CFPB Director Kraninger was the sole witness at a House Financial Services Committee hearing yesterday on the Bureau’s Spring 2019 semi-annual report and at a Senate Banking Committee hearing today on the report.

At the House hearing, Director Kraninger came under harsh criticism from Democratic members, with one member reportedly calling Ms. Kraninger “absolutely worthless.”  A primary focus of Democratic members was the CFPB’s settlements earlier this year such as those with Sterling Jewelers and NDG Financial in which the companies were not required to pay any redress to consumers.  The Democrats’ perspective is perhaps best summarized by the title of a 333-page report issued by the Committee’s majority staff to coincide with the hearing —“Settling for Nothing: How Kraninger’s CFPB Leaves Consumers High and Dry.”  The report discusses what it describes as appointments made by the Trump administration “to accomplish its goal of reining in the Consumer Bureau” and the handling of the settlements by such appointees.

At the Senate hearing, Democratic members also leveled harsh (but more civil) criticism at Director Kraninger, focusing on the Bureau’s supervision of student loan servicers and its proposed revisions to its final payday/auto title/high-rate installment loan rule (Payday Rule).  With regard to student loan servicers, several Democratic members voiced concern about the number of borrowers seeking loan forgiveness under the federal public service forgiveness program that have been rejected by the Department of Education.  These members called on the CFPB to respond more aggressively to the refusal of federal student loan servicers to provide information to CFPB examiners based on ED direction (including taking legal action against ED).

With regard to the Payday Rule, Democratic members raised questions about the Bureau’s evidentiary support for its proposed rescission of the Payday Rule’s ability-to-repay (ATR) provisions.  One Democratic member pressed Director Kraninger as to why the CFPB has not, despite indicating in its court filings that the Bureau did not believe there was a reason to delay the effective date of the Payday Rule’s payment provisions, sought to lift the stay of the August 19, 2019 compliance date for the payment provisions entered by the Texas federal district court hearing the lawsuit filed by two trade groups challenging the Payday Rule.  (The court also stayed the lawsuit and the compliance date for the ATR provisions.)  Director Kraninger indicated the CFPB had not done so because the trade groups were also challenging the Bureau’s constitutionality in their lawsuit.  She noted that the Bureau has yet to rule on a petition it has received to revisit the payment provisions and has one year to do so.  (Presumably Director Kraninger was referring to the rulemaking petition mentioned in the Supplementary Information to its proposal that seeks an exemption from the payment provisions for debit payments.)

With regard to the Bureau’s announcement that it would no longer defend its constitutionality in the appellate courts or the Supreme Court, Director Kraninger provided no insights into the rationale for the Bureau’s change in position other than to say that she believed there was a need for the Supreme Court to resolve the long-standing constitutional question.

Finally, in response to a question from a Republican member about the Bureau’s plans for providing clarity as to what is an abusive practice for purposes of the Dodd-Frank UDAAP prohibition, Director Kraninger stated that there would be news “in the not too distant future.”

Republican members of both committees were generally complimentary of Director Kraninger’s leadership, pointing to the Bureau’s innovation policies and Taskforce on Federal Consumer Financial Law as examples of praiseworthy initiatives.

CFPB recently issued its Spring 2019 Semi-Annual Report to Congress covering the period October 1, 2018 through March 31, 2019.

The report represents the CFPB’s second semi-annual report under Director Kraninger’s leadership.  Like the first semi-annual report issued under her leadership, and in contrast to those issued under Mr. Cordray’s leadership, the new report does not contain any aggregate numbers for how much consumers obtained in consumer relief and how much was assessed in civil money penalties in supervisory and enforcement actions during the period covered by the report.

The new report indicates that the Bureau had 1,452 employees as of March 31, 2019, representing a decrease of 58 employees from the number of employees as of September 31, 2018 (which was 1,510 employees).  As compared with the number of employees as of March 31, 2017 (which was 1,689 employees), the number of employees as of March 31, 2019 represents a reduction of 237 employees (14 percent decrease) over the two-year period.

