3 questions to make or break Kraninger's CFPB nomination

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You don’t get a second chance at first impressions, especially in Washington.

Kathy Kraninger, President Trump’s pick to head the Consumer Financial Protection Bureau, is set to find that out for herself at Thursday’s confirmation hearing before the Senate Banking Committee.

The Office of Management and Budget official, a deputy to acting CFPB Director Mick Mulvaney, who also runs OMB, is a virtual unknown in the financial services industry. While some top Republicans have spoken encouragingly about meeting with the nominee, her fate could very well come down to her performance at the hearing.

Kraninger will be speaking to a number of audiences when she takes the hot seat — Republicans and Democrats, along with bankers and consumer advocates — though she doesn’t necessarily have to win them all over.

Her most important objective will be to assuage any pressing concerns that could derail Republican support for her confirmation. The GOP holds a slim majority in the Senate right now, with enough votes to get her through as long as there are no dissenters. Otherwise, she’ll need to sway at least a handful of moderate Democrats to secure her position. More progressive lawmakers are unexpected to support Kraninger, given her ties to Mulvaney, who has made quick work overhauling the agency.

“That’s the total addressable universe from a political perspective,” said Isaac Boltansky, director of research at Compass Point Research & Trading, citing Republicans and moderate Democrats.

“We often forget that the CFPB’s supervisory scope cuts across charters and industry,” he added, meaning that officials across the entire financial services industry will "want to get a feel for how she would run the agency and what her priorities would be.”

Here are three of the most important questions she will face.

Are you qualified to oversee this agency despite a lack of financial services or consumer finance experience?

Perhaps the biggest hurdle Kraninger will encounter is demonstrating a familiarity with the consumer protection laws she would be tasked with overseeing, given her lack of industry experience.

Some in banking continue to speculate whether the White House tapped her for the post as a serious bid — or to keep Mulvaney in the acting director position for as long as possible. Thursday’s hearing could help shed light on that answer.

But either way, if she’s unable to drill down into the weeds on key issues facing the CFPB, Kraninger risks losing support from Republicans inclined to give her a shot.

She is expected to emphasize her considerable experience as a government manager and technocrat, but demonstrating competency on the issues will still be crucial.

That’s hardly an easy task given the sweeping responsibilities of the bureau to oversee everything from fair lending to debt collection to mortgage standards to fintech.

“Consumer law is extremely complex,” said Jeff Sovern, a professor of law at St. John’s University. “I hope that the senators ask Ms. Kraninger questions about the content of consumer law to gauge if she has that understanding. I don’t see how a CFPB director who lacks an extensive understanding of those laws can possibly make the right decisions.”

Can you explain your involvement in the White House’s “zero-tolerance” policy?

Soon after Kraninger’s nomination, Democrats were quick to raise concerns about her time at OMB under Trump, especially including her alleged role in a controversial immigration policy that separated children from their families this spring.

Banking Committee Democrats asked Chairman Mike Crapo, R-Idaho, on Wednesday to delay the hearing until questions about her work on the issue have been addressed, in addition to questions about her role in the budgeting of the administration’s hurricane response in Puerto Rico. Critics, including Sen. Elizabeth Warren, D-Mass., have also raised questions about her budgeting decisions around affordable housing.

A spokeswoman for Crapo said Wednesday afternoon that the hearing is still scheduled for Thursday, where these issues will undoubtedly be raised.

It’s unlikely Kraninger will go into much detail about her work for the administration, but she will have to be artful in her deflection to avoid new waves of criticism.

What's the appropriate role for government when it comes to consumer protection?

Kraninger is expected to broadly share her boss’s views about the direction of the bureau. Mulvaney is known for having called the agency a “sick, sad” joke before taking office, and he has said that he said he wished it didn’t exist.

Early evidence suggests Kraninger maintains a critical view of the agency, particularly as it was run under former Director Richard Cordray.

“Ms. Kraninger expressed the same concerns I have about some of the [CFPB’s] past behavior and detailed her intent to reform the agency,” Sen. Pat Toomey, R-Pa., a senior member of the Banking Committee and a longtime critic of the agency, said in a statement after meeting with the nominee earlier this month.

She will no doubt be peppered with any number of specifics — on everything from her views on the pending payday lending rule, updates to debt collection regulations, unfair, deceptive, or abusive acts or practices, the role of agency enforcement actions and much more, and observers will be parsing her responses closely.

Yet ultimately, it’s her delivery, not necessarily the specifics of her answers, that may help determine whether she has a future at the bureau. Her performance is likely to turn on how she handles herself before the committee, including how she responds to grilling from Democrats opposed to her nomination. This is likely to carry more weight than the substance of any of her specific responses.

For those in banking who bristled under Cordray’s watch, her alignment with the acting director is likely to be seen as a positive.

“Mr. Cordray thought he had a mandate to pursue a social justice agenda — that was a philosophical problem for the people who are now in control,” says Dan Crowley, a partner at K&L Gates. “To the extent she doesn't share that orthodoxy, that will be a relief to those in the regulated industries” that the agency oversees.

Bankshot is American Banker’s column for real-time analysis of today's news.

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