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Kraninger set to become bureau director

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Banking
Friday, November 30, 2018

The Consumer Financial Protection Bureau is on pace to have its second full-time director after Kathy Kraninger’s nomination cleared a key procedural hurdle in the Senate on Thursday.

Kraninger’s nomination cleared a cloture vote, 50-49, to end debate on the nomination. A final vote on the nomination of Kraninger will not be held before Dec. 4, but almost certainly will be the same, as some of the potential roadblocks which have caused Republicans to reconsider final votes after limiting debate have not appeared in the five months since Kraninger was nominated.

“At her nomination hearing, Ms. Kraninger reiterated her dedication to fulfilling the bureau's congressional mandate, ensuring all consumers have access to markets for consumer financial products and services that are fair, transparent and competitive,” Senate Banking Committee Chairman Mike Crapo (R-Idaho) said on the floor before the vote. “For the past year the bureau has been led by an acting director. It is time for the Senate to confirm a permanent director. I support Ms. Kraninger and urge my colleagues to join me in voting yes on her nomination.”

The confirmation will place Kraninger in charge of the bureau for five years, following Richard Cordray’s four-year stint from 2013 through his resignation in November 2017.

It also comes as a shock to the financial services industry, which has solidly been behind Kraninger’s confirmation since her appearance before the Senate Banking Committee, but whom industry insiders reportedly knew next to nothing about when President Donald Trump announced the selection.

Kraninger was an associate director at the Office of Management and Budget (OMB), with no formal experience or background in banking, enforcement or consumer protection. She oversaw $250 billion in budgetary resources for seven cabinet departments and 30 federal agencies, including the bureau, in her time at OMB.

Kraninger previously worked for the Department of Homeland Security, joining shortly after its formation following the 9/11 terrorist attacks, where she was promoted to deputy assistant secretary for policy. After that, she worked for the House Appropriations Committee from 2011 to 2013 and the Senate Appropriations Committee from 2013 to 2017.

In her appearance before the banking committee in July, Kraninger’s work with OMB in its budgetary responses to the hurricanes which affected Puerto Rico and the administration’s zero-tolerance immigration policy.

However, she endeared herself to the financial services industry by focusing on four main points.

Kraninger began her testimony by highlighting four priorities she would focus on if confirmed:

  1. Ensure that the bureau operates in a fair, transparent manner that empowers consumers to make good choices and provides certainty for participants in the financial marketplace, using “cost-benefit analysis, as required by Congress, to facilitate competition and provide clear rules of the road.”
  2. Work closely with state financial regulators on supervision and enforcement to weed out fraudulent behavior in the financial marketplace.
  3. Protect the data that the bureau collects and limit data collection to what is required under law and is necessary to carry out its mission and ensure that that data is protected.
  4. Ensure that the bureau is accountable for its actions, including its resource expenditures.

“I am absolutely committed to data-driven decision-making,” Kraninger said at the hearing, “and should I be confirmed, that would be a focal point at the bureau”

She also expressed support for ending the bureau’s tactic of regulation by enforcement, aligning her views with those of the bureau’s acting director – and OMB Director – Mick Mulvaney.

“[I]t is critical to have clear rules, so that the lenders and creditors and the consumers themselves know what the rules are,” she said. “And that they are not, somehow, told after the fact that they broke a rule they weren’t even aware of, or that it had somehow changed without any proper notice and comment process, to really understand the impacts and the opportunity to tailor, as I’ve discussed with many other members.”

Mulvaney strongly backed Kraninger from the time of her nomination.

“I have never worked with a more qualified individual than Kathy,” Mulvaney said in a statement at the time. “Her commitment to the law, to protecting consumers and to defending what works in our vibrant financial services sector, all while respecting hard-working taxpayers who pay their bills and play by the rules ensures that the bureau will be in good hands throughout her term. Vigorous independence, sharp-as-a-tack intelligence, and simple, old-fashioned, Midwestern humility makes her the ultimate public servant.

“From navigating and interpreting how the federal government supports and regulates financial services for key stakeholders to helping stand up a brand-new federal agency when she was at the Department of Homeland Security in its earliest days, she has the kind of experience Washington so desperately needs. I know that my efforts to rein in the bureaucracy at the Bureau of Consumer Financial Protection to make it more accountable, effective, and efficient will be continued under her able stewardship.”

Kraninger worked as an intern in the office of Sen. Sherrod Brown (D-Ohio), who voted against her confirmation. She also picked up industry support from Pennsylvania Bankers Association President and CEO Duncan Campbell, who worked with her during the formation of the Department of Homeland Security, and Texas Bankers Association President and CEO Chris Furlow, who worked with her on cybersecurity issues during her Homeland Security service.

A group of more than 20 trade associations, led by the National Association of Realtors, expressed their support for Kraninger prior to the vote.

“Our organizations believe Ms. Kraninger has the ability to lead and manage a large government agency, like the bureau, which is tasked to ensure consumers’ financial interests are protected,” their letter stated. “We believe she will also fulfill the equally important role of ensuring businesses have the necessary compliance support to further those interests.”

Although the bureau has come under criticism for an apparent lack of supervisory and enforcement activity in its year under Mulvaney’s charge, there are a number of areas in which Kraninger will be expected to act upon her confirmation.

Mulvaney announced a review of rulemaking for the bureau’s small-dollar/payday lending rulemaking, a topic which has involved the courts and industry participants as well. The future of that rulemaking will be one of the immediate priorities for the bureau in 2019.

Another will be a Mulvaney-led review of the Home Mortgage Disclosure Act mandates, particularly the data points which the bureau chose to add under Cordray’s leadership, although they were not mandated by Dodd-Frank.

Mulvaney also initiated a host of requests for information on nearly every aspect of the bureau’s work, which will provide Kraninger with a mound of information and feedback with which to inform potential changes moving forward.

Sen. Elizabeth Warren (D-Mass.), who worked at the bureau as a special advisor with the Treasury Department to get the agency up and running, spoke on the Senate floor before the vote, urging her colleagues to reject Kraninger.

“If we learned anything from the financial crisis that nearly drove our economy over a cliff, it's that American families desperately need a strong consumer watchdog,” she said. “We have a lot of hard decisions to make in this body, but this one is a no-brainer.

“Working families need a CFPB director who is a fighter with a proven track record of making the consumer marketplace safe and aggressively pursuing companies that cheat their customers. Kathleen Kraninger is not that person.”

Stay with Dodd Frank Update and the October Research family of publications in the next week for immediate industry reaction to new leadership at the bureau.

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