In addition to discussing ongoing or past developments that we have covered in previous blog posts, the report includes the following noteworthy information:

  • As it did in its Spring 2019 rulemaking agenda issued in May 2019, the CFPB states that it plans to resume pre-rulemaking activities to implement Section 1071 of the Dodd- Frank Act “within the next year.”  Section 1071 amended the ECOA to require financial institutions to collect and maintain certain data in connection with credit applications made by women- or minority-owned businesses and small businesses.  Such data includes the race, sex, and ethnicity of the principal owners of the business.  The Bureau also states that it plans to conduct a symposium on small business data collection in November 2019.
  • The Bureau’s Fair Lending Supervision program initiated 10 supervisory events during the period covered by the report, 3 less than the number of such events initiated during the period covered by the prior semi-annual report.  The most frequently cited violations involved HMDA data collection and reporting requirements and ECOA record retention requirements.  As compared with that period, it also issued fewer matters requiring attention or memoranda of understanding. In addition, the Bureau provided supervisory recommendations “relating to supervisory concerns related to weak or nonexistent fair lending risk assessments and/or fair lending training.”
  • During the period covered by the report, the Bureau did not initiate or complete any fair lending enforcement actions and did not refer any ECOA matters to the DOJ. (In the prior annual report, the CFPB indicated that from October 1, 2017 through September 30, 2018, it did not initiate any fair lending public enforcement actions and did not refer any ECOA matters to the DOJ.)

Director Kraninger is scheduled to testify twice this week regarding the new semi-annual report.   As we reported, on Thursday, October 17, the Senate Banking Committee will hold a hearing on the semi-annual report.

In addition, on Wednesday, October 16, the House Financial Services Committee will hold a hearing, “Who Is Standing Up for Consumers? A Semi-Annual Review of the Consumer Financial Protection Bureau.”  According to the Committee Memorandum, the hearing will also consider the following bills:

  • The Fair Lending for All Act, H.R. 166.  The bill would create an Office of Fair Lending Testing within the Bureau and amend the ECOA to cover discrimination based on sexual orientation and gender identity, add criminal penalties for ECOA violations, and provide for personal liability of executive officers and directors.
  • Empowering States to Protect Seniors from Bad Actors Act.  The bill would amend the CFPA to address funding for senior investor protection.

 

Two Democratic Senators have sent a letter to CFPB Director Kraninger and Education Secretary DeVos asking the regulators to explain what roadblocks are preventing the CFPB and ED from entering into a new memorandum of understanding to replace the MOU between the agencies that the ED terminated in 2017.

In their letter, the Senators indicated that the agencies have disagreed about the reason for the MOU’s termination and have provided conflicting information to Congress regarding the CFPB’s efforts to reestablish the MOU.  With regard to why the MOU was terminated, the Senators referenced written responses submitted by an ED representative for the record of a Senate hearing.  In the responses, the ED indicated that the primary reason for the termination was that the CFPB stopped sending complaints about federal student loans to the ED.  The Senators cited statements from former Director Cordray and Director Kraninger that were inconsistent with the ED’s claim that the CFPB was not sending complaints to the ED.

With regard to the CFPB’s efforts to reestablish the MOU, the Senators referenced a letter sent by Director Kraninger to Senator Elizabeth Warren in April 2019 in which Director Kraninger noted that the Bureau is statutorily mandated to have an MOU with the ED and called it “a priority for us at the Bureau to make progress on a new MOU.”  They once again referenced the written responses submitted by an ED representative for the record of a Senate hearing to show conflicting information from the ED, specifically the ED’s statement that the CFPB had not formally attempted to reestablish an MOU.

The Senators asked the CFPB and ED to provide a written explanation of: the basis for the MOU’s termination; whether there has been an attempt to reestablish the MOU; what issues still need to be resolved to reestablish the MOU; and an expected timeline for reestablishing the MOU.  The Senators strongly encouraged the agencies “to reestablish the MOU immediately.”

 

 

 

To mark the first six months of Kathy Kraninger’s tenure as CFPB Director, the CFPB issued a press release providing highlights of the Bureau’s activities during that period.

The activities highlighted are those in the areas of consumer financial education, supervision, enforcement, and rulemaking.  The takeaway from the press release is that the Bureau continues to be very active under Director Kraninger’s leadership.  While the CFPB has reduced the number of investigations it is handling, it has not, as certain consumer advocates claim, abdicated its responsibility to enforce clear violations of the law that have harmed consumers.

