, or revisit practices previously constrained by enforcement precedent. Others may prefer stability, maintaining compliance programs to avoid reputational or future regulatory risk. The degree to which enforcement softens—and how quickly firms adapt—will shape consumer outcomes as much as any legal ruling. Early indications might be seen in shifts in complaint volumes, changes in lending standards, or marketing of high-risk credit products. 

Consumer and public-policy impact
For consumers, the risk is uneven: sophisticated borrowers may experience little change, while lower-income or first-time credit users could face greater exposure to harmful practices if oversight lapses. Policymakers and advocacy groups will likely press for interim protections, possibly through state attorneys general or the Federal Trade Commission. The broader public-policy question is whether consumer-protection oversight can be sustained through alternative mechanisms if the CFPB falters. 

Precedent for independent agencies.
Perhaps the most far-reaching implication concerns institutional design. The CFPB’s funding model—outside appropriations, drawn from a self-financing entity—was once seen as a template for independence. If that model can be disrupted through reinterpretation, other agencies with similar funding independence, such as the Federal Housing Finance Agency and the Office of the Comptroller of the Currency, could face analogous challenges. The line between agency independence and congressional control over the purse would blur, reshaping how financial regulation is structured in the United States. 

Conclusions 

For years, Republicans and industry have railed against an activist CFPB endlessly expanding its own powers and responsibilities. The function, role, and structure of the CFPB can and should be reconsidered, but moving fast and breaking things necessarily entails breaking things. Over the past two decades, the CFPB has supplanted a significant body of existing consumer protections at other federal regulators. Halting operations at the CFPB without a plan for replacing these protections is not without risks to both consumers and the administration.