CFPB once again enters new year with direction TBD

The Consumer Financial Protection Bureau ended yet another tumultuous year much the same way it started: with a new Republican-appointed director.

But even though Kathy Kraninger has in some ways echoed her predecessor — Office of Management and Budget Director Mick Mulvaney — by sympathizing with the industry's regulatory burden, she has already staked out her own ground. In 2019, the public will get an even better understanding of her policy and leadership approach.

In her first official move, Kraninger halted an effort by Mulvaney, the former acting CFPB chief and her former boss at OMB, to rebrand the consumer bureau with a new name.

“She signaled a different temperament and is probably realizing she’s in there for the long haul," said Greg Lisa, a partner at Hogan Lovells and a former CFPB enforcement attorney. "She's in for five years, perhaps well after the president who appointed her.”

Not only does Kraninger's permanent title give her more time to make an imprint at the agency, but, unlike Mulvaney, her arrival at the bureau did not come with questions about her authority.

Last January, Mulvaney and the Trump administration were still embroiled in a legal dispute with then-Deputy Director Leandra English. The chief of staff to former CFPB Director Richard Cordray, she claimed Cordray had rightfully installed her as acting CFPB director under authority in the Dodd-Frank Act. Yet Mulvaney ultimately prevailed in court.

When he came aboard in late November 2017, Mulvaney began at once rolling back Cordray's decisions. In his first full month, Mulvaney froze all enforcement actions, initiated a hiring freeze, stopped data collection and launched a public review of all of the bureau’s activities.

Mulvaney's revamp continued through 2018, as he reopened the agency's payday lending rule, slashed civil money penalties and hired political appointees to shadow career staff. He oversaw an 80% drop in enforcement actions, while attracting scrutiny for allegations that he took a lighter touch with a payday lending sector that had contributed to his past political campaigns.

He drew particular criticism for comments he made in April suggesting that when he was in Congress, industries that gave to his campaign had a leg up in getting a meeting with him.

“It’s definitely an era that is less punitive to industry,” said Catherine Brennan, a partner at Hudson Cook.

Kraninger is not expected to deviate significantly from Mulvaney, but to a large extent it is still unclear how she plans to run the agency.

She could become a fixture on Capitol Hill where Democrats, who won control of the House, are expected to press her to reverse some of Mulvaney’s actions. That could be why she struck a more diplomatic tone in her first press conference as CFPB director, saying she wanted to meet with both Cordray and Rep. Maxine Waters, D-Calif., the likely incoming chair of the House Financial Services Committee.

House Democrats could probe Mulvaney's decisions to halt examinations of financial firms for compliance with the Military lending Act, strip the CFPB’s fair-lending office of its enforcement powers and dissolve the student lending office overseeing the $1.5 trillion student loan market.

In early 2019, Kraninger faces a packed agenda with new rulemaking developments on payday lending and debt collection. Consumer advocates and industry groups are heavily lobbying the CFPB on both rules.

Dealing with employee morale issues also will be on her plate. Under Mulvaney, the CFPB has plummeted in the rankings of best federal agencies to work for, according to a report last week by the nonpartisan Partnership for Public Service, which gives agencies a job satisfaction score. The CFPB's score fell over 25 points from a year earlier, to 51.7, the biggest drop of any agency on the list.

Some industry experts expect that political appointees will remain top decision makers under Kraninger, who told reporters she will not discuss personnel matters publicly. She also has rebuffed calls to fire Eric Blankenstein, the CFPB’s policy director of supervision, enforcement and fair lending, whose racially charged writings on a blog 14 years ago caused an internal uproar at the bureau.

"She could take [the bureau] in a number of directions," said Andy Arculin, a partner at the law firm Venable and a former CFPB senior counsel. "But the installation of political appointees in key policy positions has altered the way the CFPB does business and that is unlikely to change."

Kraninger also has said she will prioritize data privacy and cybersecurity, two areas that are expected to be hot topics in the coming year.

Although the CFPB's hiring freeze is still in place, the agency is looking for an assistant director of the Office of Cost-Benefit Analysis, who would review, analyze and recommend whether other CFPB divisions are in compliance with federal statutes. (The bureau also posted two openings in late November for public affairs specialists in its external affairs division.)

Turnover among CFPB personnel is an issue.

In the new year, the CFPB could lose some long-serving officials. Edwin Chow, the CFPB's West Coast regional director, is expected to leave the agency by year-end, according to several people with knowledge of his plans. The CFPB declined to comment.

Kraninger has said she will guide her decision-making, in part, by cost-benefit analysis, suggesting that economic considerations could outweigh consumer benefits in policy considerations.

Another key decision ahead could be whether to end public access to the CFPB’s consumer complaints database, which Mulvaney suggested was in the offing. Such a move would bring accolades from the financial services industry but spark the ire of consumer advocates.

Financial firms also want the CFPB to narrowly define a new standard for what constitutes "abusive," practices. In addition, mortgage lenders and servicers also are lining up to get more favorable treatment from the CFPB for a five-year look-back review of mortgage rules, particularly the Qualified Mortgage and Appendix Q regulations.

Some industry watchers are hoping Kraninger can steer a more centrist course as shown initially by her decision to abandon Mulvaney's efforts to rename the agency. A recent agency analysis showed that the rebranding initiative, which was mostly symbolic but viewed by some as an attempt to undermine the CFPB's stature, would have cost financial firms $300 million.

"It was a spiteful, petty move — and [Mulvaney] describing changing the name because he wanted to follow the statute ... defied credulity for people to believe that," Brennan said.