In particular, we applaud Director Kraninger for the many CFPB financial education initiatives that are taking place under her leadership.  It has been our long-standing view that the CFPB’s initiatives to fulfill its Dodd-Frank mandates to improve the financial literacy of American consumers and protect older Americans from financial exploitation are deserving of industry support.

 

A new decision and order from Director Kraninger that, with minor changes, strictly enforces another CFPB civil investigative demand is a further indication that the CFPB’s enforcement activities remain robust under her leadership.  The new order and decision follows five decisions and orders issued by Director Kraninger on April 25 in which she also, with minor changes, strictly enforced five CIDs.

Like her April 25 orders, Director Kraninger granted the petition to modify or set aside the CID as to its challenge to the sufficiency of the CID’s notification of purpose but only as to that challenge.  As she did in her April 25 decisions and orders, Director Kraninger modified the notification consistent with the Bureau’s April 23 announcement that it would provide more specific information in CID notifications of purpose but denied the petition as to all other challenges.

The challenges rejected by Director Kraninger were:

  • The Bureau did not have statutory authority to investigate the petitioner’s business. The CFPB’s modified notification of purpose states that the purpose of the Bureau’s investigation “is to determine whether providers of tax debt relief products or services are offering or providing financial advisory services to consumers on individual financial matters.” The petitioner argued that it is not a “covered person” subject to the Bureau’s enforcement authority because it does not provide a “financial product or service.”  Specifically, it denied that it provides “financial advisory services” which the CFPA expressly identifies as a “financial product or service.”  In rejecting this argument, Director Kraninger called the petitioner’s assertions “fact-based arguments about whether it is subject to substantive provisions of the CFPA.”  She stated that the Bureau “is not required to accept as true [the petitioner’s] factual assertions concerning the limits or scope of its business conduct and may investigate whether it has enforcement authority over [the petitioner].”
  • Even if the Bureau can conduct some investigation, the investigation should initially be limited to investigating whether the petitioner’s business is subject to the Bureau’s enforcement authority.  In rejecting this argument, Director Kraninger stated that the argument “ignores the longstanding line of decisions approving simultaneous agency investigation of jurisdictional facts and possible violations.”

Consumer advocates have heavily criticized Director Kraninger and former Acting Director Mick Mulvaney for taking a much less aggressive attitude towards enforcement than former Director Cordray.  While there are fewer lawsuits and consent orders under the Kraninger/Mulvaney leadership than under the Cordray leadership, the CFPB’s enforcement activities are still quite robust as exemplified by the five decisions and orders issued by Director Kraninger on April 25 in which she, with minor changes, strictly enforced five separate CFPB civil investigative demands (CIDs).  These decisions and orders largely flew under the radar until Jeff Ehrlich, CFPB Deputy Enforcement Director, mentioned them on May 20 in Chicago when he spoke at the PLI 24th Annual Consumer Financial Services Institute, which I co-chaired.

On April 23, the CFPB announced that in an effort to provide more transparency to CID recipients, it would provide more specific information in CID notifications of purpose.  Director Kraninger’s April 25th decisions and orders granted those petitions to modify or set aside the CIDs that included a challenge to the sufficiency of the CID’s notification of purpose but only as to that challenge.  (Her decisions and orders modify the notifications consistent with the Bureau’s April 23rd announcement.)  However, Director Kraninger denied those petitions as to all other challenges and fully denied the petitions that did not include such a challenge.

The five decisions and orders consist of the following:

