6 takeaways from CFPB chief's visit to Capitol Hill

WASHINGTON — In her appearance before the House Financial Services Committee Thursday, Consumer Financial Protection Bureau Director Kathy Kraninger gave the panel's Democratic majority little assurance that she would reverse decisions made by former acting Director Mick Mulvaney, but she also appeared supportive of the agency's mission to look after consumers.

The hearing, part of the CFPB's semiannual report to Congress, was a crucial test for Democratic House leaders in their oversight of the bureau's Trump-appointed leadership, and of how Kraninger would fare under the spotlight of congressional scrutiny.

During the hearing, Kraninger was noncombative as Democrats took her and the agency to task for its policy reforms put in place after Richard Cordray, an Obama appointee, stepped down as the CFPB's director in 2017.

The new CFPB director insisted that she is committed to the agency’s mission of protecting consumers, but offered little insight into the direction of the agency’s rulemakings or restructuring, including a proposal to abandon tough new underwriting requirements in the agency’s payday lending rule drafted under Cordray.

Kraninger also said she is focused on supervision and prevention, rather than on enforcement. Republicans consistently criticized Cordray for what they described as "regulation by enforcement."

Here are key takeaways from the hearing:

Democrats struggled to land blows in questioning Kraninger
CFPB oversight hearings on Capitol Hill have produced fireworks in the past.

When Republicans held the majority in both chambers of Congress, their questioning of former CFPB Director Richard Cordray was aggressive, and Cordray at times reacted angrily. Mick Mulvaney, appointed as acting director by the Trump administration, similarly bristled at times last year under a barrage of questioning from Democratic lawmakers.

But despite tough questions from both sides of the aisle during a hearing Thursday, Kraninger kept her cool. She appeared unfazed through most of the hearing and appeared intent on striking a balance. On the one hand, she seemed sympathetic to GOP concerns about the CFPB having too much power, but she also spoke in support of the agency's mission, its staff and the consumers it serves.

If anything, Kraninger labored hard to appear nonpartisan — and largely succeeded in that mission, something neither of her predecessors managed.

“I expect to emphasize stability, consistency and transparency as hallmarks as we mature the agency and institutionalize the many partnerships that are key to our success in protecting consumers,” Kraninger said in her opening remarks. “I am also examining how we can best utilize all of the tools that Congress has given this agency, broadening our efforts to focus on the prevention of harm for the primary goal of our actions.”

However, Democrats on the House committee kept up their criticism of both Kraninger and Mulvaney as well as attempts by GOP lawmakers to roll back the CFPB's authority.

“Despite these successes, congressional Republicans have done everything they can to stymie the consumer bureau’s work. … I’m deeply concerned about the damage they have done,” said House Financial Services Committee Chairwoman Maxine Waters, D-Calif. “This committee will not tolerate the Trump administration’s anti-consumer actions.”
Kraninger agrees that CFPB lacks authority to conduct Military Lending Act exams
Democrats and Republicans have disagreed over whether the CFPB currently has the statutory authority to examine financial firms for compliance with the Military Lending Act.

Mulvaney drew criticism from Democrats but also from advocates of military service members for halting exams that he argued did not have a legislative basis.

“Under Director Mulvaney, he abandoned supervision of regulated entities for compliance with the Military Lending Act, which gives critical protections for our precious military service members and their families,” said Rep. David Scott, D-Ga. “We want to reverse these things and you’re there to protect these consumers.”

But Kraninger agreed with Mulvaney's stance, saying that she supports Congress passing an additional measure to authorize CFPB exams under the MLA.

She was asked by Rep. Andy Barr, R-Ky., whether she believes the current statute gives the CFPB the authority to supervise financial firms for compliance with the military lending law. “I do not,” she replied.

Kraninger added that she would like Congress to give the CFPB explicit authority and that the agency has “submitted draft legislation for consideration to the members here.”
Democrats blasted proposed changes to the payday lending rule
CFPB headquarters
No decision thus far by Kraninger has drawn more attention than a recent proposal by the agency to roll back Cordray's payday lending rule.

The proposed elimination of the ability-to-repay requirement for small-dollar lenders has been sharply criticized by Democrats and consumer advocates.

Rep. Carolyn Maloney, D-N.Y., who chairs a House Financial Services subcommittee, said Kraninger did inadequate research before issuing the proposal in January.

“By refusing to even do the necessary research, you are basically putting your head in the sand, which I think is totally inappropriate for the agency charged with protecting consumers,” Maloney said.

But Kraninger defended the agency’s review of the rule.

“As I know I will discuss extensively and as I mentioned in my opening statement, the review of the short-term, small-dollar lending rule does look at the sufficiency of the legal arguments as well as the fact basis,” Kraninger said. “And so that is out for open comment right now. Under the Administrative Procedure Act, we welcome all comments and data.”

