Another day, another Capitol Hill grilling for CFPB's Kraninger

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The head of the Consumer Financial Protection Bureau on Thursday took more heat from congressional Democrats over her reversing her position on the bureau's constitutionality, the agency's failure to investigate student loan servicers and the level of monetary penalties for lawbreakers.

Kathy Kraninger's testimony before the Senate Banking Committee, one day after she testified in the House, came as the Supreme Court may be close to accepting a case challenging the CFPB's leadership structure.

Sen. Sherrod Brown, D-Ohio, accused Kraninger of flip-flopping over the key constitutional question about the agency: whether a president should be able to fire a CFPB director without a finding of cause.

Kraninger told the committee last year during her confirmation hearing that it was not her place to take a position on whether the CFPB's structure is unconstitutional. But she recently changed her position. The Supreme Court could accept a case dealing with that question as early as Monday.

“A few weeks ago you sent a letter to Congress stating, ‘I have decided that the bureau should adopt the Department of Justice’s view that the for-cause removal provision is unconstitutional,’ “ said Brown, who added that he questioned her “credibility as a public official” for changing her position. “So, if someone comes to Congress, commits to do one thing and then does anther, is that just lying to Congress?”

Yet Democratic members of the committee seemed the most frustrated over what they see as insufficient monetary penalties for companies' consumer protection violations.

Sen. Catherine Cortez Masto, D-Nev., questioned why in a recent CFPB enforcement action involving a Chicago-area debt collector, which allegedly threatened to garnish the wages of consumers and place liens against their homes, the company got off with a mere $200,000 fine and $36,800 in restitution to borrowers.

In 2012, Cortez Masto had barred the company, Asset Recovery Associates in Lombard, Ill., from doing business in Nevada when she was that state’s attorney general.

“They are just the worst of the worst,” said Cortez Masto.

"The amount ... that case in particular, I believe, represents the number of consumers who complained and the ... funds associated with that," Kraninger said in response.

But Cortez Masto criticized the methodology of using complaints that come through the company to determine that marker.

“You allowed the company itself to be the one that is the arbiter of who decides the information that is being shared?” she asked.

When Kraninger responded that the penalty was “mitigated by what the entity can pay,” Cortez Masto cut her off.

“That has nothing to do with it. I mean, clearly this is egregious and your role is to enforce — not only to hold them accountable in violation of existing laws, but at the same time to protect consumers and provide restitution,” the senator said.

Only 10 senators on the 25-member Senate Banking Committee, including just four Republicans, attended the hearing Thursday. Notably absent was presidential candidate Sen. Elizabeth Warren, D-Mass., who was the architect behind the CFPB and oversaw its formation in 2011 before she ran for Congress.

Republicans on the committee showed their support for Kraninger’s new focus on financial education, rather than enforcement.

Sen. Richard Shelby, R-Ala., asked Kraninger about the benefits of increased transparency at the CFPB.

“The more transparency you have, the better the consumer is going to be, isn't it?” Shelby said. “Isn't it very important to have an informed consumer? In other words, that they understand what they're doing when they make a decision?”

In both cases, Kraninger said she agreed with Shelby.

Shelby then gave her an opportunity to discuss how a regulatory environment should support innovation.

“I'm excited about the [CFPB's] innovation policies,” Kraninger said. “With those clear rules, again, everyone understands and can innovate and can grow and can provide the services that consumers need and want. And so that's something that we're going to continue to work our way through.”

Student lending was also a hot topic at the hearing.

Several senators asked about the CFPB reportedly being blocked by Department of Education Secretary Betsy DeVos from accessing information about the Public Service Loan Forgiveness Program, which is intended to assist public servants such as firefighters and military service members. Thousands of public servants have been rejected from getting their loans forgiven despite following the rules, according to National Public Radio.

Brown faulted the bureau for siding with the Education Department's policies.

The CFPB could have "helped protect the 44 million Americans with student loans from the widespread mistakes, errors, and mismanagement by the companies that handle their loans, and that have cost them thousands of dollars," he said. "You sided with Education Secretary DeVos and refused to examine federal student loan servicers to make sure they’re not cheating people with student loans."

Kraninger said the agency is focused on the student lending arena.

"Senator, we are absolutely doing exams of private education loans and we are working with the Department of Education on the federal student loan portfolio to make sure that federal consumer protection laws, which are the purview of this agency, are followed," she said. "And that's something that we are going to continue to work through."

Kraninger also came under harsh questioning for rescinding a key part of the agency's 2017 final payday lending rule.

Sen. Chris Van Hollen, D-Md., said that because Kraninger rescinded the tough underwriting requirements in February, payday lenders will collect between $7.3 billion and $7.7 billion from consumers that "would have been protected by the Obama-era rule."

"Monies that consumers would have saved, with protection from unscrupulous practices, are now going to the industry," he said. "As I looked back on how you went about the revision of the rule, I was struck by the fact that the bureau did not present any new research in defense of the change. Can you tell us today what new research the bureau developed in proposing the change to the rule?"

Kraninger responded that "there is some newer research that is available," but she did not elaborate further.

"It is fundamentally about the legal and factual basis that the first rule was based on," she said. "I will certainly defend our proposal, but at the same time note that a final decision has not been made on this issue."

Van Hollen also asked why the CFPB has not implemented the payday rule's payment provisions that were left intact. Those provisions limit the number of times a lender can try to debit borrowers' bank accounts.

The payment provisions had originally been slated to go into effect Aug. 19, but a federal judge in March effectively halted the compliance date while the rule is debated in court.

"I've got the document here from the CFPB that says there is no legal basis to stay the compliance data for the payment provisions," Van Hollen said. "Given that's the position you've taken in court, will you file a motion to lift the stay and allow this important provision to go forward?"

Kraninger then switched tacks, and claimed that questioning the constitutionality of the bureau is "part of the basis for the continued stay."

Brown was not the only Democrat to criticize Kraninger for her reversal on the constitutionality question.

Sen. Jon Tester, D-Mont., said any member of the Trump administration should refrain from commenting on constitutional issues given the House impeachment inquiry against the president.

“I think it is rich for anybody in this administration to talk about what’s constitutional and what’s unconstitutional, when we have a president who publicly invites other countries to influence our elections,” Tester said.

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Enforcement actions Litigation Payday lending Debt collection Student loan debt Kathy Kraninger CFPB SCOTUS