Kathy Kraninger’s two years atop the CFPB saw an easing of enforcement and regulations, but she left in place the groundwork for the consumer watchdog agency to return to its old form.
The Consumer Financial Protection Bureau under former Director Richard Cordray was seen as a robust regulator that aimed to push the envelope in overseeing financial market participants. By contrast, Kraninger saw the bureau become a far more quiescent regulator, said Christine Hines, the legislative director for the National Association of Consumer Advocates.
“During her tenure it was more about making life a little bit easier for the financial industry and financial institutions,” she said.
Kraninger, a Trump appointee who had no prior experience in financial markets oversight when she became director in December 2018, announced Wednesday that she’s leaving the bureau immediately. President Joe Biden (D) on Jan. 18 picked Federal Trade Commission Commissioner and former CFPB Student Loan Ombudsman Rohit Chopra to serve as the CFPB’s next director.
Kraninger came to the bureau from the Office of Management and Budget, where she oversaw budgets for executive branch agencies and had previously helped set up the Department of Homeland Security.
The CFPB rolled payday lending regulations, limited its oversight of student loan servicers, and saw a significant drop in enforcement penalties during Kraninger’s tenure.
But Kraninger also lifted a CFPB hiring freeze, enhanced the bureau’s consumer compliant database, and left more than 100 open investigations for Chopra to pursue, according to documents obtained by Bloomberg Law.
“On the eve of a new administration, the CFPB remains fully armed and operational for the next director,” said Jonathan Pompan, a partner at Venable LLP.
On the Sidelines
A Biden CFPB is expected to be far more aggressive monitoring banks and financial companies for compliance with Covid-19 consumer relief provisions.
“During the current crisis, she has really let a bunch of industry actors off the hook,” Ashley Harrington, the federal advocacy director at the Center for Responsible Lending, said of Kraninger’s tenure.
The CARES Act, the initial Covid relief package enacted last March, included provisions that required lenders to provide payment forbearance to mortgage and student loan borrowers facing economic hardships. The law also bars negative credit reporting due to Covid-19.
The bureau issued industry guidance after the law passed in April said banks and others wouldn’t face enforcement actions for CARES Act violations, as long as they made “good faith” efforts to address problems.
Another area where Kraninger pulled the CFPB’s reins was oversight of the student loan sector.
The 2010 Dodd-Frank Act gave the CFPB oversight authority over student loan servicers, but Secretary of Education Betsy DeVos in 2017 blocked the bureau from conducting oversight. The CFPB could have been more assertive and monitored loan servicers without an agreement from the Department of Education but elected not to do so, according to Seth Frotman, the former CFPB student loan ombudsman.
“For years now, the bureau has been completely on the sidelines,” Frotman, now executive director of the Student Borrower Protection Center, said.
The financial services industry didn’t get everything it wanted from Kraninger, said Alan Kaplinsky, senior counsel at Ballard Spahr LLP and the former head of the firm’s Consumer Financial Services Group.
“She turned out to be a quick study,” said Alan Kaplinsky, senior counsel at Ballard Spahr LLP and the former head of the firm’s Consumer Financial Services Group. “As her term wore on, it became clear to the industry that she was not going to be a pushover in terms of her attitude toward compliance.”
Kraninger oversaw the rollback the CFPB’s 2017 payday lending rule, the last major regulation completed under Cordray’s leadership.
Kraninger’s CFPB removed requirements—the centerpiece of the old rule—that payday lenders determine whether borrowers could repay their loans but kept restrictions on how payday lenders can access consumers’ bank accounts. Consumers give payday lenders’ the right to access their bank accounts when they take out the high-cost, short-term loans.
The payday lending industry, which had hoped to escape the rule entirely, continued litigation against Kraninger’s CFPB with the goal of eliminating the restrictions on bank account access.
The CFPB saw its enforcement numbers drop under Kraninger when compared with Cordray.
In Cordray’s more than five years on the job, the CFPB returned more than $12 billion to consumers. During Kraninger’s slightly more than two years as director, the CFPB recovered more than $1.5 billion in consumer redress.
While many of Kraninger’s enforcement actions targeted small-time scams, the CFPB has taken on some major players, like Fifth Third Bank and Citizens Bank, as well as Midland Funding, one of the country’s largest debt collection firms.
“It seemed like every time I turned around, there was another consent order or lawsuit,” Kaplinsky said.
Ready to Go
Some CFPB functions that consumer advocates feared would be slashed under Kraninger were left in place.
One example is the CFPB’s consumer complaint database, which many advocates worried would cease to be publicly available. Despite industry calls to make the online complaint portal private, Kraninger increased the amount of information available to the public, and made it easier to search.
Kraninger also lifted a hiring freeze put in place by former Acting Director Mick Mulvaney, although the agency remains understaffed, Harrington said.
Consumer advocates are pushing for Biden’s appointees, including Chopra, to get quickly return the agency to its more aggressive roots. Chopra is seen as an ally of Sen. Elizabeth Warren (D-Mass.), the CFPB’s architect, and is expected to set an aggressive tone at the bureau.
“An essential part of the Biden-Harris campaign was addressing the pandemic, pushing racial equity. So we expect the next director to do those things. And that means protecting people’s finances during this pandemic,” Harrington said.