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On January 17, the CFPB issued a statement from Bureau Director Kathy Kraninger announcing she has asked Congress to grant the Bureau “clear authority to supervise for compliance with the Military Lending Act (MLA).” The statement expresses Kraninger’s interest in protecting servicemembers and their families and notes the requested authority would complement the Bureau’s MLA enforcement work. The announcement acknowledges the recently introduced House legislation, H.R. 442, which would directly grant the Bureau supervisory authority over the MLA, and also includes suggested draft legislation the Bureau sent to both the U.S. House of Representatives and the U.S. Senate (here and here). The draft legislation would amend the Consumer Financial Protection Act to include a section providing the Bureau “nonexclusive authority to require reports and conduct examinations on a periodic basis” for the purposes of (i) assessing compliance with the MLA; (ii) obtaining information about the compliance systems or procedures associated with the law; and (iii) detecting and assessing associated risks to consumers and to markets.
As previously covered by InfoBytes, in August 2018, then acting Director Mick Mulvaney internally announced the Bureau would cease supervisory examinations of the MLA, contending the law did not explicitly grant the Bureau the authority to examine financial institutions for compliance. A bipartisan coalition of 33 state Attorneys General wrote to Mulvaney expressing concern over the decision and after her confirmation, a group of 23 House Democrats urged Kraninger to resume the examinations. (Covered by InfoBytes here and here.)
The Bureau’s request that Congress grant it authority to examine for compliance with the MLA suggests that it does not intend to do so unless Congress acts.
On December 19, new CFPB Director, Kathy Kraninger emailed staff stating she has decided to not move forward with changing the name of the agency to the Bureau of Consumer Financial Protection. Former acting Director Mick Mulvaney—to whom Kraninger previously reported at the Office of Management and Budget—had initiated the change and released an official agency seal referring to the Bureau of Consumer Financial Protection on the grounds that the Dodd-Frank Act generally used that name for the agency rather than Consumer Financial Protection Bureau. In an email to Bureau staff, Kraninger stated the seal and the “statutory name given in Dodd-Frank” will be used for “statutorily required reports, legal filings, and other items specific to the Office of the Director,” but “[t]he name ‘Consumer Financial Protection Bureau’ and the existing CFPB logo will continue to be used for all other materials.” The decision comes soon after an internal report allegedly calculated the name change to cost anywhere between $9 million and $19 million dollars and after a request by Senator Elizabeth Warren for the Bureau’s Inspector General to conduct an investigation into Mulvaney’s decision to change the name.
This appears to be one of the first significant decisions Kraninger has made since becoming the Bureau’s second confirmed Director. While her reversal of the course set by Mulvaney is noteworthy, her views on consumer financial protection issues are still largely unknown, and it remains to be seen whether she will continue with her predecessor’s initiatives on substantive matters.
On December 6, the U.S. Senate confirmed, in a 50 to 49 vote, Kathy Kraninger as the new Director of the CFPB for a five year term. Kraninger replaces acting CFPB Director Mick Mulvaney, under whom she served at the Office of Management and Budget (OMB) as the associate director for general government. Prior to OMB, Kraninger worked at the Department of Homeland Security and in Congress on the House and Senate Committees on Appropriations. In July, Kraninger testified before the Senate Banking Committee where she fielded questions covering a range of topics and notably stated that, “Congress, through [the] Dodd-Frank Act, gave the Bureau incredible powers and incredible independence from both the president and the Congress in its structure. . . . My focus is on running the agency as Congress established it, but certainly working with members of Congress. I’m very open to changes in that structure that will make the agency more accountable and more transparent.” (Detailed coverage on Kraninger’s hearing available here.)
While her views on consumer financial protection issues are largely unknown, Kraninger is expected to continue with Mulvaney’s initiatives, at least in the near term. Currently, the Bureau is, among other things, (i) expected to release a proposed rule reconsidering the ability-to-repay provisions of the rule covering Payday, Vehicle Title, and Certain High-Cost Installment Loans in January 2019 (covered by InfoBytes here); (ii) fighting three constitutional challenges to its single-director structure (InfoBytes coverage here and here and here); and (iii) receiving pushback from state Attorneys General on its reported decisions to no longer supervising financial institutions for compliance with the Military Lending Act (MLA) and reexamine the requirements and enforcement of the Equal Credit Opportunity Act (ECOA) (covered by InfoBytes here and here).
In a press statement released shortly after the vote, Mulvaney praised the Senate for confirming Kraninger and spoke of his time as acting Director, “[t]his last year has been an important step in the history of the Bureau as we take our place among the most notable regulatory bodies of our country -- and frankly the world. Like all transitions, it was not always as smooth as we would've all liked, but the Bureau has emerged stronger for it.”
