New CFPB Director Kathy Kraninger moved quickly to chart her own path at the bureau by abandoning a name change put in place by her predecessor Mick Mulvaney, and that separation could extend to more substantive policy areas as well.
Mulvaney put curbs on regulation and enforcement by the Consumer Financial Protection Bureau after President Donald Trump made him acting director in November 2017. Kraninger could have a more lasting albeit somewhat different impact on the CFPB after winning Senate confirmation earlier this month to a five-year term as director.
“You cannot assume that she will maintain the same course as Mulvaney on every front,” To-Quyen Truong, a partner at Stroock & Stroock & Lavan LLP, said in a Dec. 12 phone interview.
Below are some key areas of the CFPB to watch in 2019:
Kraninger comes to the CFPB with decades of experience in designing and managing government budgets. As a top aide to Mulvaney at the Office of Management and Budget, she helped write a Trump administration plan to gut the CFPB’s budget by around 23 percent.
The Trump administration was unable to move on that budget proposal for fiscal 2019 because the CFPB is funded through the Federal Reserve. Kraninger, in her role as CFPB director, will have unilateral authority to determine how much the bureau spends each year.
Kraninger told reporters on Dec. 11, her second day on the job, that she was going to look at the budget as part of a three-month review of CFPB operations. Cutting the budget, either through staff attrition or slashing CFPB functions, could be a quick way to weaken the bureau, observers say.
Kraninger’s review may cause second thoughts about how far to cut, she said.
“She likely will impose budget discipline, but I don’t anticipate a rapid, drastic cutback in bureau staffing and operations,” Truong, a former top CFPB attorney, said.
One of the hallmarks of Mulvaney’s year-long CFPB tenure was reining in the bureau’s once feared enforcement division.
The number of cases declined under Mulvaney, who famously promised to stop the use of novel interpretations of consumer financial protection laws to bring enforcement actions.
When enforcement actions came, the CFPB dialed back punishments.
Kraninger signaled that she is likely to follow that pattern.
“Regulation by enforcement is certainly pushing the envelope,” Kraninger said, echoing Mulvaney.
Kraninger may look to ratchet back tensions with congressional Democrats by bringing enforcement actions against clear bad actors. Potential targets include lenders that prey on military borrowers or fraudulent debt relief companies, according to Eric Mogilnicki, a financial services partner at Covington & Burling LLP.
“Sadly there are lots of those cases out there, and building a record of meat and potatoes enforcement would be a good way to make the agency less controversial,” he said in a Dec. 14 phone interview.
Boxed In on Payday Lending
Kraninger’s most pressing regulatory matter will be rewriting the bureau’s payday lending regulation.
The CFPB announced in October plans to remove some of the payday lending rule’s strict ability to repay requirements while keeping in place required changes to the way lenders access consumers’ bank accounts. The redrafted rule would be released in January.
Payday lenders, who sued the bureau to kill the rule in April, say that they need the changes fast because they are set to take effect in August and they need time to comply.
That means Kraninger has little wiggle room to make changes to the forthcoming payday lending proposal, meaning that it is likely to take the form Mulvaney envisioned.
Ultimately, Kraninger may elect to go in a different direction in a final updated payday lending rule, but most observers think that is unlikely.
“Will she do that? Probably not,” Christopher Peterson, the Consumer Federation of America’s financial services director and a former top CFPB official, said in a Dec. 10 phone interview.
Payday lending is only part of a robust 2019 CFPB regulatory agenda.
Among the items the CFPB will deal with are a mandatory five-year review of its mortgage rules, including those defining the qualified mortgage standard and mandating tighter loan servicing processes.
The bureau has also indicated a desire to modernize the 1977 Fair Debt Collection Practices Act. The law, which includes protections against abusive debt collection phone calls, does not technically cover cell phones, email and electronic media.
Mulvaney had also talked about creating a firm definition for what constitutes an abusive practice under the CFPB’s Unfair, Deceptive and Abusive Acts and Practices standard, a powerful tool that allows the bureau to bring extra penalties in its enforcement actions.
Just when all that will happen is unclear, Truong said.
“There will be a slowdown in the bureau’s activities as she comes up to speed on all the issues and makes up her own mind as to which direction to go on major questions,” she said.
A newly seated Democratic majority in the House will also likely slow down Kraninger’s progress at the CFPB.
Incoming House Financial Services Committee Chairman Maxine Waters (D-Calif.) has already previewed a robust oversight agenda. That is likely to include frequent hearings where Kraninger and other CFPB officials will be forced to testify before the committee, as well as regular subpoenas and other investigative requests.
Waters has also warned Mulvaney, who remains OMB director and will take over as acting White House chief of staff, to be prepared to come before her committee and explain his actions at the bureau.
Oversight may not stop the CFPB from making its moves, but frequent trips to Capitol Hill or deep document dives will certainly slow the bureau down, according to Aaron Cutler, a partner at Hogan Lovells LLP who previously worked for former House Majority Leader Eric Cantor (R-Va).
“Many administration officials are just going to end up working more hours to compensate for those hours lost,” he said.