Republicans defended the CFPB’s decision to propose revisions to the payday lending rule.

Rep. Blaine Luetkemeyer, R-Mo., pointed to findings that the “evidence and legal support was insufficient” for including the underwriting measures in the original rule.
Lawmakers sparred over CFPB’s authority
Ever since the CFPB’s inception, Republicans have argued that Dodd-Frank granted the agency’s director too much authority and that the bureau should be structured as a bipartisan, five-member commission, subject to congressional appropriations rather than receiving its funding from the Federal Reserve.

“The reality is that you’ve had unilateral authority to do whatever you want,” Rep. Patrick McHenry, R-N.C., the committee’s ranking member, told Kraninger. “And I’m not sure everyone in this room thinks that’s a good idea."

Democrats, on the other hand, have argued that the agency’s structure strengthens its independence in protecting consumers.

Kraninger appeared to agree with Republicans that Dodd-Frank gives the director a significant amount of decision-making authority, particularly as she got pushback from Democrats over Mulvaney’s decision to strip the agency's fair-lending office of its enforcement authority.

“The Chairwoman spent her time, I would say badgering you about the design of offices within your bureau that are fully within the purview of you as director to design,” McHenry said, referring to Waters.

Kraninger agreed that she has the authority to make decisions about the responsibilities of offices and divisions within the CFPB.

“As you stipulated, there is tremendous authority that Dodd-Frank vests in the director of the bureau, including related to the organization of the bureau itself,” Kraninger said. She added that the purpose of changing the fair lending office was to “enhance the prominence of that as part of the bureau’s mission in the office of the director.”

McHenry told Kraninger that he will continue to push for statutory changes to make the CFPB a five-member commission subject to congressional appropriations.
CFPB is considering changes to the TRID disclosure regime
The Dodd-Frank Act directed the CFPB to consolidate the loan disclosure regimes under the Truth in Lending Act and Real Estate Settlement Procedures Act into an integrated disclosure.

But ever since the so-called TRID regime took effect in October 2015, lenders have sought changes.

Both Reps. Brad Sherman, D-Calif., and French Hill, R-Ark., pressed Kraninger on how the agency could revise the rule.

Sherman noted uncertainty that led to recent litigation over TRID, to which Kraninger responded that the agency is looking into possible changes.

“That is a rulemaking that I have heard from stakeholders that there are some perhaps questions or clarifications that we need to deal with,” Kraninger said. “So that is something that we are looking at.”

In response to a question from Hill about whether the CFPB will change the disclosure rule for a combined rate on title insurance, Kraninger reassured him she was aware of the problem, but that she didn’t have a specific time frame on when any decisions would be made.

“We are looking at this very carefully so I don’t want to prejudge the outcome of what we can and cannot do and how fast,” Kraninger said. “I am absolutely aware of the issue.”

Hill said that he thinks Kraninger has the authority to make those changes without going through the legislative process.
Progessive Dems questioned Kraninger over APRs, student loan report
Katie Porter, Democratic U.S. Representative candidate from California, smiles during a campaign rally in Anaheim on Saturday, Sept. 8, 2018.
Some of the most contentious moments in the hearing came when Kraninger was questioned by progressive Democrats newly elected in the 2018 midterms.

Rep. Katie Porter, D-Calif., a law professor who studied under Sen. Elizabeth Warren, D-Mass., peppered Kraninger with questions over whether she understood the calculation of an annual percentage rate as a measure of pricing for a small-dollar loan.

“Can you please explain to this committee the difference between an interest rate and an APR?” Porter said. While looking up the definition, Porter added, “I’ll be happy to send you a copy of the textbook that I wrote.”

“My concern is whether you know well, ma’am, because you are the one responsible for making sure that American consumers know well when they take out loans,” she said. Porter then described a scenario of a low-income borrower needing a $200 loan for a term of two weeks, with $20 origination fee and a 10% interest rate. “Ballpark, what is the APR?”

Kraninger responded: “I understand where you’re getting. At the end of the day, the issue is certainly when you actually are able to repay that loan, and whether or not you take out an additional loan.” She added later, “This is not a math exercise though. This is a policy conversation … .”

But that explanation did not satisfy Porter. “I take that as to a ‘no’ that you cannot do the calculation, but I am particularly concerned about this, given that you cannot even correctly define the APR,” she said.

Later, Alexandria Ocasio-Cortez, another freshman lawmaker, took issue with the CFPB for missing an October deadline for an annual report summarizing consumer complaints from student loan borrowers.

Kraninger said the law requires the report be submitted by the agency’s private student loan ombudsman, but that that position is currently unfilled.

“When do you think we’ll be able to get that report?” Ocasio-Cortez said.

“It is going to take a little bit of time,” Kraninger replied.

Ocasio-Cortez added: “So no hard time commitment on when we’ll get a five-month-overdue report.”