Yesterday’s hearing on the CFPB held by the House Financial Services Committee highlighted the continuing partisan divide over the CFPB’s implementation of its consumer protection mission but with Democratic and Republican committee members switching roles from those taken at the hearings at which former Director Cordray appeared.  While Republicans took on the role of CFPB Director Kraninger’s champions, Democrats took on the role of her critics.

The overall theme of Democratic members was praise for the CFPB’s activities under Director Cordray’s leadership and the need for Director Kraninger to undo the actions taken by Mick Mulvaney during his tenure as CFPB Acting Director.  (Numerous references were made to the Consumers First Act introduced yesterday by Chairwoman Waters which would amend the Dodd-Frank Act to reverse Mr. Mulvaney’s actions.)  The overall theme of the Republican members was criticism of Director Cordray’s “regulation by enforcement” approach and the Bureau’s unaccountability to Congress due to its structure, with several Republican members voicing support for the creation of a bipartisan commission to replace the single Director structure.

As might be expected, Democratic members took aim at the Bureau’s proposal to eliminate the ability to repay (ATR) provisions of its payday loan rule, its decision to discontinue MLA compliance examinations, the decline in CFPB enforcement activity, the elimination of the Office of Students and Young Consumers (which was folded into the Office of Financial Education together with the Student Loan Ombudsman), and the transfer of the Office of Fair Lending from the Supervision, Enforcement, and Fair Lending Division to the Director’s Office.  In response to criticism from Democratic members about the length of time (6 months) that the Student Loan Ombudsman position has been vacant, Ms. Kraninger indicated that she has acted as quickly as possible to complete the steps necessary for refilling the position and that the job opening had been posted on Wednesday afternoon.  (Ms. Kraninger was unwilling to agree with Democratic members that there is a student loan “crisis.”)  She also indicated that a new Assistant Director to head the Office of Servicemembers would be announced next week.

Ms. Kraninger resisted the suggestion of Democratic lawmakers that the changes made by Mr. Mulvaney to the two offices would make them less effective in carrying out their responsibilities.  In fact, she indicated that the Office of Fair Lending has been strengthened by its placement in the Director’s Office.  She also gave no comfort to Democratic members regarding continued public disclosure of consumer complaint data.  (During his tenure as Acting Director, Mr. Mulvaney had signaled that he planned to indicated that he planned to discontinue the CFPB’s policy of publicly disclosing complaint data.)

With regard to the Bureau’s proposal to eliminate the ATR requirement from its payday loan rule, Ms. Kraninger repeated several times that the Bureau’s focus will be on the sufficiency of the evidence and legal support for the Bureau’s determination that it is an unfair or abusive practice to make payday loans without regard to a consumer’s ATR and that she had an “open mind” on the issue.  In response to comments critical of the CFPB’s decision not to revisit the payday loan rule’s payment provisions, Ms. Kraninger indicated that the Bureau would be responding to a petition it has received seeking changes to the payment provisions.  (Presumably she was referring to the rulemaking petition to exempt debit card payments that was referenced in the Bureau’s payday loan rule proposal.)

Despite expressions of outrage from Democratic members, Ms. Kraninger was steadfast in her view that the CFPB lacks authority to examine financial institutions for MLA compliance and referred lawmakers to the proposed legislation submitted by the CFPB that would amend the Dodd-Frank Act to expressly provide such authority.  She also indicated that the Bureau’s primary goal would be prevention of harm through use of the CFPB’s rulemaking and supervisory authorities, with enforcement to focus on “bad actors” who have not self-reported or sought to correct their improper conduct.

In response to urging from Republican members for the CFPB to abandon any pending enforcement actions where there is no showing of actual consumer harm, Director Kraninger indicated that she planned to review the factual basis for such actions.  Ms. Kraninger also promised that the CFPB would engage in a thorough five-year lookback at  its mortgage rules, and expressed her willingness to discard any provisions that are not achieving their objectives.

In her written and live testimony, Ms. Kraninger indicated that she would be setting priorities for the Bureau as well as the “tone” for how the Bureau operates and would emphasize stability, transparency, and consistency.  Consistent with the Bureau’s Fall 2018 rulemaking agenda, Ms. Kraninger indicated that the Bureau was considering possible pre-rulemaking activities regarding the meaning of “abusive”under section 1031 of the Dodd-Frank Act.”  Although the CFPB’s overdraft rulemaking activities were designated “inactive” in its Spring 2018 rulemaking agenda, Ms. Kraninger indicated in response to a question from a Democratic member that the Bureau was continuing to look at overdrafts.

The five members of the panel that followed Director Kraninger’s  gave live testimony that closely tracked their written testimony.  The panel members were:

• Hilary Shelton, Director & Senior Vice President for Advocacy and Policy, National Association for the Advancement of Colored People
• Linda Jun, Senior Policy Counsel, Americans for Financial Reform
• Jennifer Davis, Government Relations Deputy Director, National Military Family Association
• Seth Frotman, Executive Director, Student Borrower Protection Center (Mr. Frotman was formerly the CFPB’s Student Loan Ombudsman and has been a vocal critic of the Bureau since his departure.)
• Scott Weltman, Managing Shareholder, Weltman, Weinberg & Reis Co., L.P.A (Mr. Weltman’s law firm defeated a lawsuit filed against it by the CFPB that alleged the law firm’s debt collection letters violated the FDCPA and CFPA.)