On November 9, the CFPB issued its semi-annual report to Congress, covering the Bureau’s work from October 1, 2017 to March 30, 2018. The report, which is required by the Dodd-Frank Act, addresses, among other things, problems faced by consumers with regard to consumer financial products or services; significant rules and orders adopted by the Bureau; and various supervisory and enforcement actions taken during the majority of acting Director Mick Mulvaney’s tenure. Specifically, the report includes (i) a summary of five “significant” state Attorney General actions pursuant to Section 1042 of the Dodd-Frank Act, which allows states to enforce the federal law; (ii) a review of the Bureau’s fair lending efforts, noting that it “conducted fewer fair lending supervisory events. . .than in the prior period,” but “cleared a substantially higher number of MRAs or MOU items from past supervisory events than in the prior period”; (iii) a discussion of non-prime and secured credit cards marketed to consumers; and (iv) a list of upcoming initiatives, which includes requests for information regarding, among other things, the Bureau’s consumer complaint and consumer inquiry handling processes, the Bureau’s inherited regulations and inherited rulemaking authorities, the Bureau’s adopted regulations and new rulemaking authorities, Bureau rulemaking processes, Bureau public reporting practices of consumer complaint information, Bureau external engagements, the Bureau’s supervision program, and the Bureau’s enforcement processes.
Notably, the report also discusses the budget for FY 2018, acknowledging the unusual January 2018 request for zero dollars in funding for the Bureau’s quarterly operations (previously covered by InfoBytes here). As for FY 2019, Mulvaney most recently requested nearly $173 million for Q1, which is still significantly below former Bureau Director Richard Cordray’s FY 2017 Q1 request of $217 million.
On November 6, the U.S. District Court for the Western District of Texas granted two payday loan trade groups’ request to reconsider the court’s June decision to deny a stay of the compliance date (August 19, 2019) of the Bureau’s final rule on payday loans, vehicle title loans, and certain other installment loans (Rule). The court styed the compliance date until further order of the court. The court previously (twice) denied requests to stay the compliance date (covered by InfoBytes here and here). However, the court reconsidered its decision after an October 26 status update, in which the Bureau informed the court of its intention to issue a notice of proposed rulemaking in January 2019 to reconsider parts of the Rule and the compliance date (covered by InfoBytes here).
As previously covered by InfoBytes, the payday loan trade groups filed a lawsuit against the Bureau in April asking the court to set aside the Rule on the grounds that, among other reasons, the Bureau is unconstitutional and the rulemaking failed to comply with the Administrative Procedure Act.
On October 23, a bipartisan coalition of 33 state Attorneys General sent a letter to acting Director of the CFPB, Mick Mulvaney, expressing concern over reports that the Bureau is no longer supervising financial institutions for compliance with the Military Lending Act (MLA). The Attorneys General wrote that the Bureau would be “failing to abide by its statutorily mandated duty to enforce the MLA” by interpreting its authority to preclude the examination of lenders for compliance with the act. Specifically, the Attorneys General point to recent amendments to the MLA providing that the statute “shall be enforced” by the Bureau (among other agencies) “under any . . . applicable authorities available to the [Bureau].” This includes the authority to examine lenders “to ‘detect and assess risks to consumers.” According to the Attorneys General, the origination of non-MLA compliant loans to servicemembers constitutes such a risk.
On September 12, the U.S. District Court for the Southern District of New York issued an order dismissing the New York Attorney General’s (NYAG) claims against a New Jersey-based finance company and its affiliates (defendants) under the Consumer Financial Protection Act (CFPA). In doing so, the court reversed its June ruling that the NYAG could proceed with its CFPA claims despite the court’s conclusion that the CFPB’s organizational structure, as defined by Title X of the Dodd-Frank Act, is unconstitutional and therefore, the CFPB lacks authority to bring claims against the defendants, as previously covered by InfoBytes.
According to the new order, the remedy for Title X’s constitutional defect is to invalidate Title X in its entirety, which therefore invalidates the NYAG’s statutory basis for bringing claims under the CFPA. The court concluded that it lacked jurisdiction over NYAG’s remaining state law claims and dismissed the NYAG’s action against the defendants in its entirety.
The amended order is the culmination of a process that began with an August request by the CFPB for the court to enter a final judgment with respect to its dismissal of the CFPB’s claims, which would allow the Bureau to appeal to the U.S. Court of Appeals for the 2nd Circuit. (Previously covered by InfoBytes here.) After numerous letters were submitted by all the parties, the court granted the CFPB’s request for entry of final judgment and granted the defendant’s request to stay the NYAG claims during the pendency of the CFPB’s appeal. The NYAG subsequently responded with a letter requesting clarity on the court’s jurisdiction over the claims, which resulted in the new order dismissing the NYAG claims in their entirety.
