Consumer Financial Protection Bureau Director Kathleen Kraninger is expected to make three enforcement changes in 2020 that will further place her stamp on the bureau in her second year at the helm.
Kraninger has talked about bringing clarity to how companies can exit early from CFPB consent orders and defining the term “abusive” act or practices in enforcement actions. The CFPB is also expected to bring in an enforcement director from outside the bureau, a potential major departure at an agency that’s promoted from within for the job.
Those changes are unlikely to bring much of a shift in priorities for the Trump-era CFPB, but they will make the bureau more of a reflection of her style.
“It’s not totally eviscerating the whole system, it’s just picking and choosing over wholesale deregulation,” said Graham Steele, the director of Stanford Business School’s Corporations and Society Initiative and a former chief counsel to the Senate Banking Committee’s Democrats.
Kraninger, a former Office of Management and Budget official, had never before worked in banking regulation or consumer protection before she became CFPB director in Dec. 2018. She has taken a less confrontational approach than her predecessor, Mick Mulvaney, who shuffled CFPB divisions and largely stopped enforcement during his time as acting bureau director.
Under Kraninger, the number of enforcement actions has picked up, but the penalties have stayed low. But even if the numbers stay relatively stable, the three changes Kraninger has discussed could bring a different character to the CFPB’s enforcement work.
Banks, payday lenders, credit reporting agencies, and others were pleased last month when Kraninger announced plans to provide more clarity on how to end consent orders early.
“We’re also committed to ensuring the consent orders only remain in effect as long as needed to achieve their desired effects,” Kraninger said at an industry conference in November.
Consent orders allow the CFPB to monitor a company’s compliance with a settlement. Since 2014, CFPB consent orders have been capped at five years, and only a handful have been terminated early.
Federal Trade Commission consent orders can last as long as 20 years, and prudential banking regulators’ consent orders are indefinite.
Kraninger didn’t say provide details on how the CFPB intends to ease the consent order termination process, but did promise a formal policy in the near future.
“It’s somewhat consistent with her trying to be more transparent with how the bureau does things in the enforcement arena,” said Lucy Morris, a former CFPB deputy enforcement director and now a partner at Hudson Cook LLP.
Providing a more formal process is another example of Kraninger putting her stamp on the CFPB, according to To-Quyen Truong, a partner at Stroock & Stroock & Lavan LLP.
“This is more than the maturing of the agency. Historically, the bureau was inclined to stick with the specific requirements of the consent decree, including the term,” Truong, a former top CFPB attorney, said.
Industry may not have been seeking more clarity on consent orders, but it has long been urging the bureau to provide more detail about what constitutes an abusive act or practice. Other regulators can bring cases under the traditional Unfair Deceptive Acts or Practices standard, but the 2010 Dodd-Frank Act gave the CFPB the power to bring cases for abusive acts as well.
Kraninger said in her November remarks that a more concrete definition of an abusive act would be coming, but didn’t specify whether it would be a rule or agency guidance.
While banks and other CFPB enforcement targets want more predictability on the abusive standard, the CFPB has never brought a case that relies solely on that unique authority, according to Hogan Lovells LLP partner Allison Schoenthal.
“I don’t know that people have been so up in arms about it because it usually comes with other conduct, like unfairness or deceptiveness,” Schoenthal said.
Even without a formal definition of abusive on the books, Kraninger’s CFPB has deployed the tool in at least one enforcement action.
“Given the rhetoric around abusive, I think some people thought she wouldn’t use that authority at all. But that’s certainly not the case,” said Ori Lev, a former deputy CFPB enforcement director and now a partner at Mayer Brown LLP.
Meet the New Boss
The CFPB has been operating without a formal enforcement director since Kristen Donoghue stepped down from the post in May. Since then, Donoghue’s former deputy Cara Petersen has been serving in an acting capacity.
The CFPB is expected to tap Thomas Ward, a deputy assistant attorney general overseeing the Justice Department’s tort litigation branch, as first reported by Bloomberg Law.
That expected appointment has already raised concerns among CFPB staffers and Democratic lawmakers about Kraninger’s appointees blunting the bureau’s enforcement work.
On a practical level, the appointment of a new enforcement director is unlikely to make for much of a change in policy. That is set by Kraninger.
Where the appointment could have an impact is on process, according to James Kim, a Ballard Spahr LLP partner and former CFPB enforcement attorney.
An acting director may be more likely to punt on major procedural questions, leaving them to be answered by a fulltime enforcement director, Kim said.
Coupled with the naming of Bryan Schneider to lead the CFPB’s Supervision, Enforcement and Fair Lending unit in September, having permanent leadership in place could speed up the enforcement division’s work.
“An argument could be made that those two vacancies were a drag on things getting done,” he said.