On June 13, 2024, CFPB Director Rohit Chopra appeared before the House Financial Services Committee for a hearing, “The Semi-Annual Report of the Bureau of Consumer Financial Protection.” As we expected, the House Financial Services Committee also tackled the earnings issue raised by Senator John Kennedy (R-LA). We previously blogged that CFPB Director Rohit Chopra was dismissive of the argument that the CFPB was unlawfully funded out of losses of the Federal Reserve Banks. Director Chopra continued to rebut funding arguments at the House Committee meeting.

In addressing Kennedy’s comments from the prior day’s Senate Banking Committee Hearing, Congressman Brad Sherman (D-CA) remarked, “Nothing states earnings have to come from earnings in a particular year.”

Congressman French Hill (R-AK) asked, “Can you state for the record how Dodd Frank directs that the CFPB should be funded on an annual basis?” Director Chopra replied, “So the CFPB is a unit of the Federal Reserve System, so we are funded in a very similar way that the Federal Reserve Board of Governors except that we are not able to set our budget. We can, I can, request to the Federal Reserve Board transfers from the Federal Reserve System in the same way they transfer monies from the Federal Reserve Banks to fund their operations. It’s basically a hard number that is adjusted by that index year-by-year, so it doesn’t vary based on other performance. It’s sort of a set number with a cost inflator.” Director Chopra further argued that the audited financial statements of the Federal Reserve use different terminology and instead of positive earnings they call it “excess earnings” but couldn’t remember if it was early 2023 or late 2002 when the Federal Reserve last generated “excess earnings.” Congressman Hill told him it was September 2022 and further replied, “I know it’s running a deficit, and therefore instead of sending money to the Treasury, they’re crediting a contra account of the Treasury. My point is that when you ask for funding, you’re asking for that on top of their losses.”

We expect that Congress will pressure Chairman Jay Powell of the Federal Reserve Board to address this issue and that this concern may be raised in litigation against the CFPB.

See our prior blog post on the Senate Banking Committee and House Financial Services Committee hearings on the CFPB’s Semi-Annual Reports to Congress.