CFPB transfers active litigation to DOJ amid funding crisis

The Consumer Financial Protection Bureau (CFPB) has announced the transfer of all its active litigation to the United States Department of Justice (DOJ), as the agency faces imminent funding shortfalls and a potential shutdown early next year.

This move follows a determination by the DOJ’s Office of Legal Counsel (OLC) that the CFPB cannot seek further funding from the Federal Reserve due to the central bank’s lack of profitability.

As a result, DOJ attorneys will now handle the CFPB’s remaining enforcement actions, appellate cases, and litigation over agency regulations – including a high-profile case challenging the CFPB’s open banking rule.

Key details

• The CFPB’s active litigation portfolio is now under DOJ control, including enforcement actions and regulatory challenges.
  
  
• The CFPB has only a handful of active cases remaining, with most others dismissed, settled, or nearing settlement.
  
  
• The DOJ already represents the CFPB in certain cases, including those before the US Supreme Court and challenges to agency employment actions.

Implications

• Uncertainty for pending cases: The fate of ongoing cases is unclear, with concerns raised by the union representing CFPB employees that the DOJ may dismiss some actions, which may result in nullifying Biden-era consumer protection efforts.
  
  
• Authority questions: The CFPB’s unique statutory authority to bring claims for unfair, deceptive, or abusive acts or practices may not transfer seamlessly to the DOJ. It is also uncertain whether the DOJ can initiate new investigations or issue civil investigative demands as the CFPB did. These issues could lead to protracted procedural litigation in any matters that are not dismissed by the DOJ.
  
  
• Regulatory impact: Many challenges to Biden-era CFPB regulations have been resolved or paused. One of the most high-profile matters – the challenge to the open banking rule under Section 1033 of the Dodd-Frank Act – remains pending, although the CFPB currently is enjoined from enforcing the rule until it has completed its reconsideration of the rule. The DOJ’s approach to ongoing regulatory litigation remains to be seen.
  
  
• Handling at the DOJ: Although there is uncertainty as to which DOJ division will handle the CFPB cases, Mike Salemi, the CFPB’s Principal Deputy Enforcement Director, reportedly told his staff that he assumed the cases would be handled by the DOJ’s new Enforcement & Affirmative Litigation Branch.[1]
  
  
• Political and legal debate: Certain lawmakers have taken issue with the OLC’s funding rationale for the CFPB’s shutdown, but the rationale has not yet been tested in court. The move has drawn criticism from consumer advocates and members of Congress, who warn of diminished consumer protection enforcement.

Next steps

Clients with matters involving the CFPB are encouraged to closely monitor developments and consider the potential impact on ongoing or future enforcement actions. For institutions without pending actions, the transfer of litigation authority to the DOJ, along with the CFPB’s funding position, could indicate that enforcement is not likely to be a priority for the CPFB for the foreseeable future.

^{[1] CFPB to issue mass furlough by year's end and transfer outstanding cases to DOJ - Government Executive; see DOJ announces creation of Enforcement & Affirmative Litigation Branch: Key takeaways | AKD Partners.}