CFPB’s 2019 Fortune: Uncertainty

A new director who is likely to loosen the regulatory reins.

A new House committee chair who favors stricter regulations.

That’s the new reality facing the CFPB as Kathy Kraninger takes over as director and Rep. Maxine Waters takes the helm of the House Financial Services Committee.

The Democratic takeover of the House has created major uncertainty in our nation’s capital, as crystal ball gazers try to figure out what the new majority will do.

But the uncertainty at the CFPB is deepened by the fact that Kraninger just last month took over the controversial bureau, which was created by Dodd-Frank – the regulatory regime enacted the last time Democrats controlled the Congress.

Kraninger and Waters already seem to be headed toward a series of high-stakes fights. Kraninger worked at the Office of Management and Budget, the agency headed by former acting CFPB Director Mick Mulvaney.

And Mulvaney attempted to roll back much of the strict regulatory regime instituted by his predecessor, President Obama’s nominee Richard Cordray.

“It’s hard to predict anything now,” Carrie Hunt, NAFCU’s EVP for government affairs and general counsel, said.

“The play between the House and White House is anything but predictable,” Bruce Jolly, an attorney with Reed and Jolly, added.

But Hunt said Kraninger may attempt to bring “regular order” to the agency, saying that under Cordray, there did not seem to be a proper order in which the agency addressed issues.

Hunt added the CFPB will have to address some of the provisions of the regulatory overhaul passed by Congress during the 115th Congress.

During her confirmation hearings, Kraninger made it clear that she supports the pro-business bent that Mulvaney adopted. That does not sit well with Waters, who believes Mulvaney harmed consumer protection efforts.

“He tried to dismantle the Consumer Financial Protection Bureau,” she said in a recent MSNBC interview.

Waters has already signaled that she is not done with Mulvaney and plans to call him to account for his work at the CFPB.

“I am writing to inform you that while your time running the Consumer Bureau may be over, the time for accountability for your actions is about to begin,” she said in a recent letter to Mulvaney. “The weak congressional oversight under the direction of the outgoing Republican Majority pales in comparison to their oversight of former Director Richard Cordray’s tenure, when he and other senior officials testified before Congress more than 60 times.”

Credit union trade groups have said they have several issues they would like the CFPB to address, and some of them may not be to Waters’ liking.

“We will continue to advocate for a tailoring of regulation at the bureau to reign in unscrupulous behavior by Wall Street banks and bad marketplace actors while exempting credit unions from burdensome regulations that will simultaneously raise costs on their members,” NAFCU President/CEO B. Dan Berger said.

“NASCUS shares many objectives with the bureau, including gaining efficiencies, minimizing duplication of efforts and alleviating credit unions from unnecessary burdens while protecting consumers’ financial interests,” NASCUS President/CEO Lucy Ito said. “Our shared objectives will serve as the basis for future cooperation to benefit the credit union industry.”

CUNA President/CEO Jim Nussle said during its first several years of existence, the CFPB tended to paint financial institutions with a broad brush.

“Consumers lose when one-size-fits-all rules force credit unions to pull back safe and affordable options from the market, pushing consumers into the arms of entities engaged in the very activity the rules were designed to curtail,” Nussle wrote in a letter to Kraninger immediately after she was confirmed.

During the last Congress, some 70 senators and 329 House members asked Cordray to consider the regulatory burden that credit unions and community banks face – and possibly exempt them from some rules.

And now-NCUA Chairman J. Mark McWatters also asked Cordray to exempt credit unions from some rules – particularly mortgage regulations. In addition, then-NCUA Chairman Rick Metsger asked Cordray to exempt credit unions from the bureau’s payday lending rules.

The bureau is likely to revise the payday lending rules early this year. Mulvaney said the CFPB will make changes to its payday loan and ability-to-repay requirements this month.

The bureau intends to address the rule’s payments provision later, bureau officials said.

When it issued its final payday lending rule in 2017, the agency said, “Under the new rule, lenders must conduct a ‘full-payment test’ to determine up front that borrowers can afford to repay their loans without re-borrowing.”

The final payday lending rule exempted loans that strictly followed the NCUA’s Payday Lending Alternative program. Since the rule was issued, the NCUA has proposed a new payday lending program in an effort to encourage more credit unions to participate. However, the NCUA board has not adopted that proposal.

Consumer advocates immediately attacked the CFPB’s proposal to change the payday rule, saying it would remove a key consumer safeguard.

“Americans can’t catch a break with Mulvaney at the helm of the CFPB,” Rebecca Borné, senior policy counsel at the Center for Responsible Lending, said. “This is nothing more than his keeping his promise to predatory lenders to sabotage the payday lending rule.”

Meanwhile, the CFPB faces several major issues and problems – some of which are its own doing:

• A new survey showed many agency employees do not have confidence in the agency’s senior leaders. The CFPB conducted a survey of all 1,540 agency employees in August, and 72% of them responded. Some 54.4% of those responding said they do not have a high level of respect for the agency’s senior leadership, while 29.2% said they did. The results may indicate that many of the agency’s employees were hired under the leadership of Cordray, the Obama Administration nominee. Under Mulvaney, the bureau has assumed a much more pro-business posture.
• Those results came on the heels of another report conducted by the Partnership for Public Service. The group conducts an annual “Best Places to Work” study. This year’s results placed the CFPB as second-to-last among mid-size agencies.
• The Government Accountability Office issued a report saying the CFPB does not have a system for prioritizing its work based on the financial risks consumers face – one of its main responsibilities.
• Attempting to quell a major controversy, Kraninger has halted all efforts to rename the bureau. During his time at the agency, Mulvaney declared that under federal law, the Consumer Financial Protection Bureau – or CFPB – should be called the Bureau of Consumer Financial Protection – or BCFP. Waters hated that move.
• The CFPB is under pressure by congressional Democrats to reverse a Mulvaney decision to abandon enforcement of the Military Lending Act. Mulvaney contended the bureau did not have authority to enforce that law. The Democrats contend that is not the case.
• Again, provoking a fight with consumer advocates, the agency announced last year that it intends to make it easier for a financial services committee to obtain a “No-Action Letter,” – a document that makes it clear the agency will not take an enforcement or supervisory action against a company for specific products. Consumer groups argue the agency does not have the power to do that.