SKN | CFPB Faces Funding Uncertainty as It Moves to Revise Fair Lending and Data Collection Rules

DOJ Challenges Bureau’s Ability to Access Fed Funding

The Consumer Financial Protection Bureau (CFPB) is navigating both regulatory changes and financial headwinds this week, after the Justice Department’s Office of Legal Counsel (OLC) argued the bureau may not legally request funding from the Federal Reserve under the Dodd-Frank Act.

In a memo submitted to the U.S. District Court for the District of Columbia, the OLC claimed that the Fed currently lacks the profits needed to support CFPB operations. Under the OLC’s interpretation, the term “combined earnings” refers strictly to profits — and because the Fed has operated at a loss since 2022, it cannot transfer funds to the CFPB.

“If the Federal Reserve has no profits, it cannot transfer money to the CFPB,” wrote T. Elliot Gaiser, assistant attorney general and head of the OLC. DOJ attorneys warned the court that the CFPB expects to exhaust its available resources by early 2026.

Ironically, Acting Director Russ Vought has repeatedly declined to request Fed funding since taking office in February. Vought, a longtime opponent of the agency, said in October he hopes to “put [the CFPB] out within the next two, three months,” leaving only essential staff in place.

Political Clash Intensifies as Congress Weighs In

The filing drew immediate condemnation from Sen. Elizabeth Warren (D-MA), who helped design the CFPB after the 2008 financial crisis. Warren called the OLC’s reasoning “absurd” and accused Vought of attempting to defund the agency through legal maneuvering rather than congressional authority.

Only Congress has the power to eliminate the CFPB, but under President Donald Trump’s earlier legislation, the bureau’s funding cap was reduced from 12% to 6.5% of the Fed’s operating expenses — tightening its financial runway going forward.

The end of the federal government shutdown on Wednesday adds another wrinkle, as it remains unclear whether Congress will intervene or allow the funding dispute to continue.

CFPB Introduces Two Major Rule Proposals

While addressing funding questions, the CFPB also proposed two regulatory changes for publication in the Federal Register:

1. A rule that critics say weakens fair-lending enforcement

2. A revision of its small-business lending data collection guidance (Section 1071), which previously generated lawsuits and delays

The fair-lending proposal would significantly narrow what qualifies as “discouragement” under the Equal Credit Opportunity Act (ECOA). Under the new framework, only explicit statements indicating a lender will not serve a protected class would be considered discouragement.

This marks a sharp break from past CFPB interpretations, which included actions such as failing to market mortgage or credit products in communities of color.

Civil rights advocates responded swiftly. Jesse Van Tol, CEO of the National Community Reinvestment Coalition, called the proposal “an outright assault on civil rights in lending,” warning it could open the door to renewed redlining and reduce oversight of discriminatory practices.

Impact on Special Purpose Credit Programs

A separate proposal would limit lenders’ ability to use race, gender, or national origin in crafting Special Purpose Credit Programs (SPCPs) — tools designed to expand access to credit for historically excluded borrowers. This follows an October executive order from President Trump prohibiting agencies from using disparate impact analysis as evidence of discrimination.

While federal standards may tighten, several states maintain their own disparate impact frameworks, which may continue to apply depending on jurisdiction.

Closing Insight

The CFPB now finds itself at a crossroads: navigating internal funding uncertainty while advancing regulatory changes that could reshape U.S. fair-lending practices. As legal challenges mount and political pressure grows, the bureau’s next steps will have lasting implications for credit access, consumer protection, and financial industry compliance nationwide.

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