How should Kraninger run CFPB? Warren has some ideas

December 20, 2018 4:15 PM

WASHINGTON — Kathy Kraninger, the new head of the Consumer Financial Protection Bureau, is likely hearing a lot of input from different parties about what to prioritize at the agency. On Thursday, it was Sen. Elizabeth Warren’s turn.

The Massachusetts Democrat and original CFPB architect butted heads with Kraninger’s predecessor, former acting Director Mick Mulvaney, who sought to reverse the policies of inaugural CFPB chief Richard Cordray, whom Warren had supported.

In an expansive letter dated Wednesday, Warren urged Kraninger to take immediate steps “to reverse the anti-consumer initiatives undertaken by Interim Director Mulvaney and to ensure that the CFPB adequately protects consumers.”

“Mr. Mulvaney did everything in his power to weaken and politicize the agency,” Warren wrote. “He filled the agency with political appointees, halted enforcement activity, decimated the agency's access to resources and data, and dismantled critical protections for students, servicemembers, and communities of color.”

For example, Warren implored Kraninger to remove more than a dozen political appointees that Mulvaney had hired to shadow career staff in key division roles, and to “reinvigorate” the agency’s enforcement unit.

Warren said her list of requested steps “can easily be in place or in progress” by Jan. 6, which will be one month after Kranginger was confirmed.

“During your Senate confirmation hearing, you stated that, if confirmed as the CFPB Director, you would ‘focus solely on serving the American people,’” she told Kraninger. “The steps identified in this letter would represent a strong step towards keeping that promise.”

Yet it is unclear how much weight Warren’s ideas will have with Kraninger, who previously reported to Mulvaney at the Office of Management at Budget. The new director has shown willingness to go her own way, such as her decision to drop Mulvaney’s efforts to change the CFPB’s name. But she has also indicated that she could adopt Mulvaney’s pro-market regulatory approach.

Here is a rundown of Warren’s recommended to-do list.

Fire political appointees

Last December, Mulvaney announced his plans to bring in political appointees, pairing one with each career staff member who heads a division. But the move sparked an immediate backlash from critics who said it would compromise the CFPB’s independence.

Among the more than a dozen appointees hired at the agency were former staffers on the House Financial Services Committee, as well as Eric Blankenstein — now the agency’s policy director of supervision, enforcement and fair lending — who caused an uproar following revelations of his racially charged writings on a blog 14 years ago.

“These political appointees reflect a departure from Congressional intent, the last six years of CFPB's apolitical culture, and the practices of other independent financial regulators,” Warren wrote. “To demonstrate to the American people that the CFPB, under your watch, will serve as an unbiased agency operating independently of the whims of political partisanship, I ask that you immediately remove the political appointees hired at the CFPB.”

Reverse decline in enforcement actions

CFPB Director Kathy Kraninger

Andrew Harrer/Bloomberg

In February, Mulvaney restructured the agency’s Office of Fair Lending, taking away its enforcement powers and moving it out of the bureau’s supervision and enforcement division.

Warren noted that the CFPB apparently filed no enforcement actions related to fair-lending violations under Mulvaney. She also questioned how the agency dealt with the Home Mortgage Disclosure Act, which requires data collection to point to fair-lending trends, and enforcement of the Equal Credit Opportunity Act.

Warren also called out the agency’s retention of Blankenstein, who is “tasked with enforcing antidiscrimination laws at the agency even after reports surfaced” of his racially charged comments.

“As CFPB Director, you should restore the Office of Fair Lending to its original placement within the CFPB's Supervision, Enforcement, and Fair Lending Division and reengage in supervision and enforcement efforts. I also ask that you remove Mr. Blankenstein from his post and halt any efforts underway at the Bureau to roll back HMDA and ECOA antidiscrimination protections,” she wrote to Kraninger.

Commit to data collection as a regulatory tool

Mick Mulvaney, acting director of the Consumer Financial Protection Bureau (CFPB ), listens during a Senate Banking, Housing & Urban Affairs Committee hearing in Washington, D.C., U.S., on Thursday, April 12, 2018. Senator Elizabeth Warren clashed with Mulvaney, accusing the former GOP congressman of putting politics ahead of protecting consumers. Photographer: Toya Sarno Jordan/Bloomberg

Toya Jordan Sarno/Bloomberg

One of Mulvaney’s first steps as acting director was to halt the agency’s collection of data from companies, citing cybersecurity risks. Yet critics suspected the move was aimed at slowing down enforcement-related investigations.

Those data collection efforts were later resumed. Mulvaney had also threatened to cut off public access to the bureau’s consumer complaint database.

“Mr. Mulvaney justified this freeze by mischaracterizing results of reports on the CFPB's cyber-security capabilities, and ultimately lifted it after it became clear he could no longer justify his claims,” Warren wrote.

She called on Kraninger to commit to collecting “the high-quality data that CFPB needs to inform its work” and to keeping the bureau’s consumer complaint database publicly available.

“The American people deserve a watchdog that robustly pursues the information it needs to conduct its statutory supervisory and enforcement responsibilities,” Warren wrote.

Restore enforcement powers of CFPB’s fair-lending office

Senator Elizabeth Warren, a Democrat from Massachusetts, listens to a question during a discussion at American University in Washington, D.C., U.S., on Thursday, Nov. 29, 2018. Warren said she opposes Nafta 2.0 in a foreign policy speech and will vote against it unless President Donald Trump reopens the agreement and produces a better deal for Americas working families. Photographer: Andrew Harrer/Bloomberg

Andrew Harrer/Bloomberg

Strengthen efforts to protect student borrowers, military service members

U.S. military service members and students listen as Senator John McCain, a Republican from Arizona, not pictured, speaks during a campaign event at Grand Canyon University (GCU) ahead of the U.S. Senate election in Phoenix, Arizona, U.S., on Thursday, Aug. 11, 2016. The current U.S. Senate has 54 Republicans and 45 Democrats and takes place on November 8. Photographer: Patrick T. Fallon/Bloomberg

Patrick T. Fallon/Bloomberg

Warren’s last request focused on two separate Mulvaney policies: the restructuring of the agency’s student-lending office, and a halt to examining firms for compliance with the Military Lending Act.

In May, Mulvaney announced a restructuring that included limiting the functions of the Office of Students and Young Consumers to just consumer education. The office was folded into the agency’s financial literacy unit.

Later, internal CFPB documents pointed to the agency’s ceasing MLA exams. Mulvaney argued that the Dodd-Frank Act, which gave the CFPB its rulemaking and supervisory authority, did not authorize monitoring firms for complying with the law. The MLA is designed to protect military service members from predatory loans; it imposes a 36% annual percentage interest rate cap on loans for active-duty military members and their dependents. The CFPB’s decision to halt exams baffled the Department of Defense.

“To ensure that students are adequately protected, your first actions as CFPB Director should include reinstating the enforcement authority of the Office of Students and Young Consumers, filling the position of Student Loan Ombudsman, and rapidly providing Congress with information on student borrowers as required by statute,” Warren wrote to Kraninger. “You should also restart supervisory examinations under the MLA to ensure that servicemembers and their families are protected from predatory lenders.”