Claiming they will suffer irreversible harm if the CFPB is abolished, nearly two dozen states and the District of Columbia are requesting that a federal judge grant an injunction preventing the Trump administration from defunding the agency.
The CFPB has become a vital partner for states in consumer protection efforts, according to the D.C. and 23 states, including Michigan, in their amicus brief. The states are already suffering because President Donald Trump and billionaire Elon Musk, who has been tasked with cutting government spending, abruptly diverted the agency’s funds and declared it dead.
Consumer complaints, bank inspections, and legal action to halt unfair and deceptive practices are all part of the state-level cooperation with the consumer protection agency, which Congress established in the wake of the 2008 Great Recession to regulate large banks and shield Americans from predatory financial practices.
The City of Baltimore filed the underlying lawsuit.
The states have to demonstrate irreparable injury in order to win the injunction. According to the complaint, the injury falls into three categories.
First, the CFPB will no longer be able to carry out its legal duties, which include handling up to 25,000 consumer complaints per week from residents of those states, gathering information for the Home Mortgage Disclosure Act, and disbursing funds from the Civil Penalty Fund to affected consumers.
More than a dozen cases—those in which consumers have already been determined to be entitled to relief—still pending disbursements from the Civil Penalty Fund as of this filing. “On behalf of the states, New York Assistant Solicitor General Andrea W. Trento wrote that thousands of state residents will be denied awarded monetary relief that is scheduled to be distributed from the Fund if the Civil Penalty Fund remains inactive.”
Second, because the CFPB, which was granted sole authority to regulate state-chartered banks, is essentially non-existent, they are now at a disadvantage versus the extremely large banks that operate across the country.
As demonstrated in the years preceding the 2008 financial crisis, the states contended that the very large financial institutions that compete with state-chartered banks will have unrestricted authority to relax regulatory compliance and make money in this way, which will negatively impact consumers. In the meanwhile, the state will continue to oversee state-chartered banks to ensure they adhere to the same regulations.
They referenced testimony provided to Congress earlier this month by Federal Reserve Chairman Jerome Powell, who informed legislators that large banks such as JP Morgan and Wells Fargo are essentially unregulated in the event that the CFPB is not in operation.
Lastly, states that have had to reallocate resources to cover the CFPB’s absence now face an even greater burden.
By abruptly increasing the responsibility on states to protect their citizens through both enforcement and regulation of the banking industry, defendants’ efforts to undermine the CFPB have already started to hurt the states, they said.
This includes causing significant disruption to ongoing litigation in which the states had partnered with the CFPB: States will now be solely responsible for such joint litigation after the CFPB abruptly terminated the contracts of experts it had hired to help with such ongoing litigation matters.
And the defendants in those cases are already attempting to get the courts to dismiss the lawsuits on the grounds that the CFPB defunded them. The defendants recently filed a move to lift a preliminary injunction in a court case in New York where seven states joined the CFPB to shut down an illegal debt-relief scheme. They argued that while the CFPB may still exist in theory, it is completely nonfunctional.
In a video that was made public earlier this month, Michigan Attorney General Dana Nessel praised the CFPB’s efforts to protect American customers from unfair, exploitative, and misleading financial services and corporate practices.
In the video, Nessel claims that by holding some of the most powerful companies in the world accountable for unfairly, illegally, and dishonestly treating their customers, the CFPB has recovered more than $20 billion for American consumers, either as direct payments to the wronged customers or as relief funds for affected victims. By using its authority to protect Americans from unfair contractual terms that force consumers into bad deals, deceptive fees and practices that steal millions from working families, and financial products like predatory mortgages, shady auto loans, and corrupt investment and banking accounts that defraud borrowers blindly in order to line the coffers of big bankers, the CFPB is able to hold the bad actors accountable.
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Jon King of the Michigan Advance also contributed to this story.
Eliot Pierce is a dedicated writer for ChiefsFocus.com, covering local crime and finance news. With a keen eye for detail and a passion for storytelling, Eliot aims to provide his readers with clear and insightful analysis, helping them navigate the complexities of their financial lives while staying informed about important local events. His commitment to delivering accurate and engaging content makes him a valuable resource for the community.