Director Kraninger was sharply criticized by Democrats at today’s hearing on the Bureau’s semi-annual report held by the Senate Banking Committee.
Ms. Kraninger’s opening remarks and written testimony repeated nearly verbatim her opening remarks and written testimony to the House Financial Services Committee last week. She indicated once again that the Bureau’s primary goal would be prevention of harm, that the Bureau would focus its enforcement activities on “bad actors, and that she would emphasize stability, transparency, and consistency.
Like their Democratic counterparts on the House committee, Democratic members were highly critical of the Bureau’s proposal to eliminate the ability to repay (ATR) requirement in its payday loan rule, its decision to discontinue MLA compliance examinations, and the decline in CFPB enforcement activity with regard to fair lending and student loan servicing. Several Democratic members also criticized the Bureau’s continued employment of Eric Blankenstein as Policy Associate Director of the Bureau’s Office of Supervision, Enforcement, and Fair Lending. Mr. Blankenstein is alleged to have made racially offensive comments in 2016.
As she did during her House appearance, Ms. Kraninger held steadfast to her view that the CFPB lacks clear 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.
With regard to the Bureau’s proposal to eliminate the payday loan rule’s ATR requirement, Democratic members called into question the sufficiency of the CFPB’s basis for its proposal and highlighted the more than $7 billion in additional revenue that the CFPB has estimated lenders would receive as a result of eliminating the ATR requirement. Despite Ms. Kraninger’s statement that she would approach the rulemaking with an “open mind,” Democratic members expressed skepticism as to whether the Bureau would objectively consider the evidentiary record.
In response to a question from Senator Doug Jones regarding the Bureau’s use of the disparate impact theory in future fair lending cases, Ms. Kraninger referenced the CFPB’s Fall 2018 rulemaking agenda which indicated in its preamble that the future rulemaking under consideration included the requirements of the Equal Credit Opportunity Act regarding the disparate impact doctrine. Ms. Kraninger declined to express her personal views on the doctrine but indicated that she was involved in internal discussions regarding potential pre-rulemaking activities.
As might be expected, Senator Elizabeth Warren was perhaps Director Kraninger’s harshest critic, highlighting the lack of new Bureau fair lending and student lending enforcement actions filed since Director Cordray’s departure. Senator Elizabeth Warren concluded her questioning with the comment that if Ms. Kraninger had “any decency,” she “would do [her] job or resign.”
In addition to the questions asked by Democratic members about topics also covered at the House hearing, Senator Mark Warner asked Ms. Kraninger about the CFPB’s “GSE patch” for qualified mortgages. The “patch” is an exemption created by the CFPB’s QM rule from its 43 percent debt to income ratio cap for mortgages eligible for purchase by Fannie Mae or Freddie Mac. It is a temporary measure that is set to expire in January 2021 or on the day the GSEs exit conservatorship, whichever occurs first. Senator Warner stressed the need for the CFPB to take steps to address the patch to avoid potential adverse consequences to the mortgage market should the patch expire.
Like their Republican counterparts on the House committee, Republican members renewed their criticism of Director Cordray’s “regulation by enforcement” approach. They also expressed continuing concern over the Bureau’s data collection practices, praised former Acting Director Mulvaney’s creation of an Office of Cost Benefit Analysis, and voiced support for the Bureau’s use of such an analysis in carrying out its authorities.