  • In re Fastbucks
    • The CID’s original notification of purpose stated that the CID had been issued “to determine whether small-dollar lenders or other persons (1) in connection with the advertising, marketing, offering, provision, servicing, documentation or collection of loan applications or loans have engaged in unfair, deceptive or abusive practices in violation of [the CFPA] or have violated the [ECOA] or the [FCRA], or (2) in connection with maintaining records or providing information for a Bureau investigation have violated [sections 1031 and 1036 of the CFPA].
    • The modified notification states that the purpose of the investigation “is to determine whether small-dollar lenders or associated persons, in connection with  extending or servicing small-dollar loans or collecting debts, have (1) made harassing debt-collection calls to consumers’ workplaces in a manner that is unfair, deceptive, or abusive in violation of [the CFPA] (2) failed to maintain and preserve records in a manner that violates [Reg. B, principally section 1002.12]; (3) failed to follow the requirements for providing disclosures to consumers in a manner that violates the [FCRA, principally sections 1681g, 1681m]; or (4) failed to maintain records or failed to provide information to the Bureau in connection with a Bureau examination in a manner that violates Section 1036(a)(2) of the CFPA.”
    • Prior to the issuance of the CIDs, a Bureau enforcement attorney sent direct messages to Fastbucks’s owner via social media that primarily concerned a state enforcement action against Fastbucks that the enforcement attorney worked on prior to his Bureau employment, when he was employed by the state’s Attorney General’s office. Even though the attorney did not work on the Bureau’s investigation of Fastbucks, the company argued that the messages, which it characterized as harassing and taunting, showed that the CIDs were issued for an improper purpose.  Director Kraninger rejected this argument, stating that the CIDs “have been subject to multiple levels of review within the Bureau…that have ensured they were issued for a proper purpose and in accordance with all applicable regulations.”
    • Even though Fastbucks had not challenged the sufficiency of the CID’s notification of purpose, Director Kraninger modified the notification as set forth above.
  • In re Kern-Fuller and Sutter
    • The CID’s original notification of purpose stated that the CID had been issued “to determine whether persons that purport to acquire the rights to veterans’ military pensions or other benefits in exchange for lump-sums are offering to extend credit or extending credit. The purpose of this investigation is also to determine whether, in connection with the offering or collecting on these products, such persons have engaged in unfair, deceptive, or abusive acts or practices in violation of [sections 1031 and 1036 of the CFPA].”
    • The modified notification states that the purpose of the investigation “is to determine whether persons that purport to acquire the rights to veterans’ military pensions or other benefits in exchange for lump-sums are offering to extend credit or extending credit. The purpose of this investigation is also to determine whether such persons, in connection with the offering or collecting on these products, have made false or misleading representations to consumers or have failed to disclose to consumers the applicable interest rate on the credit offer, in a manner that is unfair, deceptive, or abusive in violations of Sections 1031 and 1036 of the [CFPA].”
    • Director Kraninger rejected the petitioners’ argument that the CIDs should be set aside because the CFPB is unconstitutional, stating that the “Bureau has consistently maintained that its statutory structure is constitutional under controlling Supreme Court precedents.”   She also rejected their argument that because they are attorneys, the CIDs should be modified to protect attorney-client privileged information and attorney work product.  She concluded that modification of the CIDs was unnecessary because “the CFPA and the Bureau’s rules already provide an orderly procedure for asserting privilege during the giving of oral testimony in response to a CID.” Director Kraninger stated that while the petitioners “are entitled to raise appropriate privilege objections while testifying, in conformance with the procedures provided by the CFPA and the Bureau’s rules, their premature assertion of privilege provides no grounds for setting aside the CID itself.”
  • In re Amy Plummer
    • Ms. Plummer, who worked in an administrative support position for petitioners Kern-Fuller and Sutter, received a CID with the same original notification of purpose as the CIDs received by those petitioners.  Even though Ms. Plummer had not challenged the sufficiency of the notification of purpose, the decision and order denying her petition modified the notification in the same manner as the notification in the Kern-Fuller/Sutter CIDs.
    • Director Kraninger rejected Ms. Plummer’s argument that the petition should be set aside because it exceeded the Bureau’s authority over the practice of law and because it improperly sought attorney-client privileged information and attorney work product.  She found that Ms. Plummer’s first argument ignored language in the CFPA that a person whose activities are otherwise excluded from the CFPB’s supervisory and enforcement authority can still be subject to requests to CIDs issued by the Bureau “in the course of carrying out its responsibilities to enforce the federal consumer financial laws.” Ms. Plummer’s second argument was rejected on the same grounds as the similar argument made by petitioners Kern-Fuller and Sutter.
  • In re Fair Collections and Outsourcing, Inc.
    • The CID’s original notification of purpose stated that the CID had been issued “to determine whether debt collectors or other unnamed persons have engaged in, or are engaging in, unlawful acts or practices in connection with the collection and reporting of consumer debts in violation of the [FDCPA], the [FCRA], [the regulations concerning the Duties of Furnishers of Information to Consumer Reporting Agencies], or any other federal consumer financial law.”
    • The modified notification states that the purpose of the investigation “is to determine whether debt collectors or associated persons, in connection with the collection and reporting of consumer debts, have: (1) made false or misleading representations in a manner that violates the [FDCPA], principally section 1692e; (2) failed to perform the duties of a furnisher of information to consumer reporting agencies, including by failing to establish reasonable policies and procedures concerning the accuracy and integrity of furnished information or to conduct appropriate investigations of disputes, in a manner that violates the [FCRA], principally section 1681s-2, or [Reg. V], principally Subpart E; or (3) thereby also violated Section 1036(a)(2) of the [CFPA].”
    • Director Kraninger rejected the petitioner’s  argument that the petition should be set aside for the same reason as set forth in her decision and order regarding petitioners Kern-Fuller and Sutter.  She also rejected the petitioner’s argument that the Bureau’s overall investigation had been fundamentally unfair because it did not have enough time to comply with past CIDs, the Bureau’s document submission standards were overly demanding, and the CIDs were issued after Enforcement had indicated that the petitioner could be the subject of a public enforcement action and after discussing the possibility of settlement.  With regard to the last argument, Director Kraninger stated that the petitioner had not shown that the CID was issued for an improper purpose or in bad faith because it had failed to provide “any statutory or other restriction on the Bureau’s ability to issue a CID after an enforcement action is authorized but not filed” or to “explain why it would be improper for the Bureau to issue a CID to obtain additional evidence before authorizing an enforcement action.”
  • In re Jawat Nesheiwat
    • The CID’s original notification of purpose stated that the CID had been issued “to determine whether student loan debt-relief providers, mortgage lenders, or other persons, in connection with obtaining, using, or disclosing consumer information or with marketing or selling products and services relating to student loan consolidations, repayment plans, and forgiveness plans, have engaged in unfair, deceptive, or abusive acts or practices in violation of sections 1031 and 1036 of the [CFPA]; or have violated the [FCRA] or the Telemarketing Sales Rule.”
    • The modified notification states that the purpose of the investigation “is to determine whether student loan debt-relief providers, mortgage originators, or associated persons, in connection with obtaining, using, or disclosing consumer information or with marketing or selling products and services relating to student loan consolidations, repayment plans, and forgiveness plans, have: made false or misleading representations to consumers in a manner that is unfair, deceptive, or abusive  in violation of sections 1031 and 1036 of the [CFPA]; or have obtained or used consumer reports without a permissible purpose in a manner that violates the [FCRA]; or have made false or misleading representations to consumers or requested or received prohibited payments from consumers in a manner that violates the Telemarketing Sales Rule.”
    • Director Kraninger denied Mr. Nesheiwat’s request for the redaction of his name from all public materials concerning his petition because he had failed to “articulate any argument why his name would be protected from disclosure under FOIA,” and had not “clearly identif[ied] any harm he would suffer from disclosure.”

