In the coming weeks of November, crucial questions about running the Consumer Financial Protection Bureau await – regardless of who wins.
Under Joe Biden's presidency, Director Kathy Kraninger would be on shaky ground following a court ruling that allowed presidents to fire seated CFPB chiefs. But if President Trump is re-elected, observers will disagree on which direction Kraninger would take the agency by the end of her term in 2023.
One theory is that she will continue to roll back Obama-era regulations to help mortgage lenders, fintechs, and others. However, some argue that it will take a more centrist approach, balancing deregulation measures with tough enforcement measures against predatory companies. Indeed, the ongoing effects of the pandemic could force the agency to focus more on consumers.
"The strategic priorities will be to address the pandemic-related issues and repair the economy," said Tony Alexis, partner in Goodwin's Consumer Financial Enforcement Practice and former CFPB official.
Banks and financial firms will continue to benefit from Kraninger's market-friendly, limited government approach to regulation, including the promise to provide clearer traffic rules to businesses through appraisals and rules of interpretation.
However, the financial impact of COVID-19 is likely to take center stage over the next year as more consumers find themselves in financial trouble, mortgage forbearance plans expire, and servicers the prospect of higher arrears. Many experts say Kraninger will be forced to tighten controls on servicers over processing deferrals and forbearance requests, as well as car lenders for their collection practices during the pandemic crisis.
Some note that CFPB Director Kathy Kraninger, who is less political than her predecessor, former CFPB Acting Director and White House Chief of Staff, Mick Mulvaney, is less political.
"The CFPB needs to look at the mortgage market as there will be an enormous number of people with financial problems," said Alexis.
Some note that Kraninger, who is less political than her predecessor, former White House Chief of Staff Mick Mulvaney, who was CFPB director on an acting basis, is less political. After Mulvaney had essentially stopped all enforcement activities in the agency, the enforcement measures under Kraninger have steadily increased. Most recently, under their supervision and in coordination with other authorities, the office announced nationwide action against abusive debt collection agencies.
"If you compare her entire record to Mick Mulvaney's, she really struck a middle ground on everything," said Richard Gottlieb, partner at Manatt, Phelps & Phillips. "She didn't make anyone happy, exactly what you'd expect an office manager to do. It means she's doing it damn well."
However, critics of Kraninger fear that it would continue to focus on deregulation in Trump's second term, which would harm consumers. Under their observation, according to some observers, the CFPB has removed the underwriting requirements for payday lenders, not focused on fair lending issues, committed to providing regulatory relief to fintech innovators, and proposed a weaker "Qualified Mortgage" standard.
"Under Director Kraninger, the CFPB has largely focused on relieving the industry of the need to comply with consumer protection," said Lauren Saunders, assistant director at the National Consumer Law Center. "She has a moderate personality, but not a moderate approach."
Democratic lawmakers and advocates have already attacked Kraninger for not doing enough to help consumers during the pandemic.
"We see no evidence that the CFPB will aggressively protect people from losing their homes and dealing with debt," Saunders said. "It's about how you can enable industry to comply with the law."
Later this year and in Trump's second term in office, if the president is re-elected, Kraninger is likely to push ahead with further regulations that are favorable to the industry. These include a proposal to reduce data collection under the Home Mortgage Disclosure Act, a revision of the qualified mortgage rule, a proposal to create a new category of "experienced QM" loans, and data collection for small businesses which is one of the final rules under required by the Dodd-Frank law.
"The focus is entirely on the rules … [too] good, vice versa or limit," Saunders said.
Some suggest the possibility that Kranginger could take on another role in the Trump administration, having spent most of her career in the Department of Homeland Security.
"She would be able to be sustained in a variety of roles in the presidential administration," said Alexis.
Further enforcement actions
If she continues, however, some speculate that Kraninger's business-friendly rule-making could go hand in hand with tightening enforcement measures.
When Kraninger took over the office in December 2018, she made education one of her priorities first, followed by prevention and supervision. Enforcement was last on the list.
But Kraninger has issued about 30 public enforcement actions a year, roughly the same as the roughly 40 a year enacted under one of her predecessors, Richard Cordray, one of Obama-appointed, said Ori Lev, partner at Mayer Brown and a former CFPB official .
"I find the Kraninger CFPB a bit puzzling because, on the one hand, it is this dramatic change compared to Cordray. On the other hand, everything is going as usual," said Lev recently at a banking conference.
"Part of what we are seeing right now is focusing on the cheating end of the market, easier wins, and less controversial cases," Lev said.
Kraninger wasn't afraid to sue banks, Lev said, referring to recent lawsuits against the Fifth Third, with $ 203 billion in assets in Cincinnati for allegedly opening fake accounts and against Citizens Bank with 180 assets Billion US dollars in Providence, RI, for processing credit card fraud claims.
However, the size of fines and penalties has decreased under Kraninger, prompting a group of Democratic senators to ask the CFPB's Inspector General to investigate the sharp drop in reimbursement for borrowers earlier this year.
Financial firms continue to monitor consumer complaints as they play a role in investigating institutions.
"The volume and nature of the complaints play a bigger role in deciding which cases [the CFPB] to bring," said Scott Pearson, another partner at Manatt Phelps. "The view is that if consumers complain about it, the CFPB should look into this."
The CFPB also faces competition from the California Department of Finance and Innovation, a revamped state regulator with expanded powers to bring both administrative and civil litigation against a number of industries that were previously unregulated.
"The new DFPI will put pressure on the CFPB after January," said Gottlieb.
Kraninger could also face increased pressure to focus on fair lending issues during Trump's second term as well.
Despite the national focus on racial inequality and redlining, Kraninger has withdrawn enforcement of fair lending laws. She has been criticized by Democratic lawmakers for only making a referral to the Justice Department, and experts say she missed the opportunity to address a pattern of discrimination that the CFPB recently identified in the HMDA data.
Banks and mortgage lenders are strongly advocating exemptions from submitting HMDA data, although lenders continue to collect the data for regulatory scrutiny.
Kraninger also refers to the efforts of the CFPB to inform consumers.
At a recent fintech conference this week, she drew attention to the office's response to the pandemic by highlighting the launch of an apartment website, blogs and videos designed to help consumers exercise their rights under Coronavirus Aid, Relief and Understand the Economic Security Act.
"We reacted immediately to gather the best possible information, particularly from our educational mission, to ensure that people understand their rights and to create clarity about the responsibilities of the institutions," said Kraninger.
She has also looked at flexibility for fintech startups. The CFPB's no-action letter and "sandbox" guidelines developed by the Office of Innovation are designed to ease the regulatory burden on companies trying to bring new products to market.
Kraninger said at the conference that the CFPB would like to grant regulatory relief to companies that have new products or guidelines that can offer certain benefits or access to credit, especially for consumers without bank details.
"In all honesty, we try to encourage anyone who has an interpretive challenge, regulatory or perceived barrier to a great idea that will be beneficial to the consumer in the marketplace," she said. “We can't promise we'll approve – there are very clear legal responsibilities – but for newbies, for those who want to try something different, especially in terms of access, I would love to talk about the opportunity for innovation to … help [consumers] on their path to financial well-being. "
The urge to educate consumers and bring the weirdos into the financial crisis would likely find more resonance with the CFPB in Trump's second term.
"I think the most important change under Kraninger is that there is more emphasis on consumer education and research, the other CFPB missions that were launched by Dodd-Frank and have not received much attention in the past," said Pearson. "People don't get financial education in school, there are no classes where people learn how to manage their money and be smart consumers, and that's one of the really positive things about their legacy."