Photo via Consumer Financial Protection Bureau /Flickr
Nearly two dozen states and the District of Columbia are asking a federal judge to issue an injunction blocking the Trump administration from defunding the Consumer Financial Protection Bureau, arguing they will suffer irreparable harm if the CFPB is dismantled.
The amicus brief by D.C. and the 23 states, including New Mexico, argues that the CFPB has become an essential partner to states in consumer protection efforts, and that states are already facing harm since President Donald Trump and billionaire Elon Musk, who has been tasked with slashing government spending, abruptly diverted the agency’s money and declared it dead.
The state-level collaboration with the consumer protection agency, which Congress created in response to the 2008 Great Recession to regulate big banks and protect Americans from predatory financial practices, includes things like consumer complaints, examining banks and going to court to stop deceptive and unfair practices.
The underlying lawsuit was filed by the City of Baltimore.
To prevail on the injunction, the states must prove irreparable harm. The filing claims there are three categories of that harm.
First, there will be a loss of services that the CFPB is required by law to perform, including processing consumer complaints from those states’ residents — as many as 25,000 a week — collecting data for the Home Mortgage Disclosure Act and distributing money from the Civil Penalty Fund to consumers who were harmed.
“As of this filing, there were more than a dozen matters for which distributions from the Civil Penalty Fund remained outstanding—i.e., cases in which consumers have already been found to be entitled to relief. If the Civil Penalty Fund remains inactive, thousands of state residents will be deprived of awarded monetary relief planned to be distributed from the Fund,” New York Assistant Solicitor General Andrea W. Trento wrote on behalf of the states.
Second, state-chartered banks are now at a disadvantage to the very large banks that operate nationwide since CFPB — which was given exclusive authority to regulate them — is all but defunct.
“The very large financial institutions that compete with state-chartered banks will have carte blanche to loosen their regulatory compliance and profit accordingly—to the detriment of consumers—as was seen in the years leading up to the 2008 financial crisis,” the states argued. “Meanwhile, state-chartered banks will remain subject to state supervision for their compliance with the same laws.”
They cited testimony that Federal Reserve Chairman Jerome Powell gave to Congress earlier this month, in which he told lawmakers that big banks like JP Morgan and Wells Fargo are effectively unregulated if the CFPB isn’t operating.
Finally, there’s an increased burden on states that have already had to divert resources to fill the gaps left by the CFPB’s absence.
“Defendants’ actions to dismantle the CFPB have already begun to harm the States by suddenly increasing the burden on them to protect their residents through both enforcement and supervision of the financial industry,” they wrote.
That includes being “extremely disruptive” to ongoing litigation in which the states had partnered with CFPB: “Experts who have been retained by the CFPB to assist in such ongoing litigation matters have had their contracts abruptly terminated, and States will now have to take over sole responsibility for such joint litigation.”
And defendants in those lawsuits are already trying to use the CFPB’s defunding as a reason for courts to toss out the litigation. In one federal case in New York, in which seven states partnered with the CFPB to shut down an illegal debt-relief scheme, the defendants recently filed a motion asking for a preliminary injunction to be lifted on the ground that “the CFPB may still exist in theory, but it is wholly nonfunctional.”
In a statement provided to Source, New Mexico Department of Justice Chief of Staff Lauren Rodriguez said, “Defunding the Consumer Financial Protection Bureau would leave consumers vulnerable to financial abuse and deception, stripping away critical protections that have safeguarded millions of Americans from predatory practices. We are standing with our fellow Attorneys General to fight back against this reckless effort and ensure that big banks and lenders remain accountable to the people they serve.”
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