 

In a letter sent to Senator Elizabeth Warren regarding the CFPB’s supervision of student loan servicers, CFPB Director Kathy Kraninger discussed the Bureau’s relationship with the Department of Education.

In the letter, Director Kraninger responded to a question from Senator Warren regarding the guidance issued by the ED in December 2017 to student loan servicers about the application of the Privacy Act of 1974 to certain student loan records.  Director Kraninger stated that since December 2017, based on such guidance, student loan servicers have declined to produce information requested by the Bureau’s examiners in connection with exams related to Direct Loans and Federal Family Loan Program loans held by the ED.  (Under the ED’s guidance, servicers would have been required to obtain the ED’s permission to produce the information requested by the Bureau’s examiners.)

Director Kraninger also noted that the ED terminated a Memorandum of Understanding with the Bureau effective October 1, 2017.  She commented that because the Bureau is statutorily mandated to have an MOU with the ED, “it is a priority for us at the Bureau to make progress on a new MOU.”  Director Kraninger also indicated that she wants to have a Private Education Loan Ombudsman in place to work on a new MOU “and facilitate a productive relationship going forward with the Department so that we can carry out our responsibilities.”  (Seth Frotman, the former Ombudsman and now a vocal critic of the Bureau, resigned in August 2018.)

Director Kraninger noted that since the MOU was terminated, the ED has provided the Bureau “with the confidentiality assurances necessary for the Bureau to share confidential supervisory information with it.”

