The recently confirmed Consumer Financial Protection Bureau (CFPB) Director Kathy Kraninger testified before the House Financial Services Committee (HFSC) on March 7, 2019. Kraninger's appearance fulfilled the Dodd-Frank Act's mandate that the CFPB director testify semi-annually before designated congressional committees regarding semi-annual reports that the CFPB must submit to those committees. In her first appearance before the HFSC as director, Kraninger emphasized her desire to foster transparency and accountability within the Bureau and to establish "clear rules of the road," to more effectively prevent harm and work with institutions to promote a culture of compliance. She also stated that "enforcement is not the first tool" the CFPB uses, although she noted that it is the most effective tool in dealing with "those who are not seeking to comply."
The hearing also underscored persistent partisan divisions regarding the CFPB. Democratic committee members repeatedly suggested that Kraninger and her predecessor, Mick Mulvaney, had not supported the Bureau's mission of consumer protection. By contrast, Republican members largely defended Kraninger, while often attacking the structure of the Bureau itself. This article highlights a few of the key issues raised at the hearing.
In her opening statement, Committee Chairwoman Maxine Waters (D-Calif.) argued that Mulvaney has "stripped the Office of Fair Lending of its ability to enforce fair lending laws." Mulvaney had removed the Office from the Supervision, Enforcement, and Fair Lending Division and placed it within the Director's Office. When asked by Waters whether she would "restore" the powers of the Office of Fair Lending, Kraninger stated that the Office has already been strengthened, but did not identify ongoing fair lending investigations that had been initiated since she became director. Instead, she stated that decisions regarding investigations generally would be made by enforcement attorneys.
Similarly, Democrats criticized Mulvaney's elimination of the Office of Students and Young Consumers. Kraninger declined to say that she would reopen the Office. However, she noted that there are still officials at the Bureau focused on student issues and that she had recently posted a job for the position of private education loan ombudsman, a statutorily created position that has been vacant for six months. Kraninger also pledged to work toward reestablishing a Memorandum of Understanding (MOU) with the Department of Education, which in 2017 terminated two MOUs with the Bureau regarding collaboration and information-sharing with respect to student loan servicers and other private actors involved in federal aid programs.
In a Notice of Proposed Rulemaking issued in February 2019, the CFPB proposed to rescind requirements that payday lenders make certain underwriting determinations—such as assessing borrowers' ability to repay—before extending payday, single-payment vehicle and longer-term balloon payment loans. Kraninger stated that the CFPB is "considering the sufficiency of the evidence and analysis supporting the underwriting requirements of the short-term small-dollar lending rule." She explained that, in reassessing the underwriting requirements, the Bureau aims to "maintain access to credit and ensure more choice for consumers in need of emergency funds."
Servicemembers and the Military Lending Act:
Committee members from both parties sought to elicit Kraninger's views regarding the CFPB's power to enforce the Military Lending Act (MLA). Kraninger embraced Mulvaney's position that the CFPB lacks authority to supervise financial firms for compliance with the MLA. However, she added that she would like Congress to give the CFPB explicit authority to engage in such supervision.
The CFPB's Structure and Mission:
Beyond specific policy issues, Democratic and Republican committee members advanced starkly divergent views regarding the CFPB's merits, its structure, and how the Bureau should be reformed. Democrats highlighted the Consumers First Act, a discussion draft authored by Waters, as a means of making the CFPB a more robust enforcer of consumer protections. According to a committee memorandum, the Consumers First Act would direct the CFPB's leadership to "reverse all anti-consumer actions taken during Mr. Mulvaney's tenure," including by "resuming the previously authorized supervision of financial firms for Military Lending Act compliance," "restoring the supervisory and enforcement powers of the Office of Fair Lending and Equal Opportunity," and "reestablishing a dedicated student loan office." In contrast, Republicans cast the CFPB as an unaccountable agency that—under Mulvaney's predecessor, Richard Cordray—had frequently overreached and engaged in harmful "regulation by enforcement." Republican members were critical of the Bureau's single-director structure and of the fact that the Bureau receives its funding from the Federal Reserve, rather than through the congressional appropriations process. For her part, Kraninger largely declined to express opinions regarding the CFPB's structure and any proposed reforms.
The vigorous debate regarding the Bureau's merits continued during the hearing's second segment, which featured testimony by a panel of five witnesses: Hilary Shelton, director and senior vice president for advocacy and policy for the NAACP; Linda Jun, senior policy counsel for Americans for Financial Reform; Jennifer Davis, government relations deputy director for the National Military Family Association; Seth Frotman, executive director of the Student Borrower Protection Center; and Scott Weltman, managing shareholder of Weltman, Weinberg & Reis Co., L.P.A. With respect to student loans, Frotman suggested that the CFPB had "become a political arm of the Department of Education" and had abdicated its mission, creating an "open season on student loan borrowers." However, Weltman echoed Republican criticism of the Bureau itself. He recounted his firm's experience as the target of an allegedly overzealous enforcement action by the Bureau during Cordray's tenure. He stated that his firm had ultimately prevailed in litigation against the CFPB but had lost clients and suffered reputational harm due to the CFPB's aggressive tactics, which the Bureau had employed despite the "complete absence of any consumer harm."