Would CFPB nominee mirror Mulvaney or go her own way?

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As she moves closer to Senate approval as head of the Consumer Financial Protection Bureau, Kathy Kraninger is still somewhat of a mystery to the agency and industry she would oversee.

Now a senior official at the Office of Management and Budget, Kraninger has signaled that she favors a pro-free-market, limited government approach to regulation and will hew closely to the vision of her boss Mick Mulvaney, the acting CFPB director who also heads the OMB.

But unlike Mulvaney — who before running the CFPB referred to the bureau as a "sick, sad joke" — Kraninger is not linked with such rhetoric, making her views about the agency uncertain.

Her lack of experience on consumer protection issues raises questions about where she would come down on key policy initiatives, such as pending changes to the CFPB's payday lending rule and a program initiated by Mulvaney to review and revamp the agency's processes.

“She’s a black box,” said Ori Lev, a partner at Mayer Brown and former CFPB deputy enforcement director. “We all assume she will be like Mulvaney because she is his deputy, but we don't really know.”

Kraninger's nomination encountered substantial resistance from Democrats, but the recent motion for cloture on the nominee filed by Senate Majority Mitch McConnell suggests that a vote could come as early as this week.

Having spent most of her career at the Department of Homeland Security, Kraninger has drawn attention more for her policy experience outside financial services, such as the Trump administration's response to recent tragic hurricanes and the since-suspended policy of separating migrant children from their families at the border.

She frustrated Democrats during her confirmation hearing in July by avoiding direct answers on basic questions related to CFPB policies, such as the contentious payday lending rule.

Because she has no consumer finance experience, many experts think, if confirmed, she would rely heavily on the CFPB’s career civil servants and a handful of political appointees hired by Mulvaney to run the bureau’s day-to-day operations.

“Big decisions are coming and she will be in the spotlight,” said Richard Horn, managing member at Garris Horn Legal and a former senior counsel and special adviser in the CFPB’s Office of Regulations.

The CFPB is expected to propose changes to the payday lending rule in January. The bureau also is expected to complete three statutorily-mandated look-back reviews by January of its remittance rule, mortgage servicing rule and the ability-to-repay "qualified mortgage" rule.

By March, the agency is expected to issue a notice of proposed rulemaking on the debt collection market. The bureau also plans to issue a notice of proposed rulemaking in spring 2019 to address the Home Mortgage Disclosure Act.

Banks, financial firms and fintech companies would be watching closely to see how Kraninger puts her own stamp on the agency.

“One could expect there will be some amount of consistency with the agenda going forward under Kraninger and she may already be talking with acting Director Mulvaney about his thoughts on the policy direction of the bureau, and trying to meet with staff in anticipation of getting confirmed,” said Horn. “But she is her own person, and once she gets in there she could have some different views and the agenda could change.”

When Mulvaney first took over in November 2017, he instituted a freeze on enforcement actions and on the hiring of agency staff — although enforcement actions were later resumed.

But perhaps his most lasting move was launching a top-to-bottom review of the CFPB's operations, which included a dozen "requests for information" seeking feedback on possible reforms. In response, trade groups and others in the industry spent the summer writing comment letters to sway the bureau’s thinking.

If she is confirmed, it would be left to Kraninger to decide whether to resume the RFI process and make any reforms suggested by the industry.

“It gives her a mechanism to impose her imprint on how the bureau operates in lots of different ways,” said Lev.

Unlike Mulvaney, who faced a friendly Republican Congress, Kraninger would have to answer to a Democratic-controlled House starting in January. Rep. Maxine Waters, D-Calif., the likely new chair of the House Financial Services Committee, has already signaled that she plans aggressive oversight of Trump-appointed regulators.

Kraninger is "going to have to spend a lot of her time answering to Maxine Waters,” said Joann Needleman, a partner at Clark Hill. “They’re going to be rude to her. The election season has started and that’s the shame of it.”

Aggressive oversight from the opposing party could resemble what former CFPB Director Richard Cordray, an Obama appointee, faced from a GOP-controlled Congress.

Rep. Jeb Hensarling, R-Tex., the outgoing chair of the House Financial Services Committee, threatened Cordray with contempt charges and accused him of colluding with consumer groups in drafting the payday lending rule.

The CFPB's decision spearheaded under Mulvaney to reopen the rule — the first federal regulation for the payday industry — will likely stoke a fight with Democrats in Congress. A federal judge delayed the original rule's August 2019 compliance date, giving the Mulvaney-led agency time to finalize changes before the industry must comply. The bureau said it plans to propose an overhaul of the regulation in January.

“She going to have a really tough time navigating payday,” said Needleman. “That’s a ticking time bomb that she’s going to have to defuse.”

It remains to be seen whether Kraninger would follow Mulvaney's lead and place a temporary halt on enforcement actions while she gets her arms around the CFPB’s operations.

“When Mulvaney came in, everything basically stopped while he and his team got up to speed, which was most pronounced on the enforcement side,” said Lev. “Is she going to come in and do the same thing and get her arms around the full universe, or is she going to feel less of a need to do that because she is succeeding Mulvaney?”

It is also unclear whether Kraninger, if confirmed, would keep the political appointees hired by Mulvaney on staff, or select her own team. Those political appointees currently hold formal titles as policy associate directors.

She also would face a looming employee morale issue tied to revelations about one of those appointees, Eric Blankenstein, policy director of supervision, enforcement and fair lending. Blankenstein's racially charged writings posted on a blog 14 years — first reported by The Washington Post — sparked an uproar both inside and outside the agency.

Many think it unlikely that Kraninger would fire career staff — something Mulvaney did not do — since most have the protection of their union. Still, Mulvaney's hiring freeze is ongoing and Kraninger has said she would be careful about the CFPB’s expenditure of resources if she is confirmed as director.

“She gets to write her own playbook,” said Lev. “I would not expect her to be a second Rich Cordray, but she could be much more middle ground, and adopt a different tone.”

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