 

 

In remarks today at the Bipartisan Policy Center (BPC), CFPB Director Kathy Kraninger outlined how she plans to use the various “tools” available to the CFPB.  While consistent with her recent testimony to House and Senate committees, her BPC remarks provide a more detailed view of the approach she plans to take in wielding the CFPB’s authority.

Director Kraninger began her remarks by indicating once again that the CFPB’s focus under her leadership will be on the prevention of harm to consumers. She then provided the following outline of how the CFPB would use its four “tools” (education, rulemaking, supervision and enforcement) to prevent consumer harm:

  • Education.  The CFPB will pursue education initiatives intended to empower consumers to make financial decisions that best suit their individual needs.  She noted as an example the CFPB’s savings initiative that is intended to help consumers increase their savings, particularly savings for emergency needs.
  • Rulemaking. The CFPB will no longer engage in rulemaking through enforcement and will pursue rulemaking “deliberately and transparently” using the APA rulemaking process.  She indicated that rulemaking would be used to provide “clear rules of the road” to regulated entities and that the Bureau “must acknowledge” that compliance costs impact consumer access to and the availability of credit.
  • Supervision.  CFPB examiners will look for a “culture of compliance” at supervised entities and seek to use examinations to “head off trouble.”  Director Kraninger suggested that the CFPB would take a favorable view of companies that self-report and take corrective action to remedy consumer harm.  She indicated that in her role as FFIEC Chairman, she would seek to strengthen coordination between federal and state regulators.
  • Enforcement.  The CFPB will engage in “careful and purposeful enforcement” where “bad actors” have violated clear rules or where the CFPB believes a public enforcement action is needed “to send a clear message” to deter wrongful behavior.  Director Kraninger indicated that the CFPB will move expeditiously in deciding whether or not to pursue an enforcement action.

With regard to the CFPB’s highly anticipated debt collection proposed rule, Director Kraninger indicated that the proposal will be issued “in the coming weeks” and include limits on the number of calls collectors can make on a weekly basis, address communications by email and text, and require new disclosures at the beginning of the collection process.

She also announced that the CFPB will be launching a series of symposiums on topics related to the CFPB’s mission, with the first symposium to look at clarifying the meaning of “abusive acts or practices” in the Dodd-Frank Act.  In its Fall 2018 rulemaking agenda, the CFPB announced that it was considering whether it should engage in rulemaking to clarify the meaning of “abusive.”  Director Kraninger indicated that the symposium, which would include experts and stakeholders, would help to inform the CFPB’s decision on such rulemaking.

In response to questions from audience members, Director Kraninger indicated that:

  • She agreed with former Acting Director Mulvaney’s philosophy that the CFPB should go no further than what its statutory authority expressly provides.
  • While “there’s a place” for CFPB guidance, she would need to look carefully at what the Bureau could address through guidance and that rulemaking, rather than guidance, would be appropriate for something that the CFPB wanted “to hold institutions to.”
  • She is looking at staffing levels but has no goal of increasing or decreasing the number of CFPB staff members.

CFPB Director Kraninger is scheduled to give public remarks at a Bipartisan Policy Center program scheduled for April 17, 2019 at 10 a.m. in Washington, D.C.

According to BCP’s website, the remarks will be Director Kraninger’s “first public remarks laying out her vision for the Bureau” and “will cover topics including protecting consumers from bad actors, providing clear rules of the road to financial institutions and non-bank lenders, and empowering consumers to make sound financial choices.”  A panel discussion will follow her remarks.

 

The Federal Financial Institutions Examination Council (FFIEC) announced that CFPB Director Kathy Kraninger became the Chairman of the FFIEC on April 1, 2019.  Ms. Kraninger is the first CFPB Director to serve as FFIEC Chairman.  Her two-year term runs until March 31, 2021.

The FFIEC chairmanship rotates among the FFIEC’s federal members for two-year terms in the following order: OCC, Federal Reserve, FDIC, CFPB, and NCUA.  As Chairman, Ms. Kraninger succeeds FDIC Director Jelena McWilliams.

The FFIEC is empowered to prescribe uniform principles, standards, and report forms for the federal examination of financial institutions by its constituent agencies and to make recommendations to promote uniformity in the supervision of financial institutions.  The FFIEC is responsible for developing uniform reporting systems for federally supervised financial institutions, their holding companies, and the nonbank subsidiaries of such institutions and their holding companies.