DOJ wants Fed Chair Powell to weigh in on CFPB funding

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• Key Insight: If the central bank turns a profit soon, it undermines the Trump administration’s legal rationale for why it is refusing to fund the CFPB.  
• What’s at Stake: The issue of the Fed’s profitability is central to whether the CFPB continues to function or furloughs most of its staff.
• Forward Look: Acting CFPB Director Russell Vought has cited an opinion from the DOJ’s Office of Legal Counsel as the rationale for why he cannot request funding. 

The Department of Justice is trying to pull Federal Reserve Chairman Jerome Powell into its funding fight over the Consumer Financial Protection Bureau.  

On Tuesday, the Justice Department sent a letter to Powell  asking for his opinion on two critical points related to the CFPB’s funding: whether the Federal Reserve System expects to return to profitability “in the coming weeks,” and whether the Fed currently has “combined earnings” as defined by the DOJ’s Office of Legal Counsel in an opinion last month. 

The letter, sent by Brett A. Shumate, a DOJ assistant attorney general, cites published reports that claim the central bank is returning to profitability after recording significant paper losses since 2022. The Fed is projected to resume sending large remittances to the Treasury Department, after clearing its running tally of past losses, due to rising interest rates on bank reserves, which exceeded its earnings.

On Wednesday, U.S. District Court Judge Amy Berman Jackson, of the U.S. District Court for the District of Columbia, responded with an order that acting CFPB Director Russell Vought attach copies of any responses to his letter to Powell, on the day received, with the court. 

Judge Jackson has played a key role in a legal fight with the CFPB’s union over the Trump administration’s efforts to drastically downsize the CFPB. She has issued injunctions to block mass layoffs and preserve the agency’s operations, citing risks of irreparable harm and deliberate defiance of her court orders by the administration. Currently, a lawsuit against Vought, filed by the CFPB’s union in February, is on appeal before the U.S. Court of Appeals for the D.C. Circuit. The court has received the National Treasury Employees Union’s petition for an en banc rehearing but has not officially granted en banc review. 

The issue of the Fed’s profitability is central to whether the CFPB continues to function or operates in legal limbo. Vought is trying to fulfill President Trump’s goal of dismantling the agency. He said last month that he may have to furlough many of the CFPB’s employees. Some experts think Vought is required by statute to request funding from the Fed; if the central bank turns a profit soon, it undermines the administration’s legal rationale for why it is refusing to fund the CFPB.  

The letter is in response to an amicus brief from five former Fed officials, as well as a separate lawsuit against the CFPB by Rise Economy, the National Reinvestment Coalition and the Woodstock Institute, challenging Vought’s attempts to cut funding for the agency. 

Last month, the DOJ’s Office of Legal Counsel issued an opinion that the Federal Reserve System lacks “combined earnings” to fund the CFPB, as required by the Dodd-Frank Act. The DOJ told a court that the CFPB has only enough money to operate through Dec. 31st. 

In his letter, Shumate questioned whether those circumstances have changed. “There has since been reporting that the Federal Reserve System is returning to profitability and may have, or may soon have combined earnings under [the] OLC definition,” he wrote.  

Shumate’s letter went on to state that “based on published financial statements, [the] CFPB understood that the Federal Reserve had no combined earnings under OLC’s definition.” The one-page letter said that Vought had prepared and submitted a report based on the OLC’s opinion, that “there were no funds legally available for the Bureau to request from the Federal Reserve System.”

However, Shumate did not ask Powell for a period in which to measure the Fed’s profitability. Some legal experts say it is clear that the central bank has been “profitable” as the OLC defines it — and may be “profitable” in certain weeks or even this quarter — but OLC’s opinion never explained whether “combined earnings” should be measured on a weekly, quarterly or annual basis. 

The CFPB still has roughly 1,400 employees, many of whom are being paid not to work. He is challenging a preliminary injunction that has kept him from mass firings. Vought has claimed that the CFPB can fulfill its statutory duties with a staff of just 200.

Dodd-Frank created the CFPB as an independent agency within the Federal Reserve System with the agency’s funding capped at a percentage of the central bank’s earnings. The DOJ and CFPB cited U.S. Code Title 12, Section 5497, which created the dedicated funding within the Fed to cover the bureau’s operations, as the reason Vought cannot request funding.