Lawmakers grilled Kathy Kraninger, director of the Consumer Financial Protection Bureau, Tuesday over the agency's decisions to overhaul the payday lending rule and to stop examining financial firms for compliance with the Military Lending Act.
In her first appearance before the Senate Banking Committee since being sworn in three months ago, the bureau head was also pressed about her failure to take action on student loan debt.
Although Kraninger has made fewer waves in her short tenure than her predecessor, former acting CFPB Director Mick Mulvaney, she has continued to face close scrutiny from consumer groups and Democrats concerned about the agency's future under Republican control.
At the hearing, Sen. Elizabeth Warren, D-Mass., criticized the steep drop-off in enforcement actions since the GOP took control of the agency. Asked how many lawsuits the CFPB has filed against student lenders, Kraninger demurred, saying she didn't have "the specific answer to that question."
“The public record seems to show zero,” Warren replied. “Not one single action.”
That compares with 50 cases filed against student loan companies, which led to the recovery of $712 million for consumers under former CFPB Director Richard Cordray, an Obama appointee, Warren noted.
Warren raised similar concerns about a lack of discrimination lawsuits at the agency under Mulvaney and Kraninger, along with a drastically reduced caseload on credit reporting and debt collection issues. She also raised broader concerns with Kraninger's leadership at the bureau, saying she's failed to live up to its mission.
"You are supposed to be the cop on the beat, but you are only watching out for the crooks who are cheating American consumers," Warren said. "If you had any decency you'd either do your job or resign."
In addition, several senators sharply criticized Kraninger over the CFPB’s decision to halt examinations of financial firms for compliance with the Military Lending Act. Kraninger has yet to resume the exams after taking over for Mulvaney, who halted them. The Obama administration had conducted supervisory exams for years, and long cited its authority not just under the Dodd-Frank Act, but also in regulating “unfair, deceptive or abusive acts or practices,” known as UDAAP.
In January, Kraninger sided with Mulvaney and specifically asked Congress to give the CFPB "clear authority" to conduct supervisory exams for MLA compliance.
Sens. Catherine Cortez Masto, D-Nev., Jack Reed, D-R.I., and Chris Van Hollen, D-Md., each pressed Kraninger about what had changed to necessitate the pullback.
“You appear to be putting the burden on service members and their families to report violations before the agency takes action,” Cortez Masto said. “The CFPB is required to enforce the MLA."
Kraninger defended the decision, replying that "the MLA was not designated by Congress as one of the enumerated statutes.”
Cortez Masto then noted that Kraninger had changed her view based on a legal analysis, asking to see a copy of it.
Kraninger said that she would be unable to hand deliver the document, citing "protection of the deliberative process."
Reed, an Army veteran, raised additional concerns about the lack of MLA examinations, given that the law provides a 36% interest rate cap for members of the military and their families.
“You’ve chosen to read the statute to protect payday lenders,” Reed said. “What is so frustrating to me is if this is the policy of the administration, you decide you shouldn’t supervise these companies. Supervision prevents the need for enforcement.”
Democrats also criticized Kraninger's handling of the payday loans rule, including the decision to reconsider the ability-to-repay requirement included in the final regulation. Van Hollen asked Kraninger if she knew how much the payday industry was saving from her proposal last month to rescind the core underwriting requirement of the rule.
“I’m looking at your analysis,” he said, holding up a piece of paper. “Are you familiar with the fact that you found the payday industry would save $7.3 billion to $7.7 billion?”
“I understand what you’re getting at,” Kraninger said. “There are a number of facts here; we’re in active litigation on this issue.”
Van Hollen shot back: “The question is not whether we should pull off the reins on payday lending, which you’re trying to do. The question is whether we should be protecting consumers. Isn’t it your job to protect people from predatory lending?”
Several more Democrats, including Sen. Bob Menendez, D-N.J., and Sen. Tina Smith, D-Minn., also pressed Kraninger on the mounting student loan crisis and how the agency can do more to protect borrowers.
"There is a deep frustration with loan servicing organizations," Smith said. "It feels like all the power is with these big companies. I thought it was a good thing when the CFPB published a proposal [in February 2017] to get data, and figure out what was going on."
However, "since then, 1.5 million Americans have defaulted," she added.
Kraninger said that she was "unaware of this prior to last week," and that she would get back to the senator.
Meanwhile, Republicans took a more conciliatory tone with the CFPB director, asking for details about the timing of upcoming rulemakings, among other issues. Sen. Mike Crapo, R-Idaho, questioned her about the CFPB’s pending debt collection rulemaking, while Sen. Tim Scott, R-S.C., asked whether credit unions would get further regulatory relief.
Still, Kraninger responded without offering specifics about the agency's direction.
“It is certainly an objective of the bureau to understand and reduce regulatory burden,” she said in response to Scott. “But it’s also important how this impacts consumers.”
