At a hearing Thursday, Democrats castigated Consumer Financial Protection Bureau Director Kathleen Kraninger, who wasn’t willing to say that her agency needs to exist.
“I will say it is very clear Congress determined that and it’s my job to carry out the law,” Kraninger said in response to House Financial Services Chairwoman Maxine Waters, D-Calif., who asked if she believed that CFPB was necessary.
Facing further questioning from New York Democrat Gregory W. Meeks, Kraninger clarified her response.
“I absolutely believe in the mission of the CFPB. I’ve been tasked with carrying it out. That is what I’m doing,” she said.
But Kraninger has repeatedly noted in public statements that the CFPB’s mission, explicitly set out in statute, extends beyond enforcing consumer protection laws. As Democrats rebuked Kraninger for sparing misbehaving banks from harsher penalties, she defended smaller fines and more settlements as restoring balance to the agency’s goal of maintaining fair, transparent and competitive financial markets.
Kraninger appeared before the panel to present the CFPB’s semi-annual report to Congress.
Republicans, who complained that CFPB’s first director, Richard Cordray, overzealously punished mostly law-abiding firms, applauded Kraninger’s lighter regulatory and enforcement touches. Democratic complaints over the direction she has taken the agency, GOP members argued, were their own fault. Democrats controlled Congress when it passed the Dodd-Frank Act, establishing the CFPB as an independent agency with a single, Senate-confirmed director removable only for cause.
“What I think we’re hearing is a little bit of buyer’s remorse over the structure,” said ranking member Patrick T. McHenry, R-N.C.
The constitutionality of that structure is being challenged in a lawsuit pending before the Supreme Court, Seila Law LLC v. Consumer Financial Protection Bureau. After the CFPB successfully defended its structure at federal district and appellate courts, Kraninger reversed the agency’s position, refusing to defend the constitutionality of her own office in court.
The lawsuit argues that the president’s inability to remove the CFPB director at his pleasure violates the constitution’s separation of powers. Most other independent agencies, like the Securities and Exchange Commission, are run by boards with similar for-cause removal provisions, although the Federal Housing Finance Agency, also created in the wake of the 2008 financial crisis, has a similar structure. The FHFA, however, has continued to defend its structure in court.
Kraninger touted the CFPB’s recent memorandum of understanding with the Education Department on supervision of student loan servicers, but Democrats said that was nothing to brag about. Rep. Sean Casten, D-Ill., suggested Kraninger was deferring to Education Secretary Betsy DeVos and loan servicers over student borrowers.
Democrats also excoriated Kraninger for CFPB’s about face on the payday, vehicle title and certain high cost installment loans rule. Payday lenders have been accused of trapping their customers in debt cycles by offering short-term loans with huge interest rates and balloon payments that frequently force them to roll over the loans when they hit maturity. A 2017 CFPB rule would have addressed that by requiring payday lenders to determine that a borrower had the ability to repay a loan before extending it, and blocking lenders from making more than three loans in rapid succession to the same customer.
A year ago, the CFPB delayed the rule’s implementation and began the process of rescinding its mandatory underwriting provisions. The payday lending industry applauded the move — it said the rule would have put them out of business, hurting the customers who rely on them for credit in the process — but consumer advocates and Democrats have sharply criticized Kraninger for it.
Kraninger hinted at one of the likely changes in the new rule the CFPB intends to release in April. “Credit unions got a carveout in prior rulemaking, even as banks did not,” she said. “There are real dynamics with regard to how we can promote the kind of competition that’s going to be good for consumers.”
She also said the new rule would provide more clarity, and responds to banks’ concerns that the prior rule was too broad and would have restricted lending that differed significantly from payday loans.
While consumer advocates have largely panned Kraninger’s tenure at the CFPB, she recently received rare praise for proposed changes to the Qualified Mortgage (QM) rule, which sets standards for home loan lenders selling mortgages to Fannie Mae and Freddie Mac. The Center for Responsible Lending applauded the proposed rule, which will not rely solely on borrowers’ debt-to-income (DTI) ratios in qualifying mortgages.
“This approach will allow lenders to make a holistic assessment of a borrower’s ability to repay and will not arbitrarily exclude low-income borrowers and communities of color from QM, as imposing a strict DTI limit would,” said Eric Stein, senior vice president at Self-Help Credit Union, the community development lender that founded CRL.