The Senate, in a party-line vote Thursday, confirmed White House aide Kathy Kraninger to head the Consumer Financial Protection Bureau and experts predicted a continuation of the industry-friendly shift it has taken since President Trump installed an acting director last year.
Kraninger is a protege of acting director and White House budget chief Mick Mulvaney, an outspoken critic of the agency that was created in the aftermath of the 2008 financial crisis to prevent predatory lending and other abuses that led to it.
Democrats and consumer advocates have denounced him for sharply departing from the aggressive watchdog role the bureau had pursued under its first director, Obama appointee Richard Cordray, including scaling back enforcement and moving to reassess tough new rules on payday loans and narrow the definition of abusive practices by banks and other firms.
Kraninger is expected to continue those initiatives. But she will face tougher oversight than Mulvaney, a former Republican congressman, as Democrats take control of the House next year.
“I think she’ll largely manage the CFPB in the same way Mulvaney has, meaning that there will be less of an emphasis on enforcement,” said Alan S. Kaplinsky, head of the consumer financial services group at law firm Ballard Spahr. “I don’t think there will be a lot of new regulations that are going to be proffered.”
Those expectations led to support for Kraninger’s nomination from banks and other financial firms, some of which could be emboldened by her confirmation to a five-year term.
“I think there will be some in the industry that will feel empowered to push the envelope,” said Ed Mills, a Washington policy analyst at brokerage Raymond James Financial Inc.
That’s what Senate Democrats fear. None voted to confirm her as director of the powerful, independent agency. The final was tally was 50 to 49, with only Republicans supporting the nomination.
Kraninger, 43, has been a deputy of Mulvaney at the White House Office of Management and Budget. She told senators at her confirmation hearing this summer that Mulvaney was doing a good job at the CFPB, and in written responses to questions later that she couldn’t point to any actions he’d taken with which she disagreed.
Those responses and Kraninger’s lack of any consumer finance experience — her background is mostly in homeland security — infuriated Democrats.
“We know exactly whose side Ms. Kraninger will be on,” Sen. Sherrod Brown (D-Ohio) said in arguing against her confirmation last week. “She is with Mick Mulvaney, which means she is with Wall Street and the payday lenders and with the shady special interests.”
Republicans said her management and budgetary skills made her qualified to become the nation’s consumer financial watchdog.
“I am confident that Ms. Kraninger is well prepared to lead the bureau in enforcing federal consumer financial laws, in protecting consumers’ sensitive personal financial information and in increasing its transparency and accountability,” said Senate Banking Committee Chairman Mike Crapo (R-Idaho).
Kraninger has been the Office of Management and Budget’s associate director for general government, overseeing spending at the Department of Homeland Security and four other agencies, since March 2017.
She previously served as deputy assistant secretary for policy at the Department of Homeland Security during the George W. Bush administration, and she also worked for the Senate Homeland Security and Governmental Affairs Committee and the Senate Appropriations subcommittee handling Homeland Security funding.
The CFPB director can be removed by the president only for cause, so Kraninger probably would be able to serve deep into the next presidential term even if a Democrat wins.
Cordray, a Democrat, served 10 months into Trump’s term before resigning in November 2017 to run for Ohio governor, a race he lost in November. During his tenure, the bureau had high-profile enforcement cases against Bank of America Corp., Wells Fargo & Co. and other major financial institutions, providing about $12 billion in refunds and debt relief to about 29 million consumers.
But Republicans complained that Cordray was too aggressive in using the bureau’s authority, particularly in exercising a broad power to prevent “abusive acts or practices.”
His departure triggered controversy over who would serve as acting director based on succession provisions in two separate laws.
Trump appointed Mulvaney, leading to a legal challenge from Cordray’s chosen successor, Leandra English. English, who was the bureau’s deputy director, resigned in July and dropped her legal fight.
Mulvaney clashed with Democrats. A 36-page report last month from the Democratic staff of the Senate Banking Committee said he undermined the bureau’s mission to protect consumers and “put his thumb on the scale in industry’s favor.”
Sen. Elizabeth Warren (D-Mass.), who conceived the idea for the bureau and helped launch it as an aide to then-President Obama, sent an 11-page letter last week to senators arguing that Kraninger would perpetuate “Mulvaney’s efforts to turn the CFPB into a weak and partisan regulator.”
Publicly announced enforcement actions have declined by about 75% under Mulvaney compared with the average in recent years, while the agency’s workforce has shrunk by at least 129 employees, according to a Washington Post analysis.
His tenure, though, included participating this year in a $1-billion enforcement action with the Office of the Comptroller of the Currency against Wells Fargo over consumer abuses related to the bank’s mortgage and auto loan businesses. It was one of the largest fines ever imposed by the agency.
Mulvaney commended Kraninger’s confirmation and indicated that he expected her to continue the change in direction he had engineered over the last year.
“Like all transitions, it was not always as smooth as we would’ve all liked, but the bureau has emerged stronger for it,” he said.
Unlike Mulvaney, Kraninger will have to deal with a Democratic House majority. That means that Rep. Maxine Waters (D-Los Angeles), a strong CFPB supporter who is expected to become chairwoman of the House Financial Services Committee, will have the authority to summon Kraninger for hearings and examine the bureau’s performance.
Waters said Thursday that she was committed to ensuring that the bureau’s “statutorily mandated mission is not undermined” as it has been under Mulvaney.
“He has done everything in his power to roll back consumer protections, strip the agency of its resources and compromise its independence,” she said, calling on Kraninger “to put consumers first by rolling back the anti-consumer actions taken by her predecessor.”
Waters also plans to reintroduce legislation unveiled in October to undo some of Mulvaney’s actions, such as his decision to strip enforcement powers from the bureau’s fair lending office. Even if Waters’ bill doesn’t get through the Republican-controlled Senate, her oversight authority is important, Mills said.
“When all else fails, shame is a pretty powerful weapon,” he said.
Analysts expect Kraninger to follow through on Mulvaney’s plans to alter pending rules put in place by Cordray cracking down on payday and other short-term loans. The industry opposed the rules, particularly a provision requiring lenders to more thoroughly review borrowers’ finances to make sure they can afford to repay the money.
“I think there will be significant changes to the ability-to-repay provisions,” Kaplinsky said. “They won’t do away with the rule altogether, but it will be significantly different.”
Mills expects Kraninger also to enact rules defining exactly what constitutes abusive practices.
“If they can define it, that makes it harder for anyone in the future to use that authority in a way that financial services companies are fearful of,” he said. “What they hated about Cordray is they felt they could be fined for activities that they thought were OK.”