On September 10, the CFPB rejected the arguments made by two Mississippi-based payday loan and check cashing companies (appellants) challenging the constitutionality of the CFPB’s single director structure. The challenge results from a May 2016 complaint filed by the CFPB against the appellants alleging violations of the Consumer Financial Protection Act (CFPA) for practices related to the companies’ check cashing and payday lending services, previously covered by InfoBytes here. The district court denied the companies’ motion for judgment on the pleadings in March 2018, declining the argument that the structure of the CFPB is unconstitutional and that the CFPB’s claims violate due process. The following April, the 5th Circuit agreed to hear an interlocutory appeal on the constitutionality question and subsequently, the appellants filed an unopposed petition requesting for initial hearing en banc, citing to a July decision by the 5th Circuit ruling the FHFA’s single director structure violates Article II of the Constitution (previously covered by InfoBytes here).
In its September response to the appellants’ arguments, which are similar to previous challenges to the Bureau’s structure—specifically that the Bureau is unconstitutional because the president can only remove the director for cause—the Bureau argues that the agency’s structure is consistent with precedent set by the U.S. Supreme Court, which has held that for-cause removal is not an unconstitutional restriction on the president’s authority. The brief also cited to the recent 5th Circuit decision holding the FHFA structure unconstitutional and noted that the court acknowledged the Bureau’s structure as different from FHFA in that it “allows the President more ‘direct control.’” The Bureau also argues that the appellants are not entitled to judgment on the pleadings because the Bureau’s complaint— which was filed under the previous Director, Richard Cordray— has been ratified by acting Director, Mick Mulvaney, who is currently removable at will under his Federal Vacancies Reform Act appointment and therefore, any potential constitutional defect in the filing is cured. Additionally, the Bureau argues that even if the single-director structure were deemed unconstitutional, the provision is severable from the rest of the CFPA based on an express severability clause in the Dodd-Frank Act.
On September 7, the CFPB released the new membership details of the Consumer Advisory Board, the Community Bank Advisory Council, and the Credit Union Advisory Council. As previously covered by InfoBytes, in June, acting Director, Mick Mulvaney, removed all the current members of the advisory committees in an effort to right-size its advisory councils and ramp up outreach to external groups, as explained in a blog post by the Bureau’s policy associate director for external affairs. The Consumer Advisory Board now consists of nine members, down from 28, and the Community Bank Advisory Council and the Credit Union Advisory Council each consist of seven members, down from 19 and 18 respectively. Previously, Consumer Advisory Board members served three year terms and Advisory Council members served two year terms. All committee members will now serve a one-year term.
On August 23, the Senate Banking Committee approved, in a 13-12 party-line vote, Kathy Kraninger to be the next Director of the CFPB, which carries a five-year term. Kraninger’s nomination next moves to the full Senate. Acting Director, Mick Mulvaney, will remain in his position for the foreseeable future, as the Federal Vacancies Reform Act allows him to continue in his acting capacity until the full Senate confirms or denies Kraninger’s nomination.
In July, Kraninger testified before the Senate Banking Committee where she fielded questions covering a range of topics, including whether she would appeal a June ruling by a federal judge in New York asserting that the CFPB’s structure was unconstitutional. While Kraninger did not provide a substantive answer to that question, she did comment that, “Congress, through [the] Dodd-Frank Act, gave the Bureau incredible powers and incredible independence from both the president and the Congress in its structure. . . . My focus is on running the agency as Congress established it, but certainly working with members of Congress. I’m very open to changes in that structure that will make the agency more accountable and more transparent.” See more detailed InfoBytes coverage on Kraninger’s July nomination hearing here.
- H Joshua Kotin to discuss "Being fair, responsible, & profitable" at the QuestSoft Lending Compliance & Risk Management Virtual Conference
- Kathryn L. Ryan to discuss "NMLS mortgage call report – Where’s NMLS 2.0?" at the QuestSoft Lending Compliance & Risk Management Virtual Conference
- Thomas A. Sporkin to discuss "Managing internal investigations and advanced government defense" at the Securities Enforcement Forum
- Jeffrey P. Naimon to discuss "2021 - A new beginning/what's to come" at the QuestSoft Lending Compliance & Risk Management Virtual Conference
- H Joshua Kotin to discuss "Mortgage servicing in a recession: Early intervention, loss mitigation and more" at the NAFCU Virtual Regulatory Compliance Seminar
- Daniel R. Alonso to discuss "Independent monitoring in the United States" at the World Compliance Association Peru Chapter IV International Conference on Compliance and the Fight Against Corruption
- Jonice Gray Tucker to discuss "Cyber security, incident response, crisis management" at the Legal & Diversity Summit
- Jonice Gray Tucker to discuss "The future of fair lending" at the Mortgage Bankers Association Regulatory Compliance Conference
- Michelle L. Rogers to discuss "Major litigation" at the Mortgage Bankers Association Regulatory Compliance Conference
- Kathryn L. Ryan to discuss "Pandemic fallout – Navigating practical operational challenges" at the Mortgage Bankers Association Regulatory Compliance Conference
- Jonice Gray Tucker to discuss "Consumer financial services" at the Practising Law Institute Banking Law Institute
- Daniel P. Stipano to discuss "BSA/AML - Covid impact and regulatory/guidance roundup" at an NAFCU webinar