House Dems to CFPB chief: Use the authority Congress gave you

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House Democrats chastised Consumer Financial Protection Bureau Director Kathy Kraninger for not supervising student loan servicers and for refusing to examine financial firms for compliance with the Military Lending Act.

At yet another tense hearing Thursday of the House Financial Services Committee focused on the CFPB, Kraninger butted heads with several lawmakers over the bureau's supervisory authorities as well as the agency's overall mission. Republicans, meanwhile, used the hearing to push for changes to the CFPB's leadership structure.

Democrats appeared particularly frustrated over the regulator's responses regarding student loan servicing. In several instances, lawmakers complained that Kraninger did not provide specific answers to their questions.

“Let me be very direct: When will ... the CFPB resume supervising and examining companies servicing more than $1 trillion of federal loans? A date?" said Rep. Cindy Axne, D-Iowa. “Tell me a time frame. Just give us a time frame.”

Kraninger struggled to explain that a recent memorandum of understanding with the Department of Education dealt with sharing student loan complaint data, not servicing authority. Kraninger finally said the CFPB hopes to sign a second MOU with the department by year-end to address such authority.

“I very much want to get to an agreement around supervision" with the Department of Education, said CFPB Director Kathy Kraninger. “We will resolve the supervisory issue soon.”

The CFPB has authority to examine and supervise student loan servicers through its larger participant rule but has not conducted oversight since 2017 because Education Secretary Betsy DeVos has not signed an MOU that sets forth the bureau’s specific supervisory responsibilities.

“I very much want to get to an agreement [with DOE] around supervision,” Kraninger said. “We will resolve the supervisory issue soon.”

Democrats on the panel also revisited their concerns about the agency's not supervising companies under the MLA. The law enacted in 2006 generally bans most consumers loans to service members with annual percentage rates above 36%.

Former acting CFPB chief Mick Mulvaney had stated that the CFPB lacks explicit examination authority under the law, but that position was criticized by both consumer advocates and the Department of Defense. Last year, Kraninger asked Congress for "clear authority" to conduct exams.

Rep. Denny Heck, D-Wash., said the CFPB's failure to conduct supervisory exams has national security implications.

“You’re wrong, I’m right, and the consequence of that is that considerations related to national security are compromised and service members are hurt,” Heck said. “Would you agree that a 20-year-old sailor whose job it is to program a Tomahawk missile in the Persian Gulf should not be stressing out about whether or not their car is being repossessed?”

Not letting Kraninger answer, Heck continued, “Would you agree that service members have historically — as has been amply documented in a Department of Defense study — been targeted by payday lenders with predatory practices?”

“I think that’s a strong term,” Kraninger responded.

Lawmakers have asked Kraninger in past hearings about both student lending and MLA authority, and appeared to be frustrated by her responses on both issues.

Axne said Kraninger's answers on the agency's authority to oversee student loan servicers "seems a heck of a lot like the way you are supervising for the Military Lending Act.”

“To be clear, Director, this really looks like you’re abandoning your responsibility to protect consumers,” Axne said.

Republican lawmakers, meanwhile, asked a range of questions about changes to the CFPB’s mortgage underwriting and payday lending rules, and continued to criticize the statutory mandate of the CFPB that established a single-director leadership structure. They have repeatedly called for the agency to be run by a five-member commission.

Rep. Patrick McHenry, R-N.C., the panel's ranking member, suggested Democrats now see the drawbacks to the power vested in a CFPB director after a Trump administration appointee has taken the job.

“I think we are seeing a little bit of buyer’s remorse about the structure,” McHenry said.

At the outset of the hearing, House Financial Services Committee Chairwoman Maxine Waters, D-Calif., grilled Kraninger on whether she supported the agency's mission.

“It was certainly Congress' conclusion with the Dodd-Frank Act and the actions taken that there was a need for the Consumer Financial Protection Bureau,” Kraninger said.

But Kraninger's response was too equivocal for Waters and others.

“So you do believe there was a need for the Consumer Financial Protection Bureau?” Waters said.

“I believe that Congress set out the mission very clearly for this agency, I take that mission very seriously and I endeavor to carry out the law and our responsibilities,” Kraninger responded.

Rep. Gregory Meeks, D-N.Y., then took up the same line of questioning as Waters.

“Her question to you was, ‘Do you believe in the mission of the CFPB?’ ” Meeks said, referring to Waters.

“I believe the federal government has a responsibility to protect consumers,” Kraninger said.

“So you’ve taken a job that you can’t say you believe in the mission?” Meeks said. “If you can’t state here that you believe in the mission of the CFPB, then it seems to me, Madame Director, that you have taken a job that you are not committed to.”

Kraninger then gave in. “I absolutely believe in the mission of the CFPB,” she said.

The exchange was indicative of the tenor of the three-and-a-half-hour hearing as Democrats repeatedly brushed aside Kraninger's answers.

Rep. Bryan Steil, R-Wis., echoed McHenry's remark that Democrats had “buyer’s remorse,” and he raised the issue to his colleagues. The CFPB’s structure has long been a point of contention between the two parties. In March, the Supreme Court will hear oral arguments in a case that alleges the bureau's structure is unconstitutional.

“It seems like there’s a desire on both sides to have more transparency and accountability at the CFPB,” Steil said. “I think there’s an opportunity for us to come together at some point and put the CFPB under the appropriations process and to set up a commission structure.”

Rep. Andy Barr, R-Ky., addressed a CFPB policy statement last month defining the term “abusive,” which is part of the CFPB’s authority to enforce unfair, deceptive and abusive acts or practices, known as UDAAP. The bureau said it will focus on “stand-alone” findings of abusive conduct and not combine that standard with either unfair or deceptive claims.

Barr said the bureau should go further.

“I have heard from community banks in my district that the policy statement does not provide the clarity they need and does not remove the uncertainty about what constitutes abusive,” Barr said. “Would you consider practices only become abusive with higher penalties if the unfair and deceptive practices persist?”

“At this point, the bureau really needs more engagement on the topic to get to a rulemaking,” Kraninger said.

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CFPB Enforcement Student loans Dodd-Frank Kathy Kraninger Maxine Waters House Financial Services Committee