Congress

CFPB to focus on protecting consumers, not enforcing laws on financial institutions

New agency Director Kathy Kraninger gave her first public speech as director at the Bipartisan Policy Center

Kathy Kraninger, director of the Consumer Financial Protection Bureau, prepares to testify at a House Financial Services Committee hearing on March 7, 2019. (Tom Williams/CQ Roll Call file photo)

In her first public speech as director of the Consumer Financial Protection Bureau, Kathy Kraninger said the agency would focus on supervising and working with financial institutions on protecting consumers, rather than enforcing laws against them.

Kraninger announced Wednesday that the CFPB would soon propose rules to update one of the nation’s older consumer protection statutes, which prohibits abusive practices from debt collectors. One proposal would be a clear limit on the number of phone calls per week debt collectors could make.

[Democrats hammer CFPB head for being soft on lenders]

The CFPB director also said the agency would launch a symposia series to engage stakeholders on issues at the bureau, starting with one on clarifying the meaning of “abusive acts or practices” under the 2010 Dodd-Frank Act.

Speaking at the Bipartisan Policy Center, Kraninger highlighted her time working with Democrats — as an intern for Sen. Sherrod Brown, D-Ohio, when he served in the House, and at the Department of Transportation under Norman Mineta, a Democrat who served as George W. Bush’s Transportation secretary.

But most of her comments indicated an intention to follow in the vein of her immediate predecessor — acting White House Chief of Staff Mick Mulvaney — whose tenure as acting CFPB director has been excoriated by consumer advocates and Democrats, and were a response to those criticisms.

Listing the agency’s four tools for protecting consumers as “education, regulation, supervision and enforcement,” Kraninger offered her approach to deploying them: “As director, I believe that the best application of these tools is to focus on the prevention of harms to consumers.”

In marked contrast from the CFPB’s approach under its first director, Richard Cordray, Kraninger said that meant focusing on rulemaking and working with stakeholders, rather than taking enforcement actions against them.

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“Because rules are general standards, they are not best articulated on a case-by-case basis through enforcement actions,” Kraninger said. “Rather, they should be developed through a rule making process that is transparent, that allows stakeholders to submit comments, that reflects rigorous economic and market analysis, and that provides for judicial review.

“Ultimately I don’t believe anyone benefits from rules that are rushed out the door after having undergone a flawed process,” she added. In February, Kraninger suspended the implementation of a finalized rule on payday lending, saying the rulemaking process was flawed. Critics have responded that the rule was promulgated after a five-year study of the issue, and have accused her of ignoring a congressional mandate.

Kraninger said the CFPB will “comply with the law” when Congress directs the agency to promulgate rules, suggesting a narrow interpretation of the agency’s powers in line with her decision to end proactive supervisory actions under a law to proscribe predatory lending against military service members.

“Where the bureau has discretion, we will focus on preventing consumer harm by maximizing informed consumer choice and prohibiting acts or practices which undermine the ability of consumers to choose products or services that are best for them," she added.

Combined, the comments indicate CFPB will take a market-friendly regulatory approach under her five-year term.

Kraninger also said she had directed the agency to adopt a more collaborative approach to supervising financial institutions, arguing that soft touch, private interactions would more efficiently serve the agency’s goals. “Heading trouble off at the pass may not draw big headlines, but it’ll save headaches for the consumers we serve,” she said, noting that she has challenged her staff to look at reducing the time and cost financial institutions spend complying with CFPB exams.

Kraninger promised “robust and transparent discourse . . . both internally and externally.” Mulvaney was criticized for shutting down previously open channels of communication at the agency, particularly among the bureau’s investigators. During her transition, though, Kraninger said she had met with investigators to discuss cases.

Kraninger also responded indirectly to criticism she and Mulvaney have faced for the reduced emphasis on enforcement at the agency.

“All too often, agencies tend to judge themselves on their outputs. For example, how many complaints did they handle, how many cases did they bring, how much money did they recover?” she said. Aside from the number of complaints, all of those metrics have declined since Cordray left.

“But what do these metrics truly mean for the consumer financial system overall?” Kraninger continued. “If we succeed in fostering a culture of compliance and preventing harm, we would expect the number of complaints and the number of meritorious complaints, to decline. We would likewise expect the number and size of cases that are brought to shrink as well.”

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