Russ Vought Breaks the Law on His First Day as CFPB Director

The CFPB's acting Director, Project 2025's Russell Vought notified the Board of Governors of the Federal Reserve Board that the CFPB would not be making its permitted annual draw on the Fed for funding this year. He also direct the CFPB to cease all examination and supervision activity. Both actions are illegal.

Funding.  The CFPB gets its funding from quarterly draws on the combined earnings of the Federal Reserve System. The amount of the draw is capped, but within that cap the draw is supposed to be for "the amount determined by the Director to be reasonably necessary to carry out the authorities of the Bureau under Federal consumer financial law, taking into account such other sums made available to the Bureau from the preceding year (or quarter of such year)." The draw request is a final disposition of a matter that isn't a rulemaking, so it is an "order" for purposes of the Administrative Procedures Act. Agency orders have to have a reasoned basis; they cannot be arbitrary and capricious, and they can be challenged by affected parties. 

Here it is hard to see how Vought, who has been on the job for around 24 hours, could possibly have made a reasoned determination that the Bureau:

will not be taking its next draw of unappropriated funding because it is not ‘reasonably necessary’ to carry out its duties. The Bureau's current balance of $711.6 billion is in fact excessive in the current fiscal environment. This spigot, long contributing to CFPB's unaccountability, is now being turned off.

Maybe Vought's a quick learner, but I don't see how he could have reached this conclusion so fast in a manner that is not arbitrary and capricious. If he had waited two weeks, it would pass the straight face test, but the dude's been the acting Director for 24 hours. Determining the funding level necessary for the Bureau requires having a fairly sophisticated understanding of its activities and what would be necessary to "carry out the authorities of the Bureau under Federal consumer financial law." The statutory instruction includes a legal term of art, so it doesn't mean "carry out the authorities of the Bureau as I the acting Director would like to see them."

Instead, the "authorities of the Bureau under Federal consumer financial law is defined by another provision in the CFPA:  "The Bureau is authorized to exercise its authorities under Federal consumer financial law to administer, enforce, and otherwise implement the provisions of Federal consumer financial law." In other words, before making the draw, the CFPB Director has to first determine what the Bureau needs to do to "administer, enforce, and otherwise implement the provisions of Federal consumer financial law." He cannot legally say "I don't want the Bureau doing anything, so I won't make a draw." Instead, he has to come a reasoned conclusion about how much funding the Bureau requires to actually administer and enforce the law, etc., even if he doesn't want the law administered and enforced. Notably, nothing in the statute permits him to consider the "current fiscal environment" or what he sees as the "CFPB's unaccountability."  There's a rich irony that a guy who complains about the CFPB being unaccountable acting arbitrarily and capriciously. 

What's more, Vought's got his numbers wrong. The CFPB does not have $711.66 billion sitting around. It doesn't even have a measly $1 billion. Instead, as of the end of FY 2024 the CFPB had unobligated balances of $203 million. If the head of the OMB head can't tell millions from billions, this country is in deep trouble. But perhaps it's easy to confuse millions with billions when you are working for a fake billionaire.... (Vought subsequently corrected his tweet...)

Now lest you say, "well, $203 million is more than enough," the Congressional Research Service noted that "the CFPB's projected budget estimate for its operations in FY2025 was $810.6 million. These projected budget estimates could change based on a change in the director or in CFPB’s priorities." There is nothing that binds Vought to the Bureau's previous estimated budget, but if he's going to conclude that $203 million is adequate, he needs some sort of basis for his judgment. I don't see how he could have one yet, and, as discussed below, if he thinks he can save money by stopping supervision, well, he can't. 

Examinations and Supervision. The Consumer Financial Protection Act requires the CFPB to conduct examinations and supervision of covered non-bank financial institutions. 12 USC 5514(b) provides that "The Bureau shall require reports and conduct examinations on a periodic basis of [certain nonbanks] for the purposes of...assessing compliance with the requirements of Federal consumer financial law...."  (emphasis added). The Bureau has discretion as to how it conducts examinations and when, but it does not have discretion over whether do undertake them. Contrast this with the permissive language of 12 USC 5515, regarding examinations of very large banks, which gives the Bureau the exclusive authority to conduct such examinations for compliance with Federal consumer financial law, but does not in fact require the examinations. A blanket order to stop examinations and supervision is illegal. That doesn't mean that Vought cannot otherwise gut the examination process, but it's going to require a bit more work to do so legally.

Vought's illegal orders affect not just CFPB employees and vendors and consumers. They also affect regulated institutions. The CFPB is by statute supposed to create a level playing field to "promote fair competition." Stopping examinations for megabanks and nonbanks creates a grossly unfair playing field for community banks, which are still subject to consumer protection examinations by their prudential regulators. And shuttering the CFPB harms all financial institutions that want to play fair and by the rules and not lose market share to cheats.

I expect we'll see litigation soon enough over these issues. Someone is going to have a lot of fun deposing Vought about his decision-making regarding the funding draw....

Updated Feb. 9, 10:34am. 

Comments

[Dan Quan]

Voght's $711m number may be correct. The CFPB received two transfers from the Fed in FY2025. In Oct 2024, it received $248.9m from the Fed. The bureau requested funding again in Dec and received an undisclosed amount on Jan 2.

[David Silberman]

The Dodd-Frank Act imposes on the CFPB multiple mandatory duties using "shall" language in addition to conducting examination of non-banks. These include the duty to submit annual reports to Congress with respect to its fair lending, financial literacy, complaint handling, and market monitoring activities. See 12 U.S.C. §§ 5493 (b)(1)(research); 5493(b)(2) (assistance to “traditionally underserved consumers”); 5493(b)(3) (complaint handling);5493(c) (fair lending); 5493(d) (financial education); 5493(e)(initiatives for service members); 5493(f)(protection of seniors); 5512(c)(3) (market monitoring); 5514 (examination of non-depositories). Although most of the other grants of authority to the Director are, in terms, permissive, a Director’s blanket decision to refrain from exercising all of these authorities would also flout Congress’ intent, especially given the Director’s obligation to report semi-annually to Congress on, e.g., significant rules adopted and plans for future rulemaking and on the Bureau’s public enforcement actions. 12 U.S.C. § 5496(b).