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CFPB defends MLA and Payday Rule position in Senate hearing
On March 12, Director of the CFPB, Kathy Kraninger, testified at a hearing held by the Senate Banking, Housing, and Urban Affairs Committee on the CFPB’s Semi-Annual Report to Congress. While Kraninger’s opening statement and question responses were similar to her comments made last week during a House Financial Services Committee hearing (detailed coverage here), notable highlights include:
- Fair Lending. Kraninger did not provide a status update on the Bureau’s pre-rulemaking activities as they relate to whether disparate impact is cognizable under ECOA, but emphasized that the Bureau is committed to the fair lending mission.
- Data Collection. In response to concerns over the Bureau’s history of expansive data collection, Kraninger noted that data collection is an especially important tool for rulemaking, but stated that going-forward she would ensure the Bureau only collects the information needed to carry out the Bureau’s mission, noting that the less personally identifiable information that is collected, the less that requires protection. She acknowledged the Bureau is reviewing the comments submitted in response to its fall 2018 data governance program report (covered by InfoBytes here) and stated the Bureau remains committed to reviewing the internal processes it has for collecting and using data.
- Military Lending Act (MLA). Kraninger stated that she disagrees with the Democratic Senator’s broad interpretation of Section 1024(b)(1)(C) of the Dodd-Frank Act allowing for the Bureau to examine for compliance with the MLA because that interpretation would permit the Bureau to examine for anything that is a “risk to consumers,” including things like safety and soundness, which is not currently under the Bureau’s purview. While she acknowledged that the Bureau has the direct authority to enforce the MLA, she repeatedly rejected the notion that this would also give the Bureau the authority to supervise for the MLA, as Dodd-Frank separates the Bureau’s enforcement and supervision powers.
- Payday Rule. Kraninger repeatedly emphasized that the reconsideration of the underwriting standards in the Payday Rule was to determine if the legal and factual basis used to justify certain practices as unfair and abusive was “robust” enough. She acknowledged that the Bureau will be reviewing all the comments to the proposal and that the evidence used for the original Rule will be part of the record for the reconsideration.
- GSE Patch. In response to questions regarding the 2021 expiration of the Qualified Mortgage (QM) Rule’s 43 percent debt-to-income ratio exception for mortgages backed by Fannie Mae and Freddie Mac (GSEs), Kraninger acknowledged the “non-QM” market hasn’t materialized over the last few years, as was originally anticipated. However, Kraninger was reluctant to provide any further details, noting that she would not be making any “dramatic changes” to the mortgage market. Additionally, she acknowledged that the GSE patch has the potential to expire at the end of the conservatorship as well.
- CFPB Structure. Kraninger did not specify whether she believes the Bureau should be led by a board, rather than a single director, or whether the Bureau should be under appropriations. Specifically Kraninger stated that she would “welcome any changes Congress made that would increase the accountability and transparency of the Bureau,” and would “dutifully carry out” legislation that would place the Bureau under appropriations if the President signed it.
- Student Lending. Kraninger stated that the Bureau intends to re-engage with the Department of Education on a Memorandum of Understanding (MOU) to assist with complaint and information sharing once a new Student Loan Ombudsmen has been hired. The MOUs were previously terminated by the Department in August 2018 (covered by Infobytes here).
Kraninger tells Hill CFPB will emphasize supervision rather than enforcement
On March 7, Director of the CFPB, Kathy Kraninger, testified at a hearing held by the House Financial Services Committee entitled “Putting Consumers First? A Semi-Annual Review of the Consumer Financial Protection Bureau.” Pursuant to the Dodd-Frank Act, the hearing covered the semi-annual report to Congress on the Bureau’s work from April 1, 2018 through September 30, 2018. Kraninger was confirmed as Director in December 2018, and this was her first testimony before the Committee in that role. In her opening remarks, Chairwoman Maxine Waters expressed concern with the changes that took place at the Bureau under former acting Director Mick Mulvaney’s time in office and announced a draft bill titled the “Consumers First Act,” which directs the Bureau to, among other things, “promptly reverse all anti-consumer actions taken during Mr. Mulvaney’s tenure.” In her opening testimony, Kraninger emphasized that she is committed to “stability, consistency, and transparency” in the Bureau’s actions and believes the Bureau’s focus should be on the prevention of harm, specifically emphasizing the importance of the Bureau’s mission to educate consumers. Additionally, highlights of Kraninger’s testimony include:
- Supervision and Enforcement. Kraninger repeatedly emphasized that supervision is an important tool in the Bureau’s toolkit to assist companies working to comply with laws and regulations. She asserted that enforcement is a tool that should only be used for bad actors who have “no intention” to comply with the law, and should not be used against entities seeking to comply and self-report compliance concerns. When asked to discuss the Bureau’s reported 35 open enforcement investigations, which include investigations opened under former Director Richard Corday, Kraninger noted that she reviews the actions as they come to a decision point but believes that the Bureau’s enforcement staff is carrying out the agency’s mission and following her guidance on how to proceed.
- Office Reorganizations. Kraninger fielded a number of questions regarding former acting Director Mick Mulvaney’s actions, including the reorganization of the Office of Fair Lending and Equal Opportunity and the dismantling of the Office of Students and Younger Consumers. As for fair lending, Kraninger emphasized that moving the office to be part of the Office of the Director helps to facilitate its policy interests across the Bureau and enhances the mission of fair lending. Concerning the Bureau’s work regarding student loans, Kraninger noted that there is still dedicated staff working on student loan issues in the Bureau’s Consumer Education and Engagement section and that they are currently looking to fill the vacant role for the Student Loan Ombudsman.
- Military Lending Act (MLA). Kraninger reiterated her position that she does not believe Dodd-Frank gives the Bureau the authority to supervise for compliance with the Act under Section 1024(b)(1)(C)—which many state Attorneys General and Democratic congressional leaders have contended it does—and repeated her request for Congress to grant the Bureau with the clear authority to do so (previously covered by InfoBytes here).
- UDAAP. Kraninger noted that the Bureau’s regulatory agenda includes a consideration of a pre-rulemaking activity covering the definition of “abusive,” stating that while the current statute has a definition that prevents companies from taking “unreasonable advantage” of a consumer, she believes there should be clarity on what is considered a “reasonable” advantage.
- Congressional Changes to CFPB. Kraninger stated that she will continue to undertake the responsibilities allocated to the Director under Dodd-Frank but welcomes Congressional action that would provide additional “accountability and transparency” to the agency.
The second part of the hearing consisted of testimony from industry and consumer group representatives in which they discussed the CFPB’s previous actions and their suggestions for actions Bureau leadership should take going forward. Copies of each witnesses’ testimony are available here.
Proposed legislation introduced to streamline fintech regulation
On March 4, proposed legislation, H.R. 1491, was introduced by its co-sponsors in the U.S. House of Representatives to provide federal financial regulatory clarity for fintech startups. According to a press release issued by Congressman David Scott (D-GA), the FINTECH Act of 2019 would: (i) mandate U.S. federal financial regulators harmonize and coordinate conflicting regulations that would cover fintech operations; and (ii) establish a Fintech Council to serve as a “single point of entry” for approving fintech charters before assigning approved fintechs to one or more designated U.S. regulators. The bill's co-sponsors are members of the House of Representatives' Financial Services Committee and co-chair the Fintech and Payments Caucus.
Waters releases expansive credit reporting legislation
On February 21, Maxine Waters released a discussion draft version of the “Comprehensive Consumer Credit Reporting Reform Act of 2019,” which would significantly amend the FCRA. The draft legislative proposal was released as supporting material for the February 26 House Financial Services Committee hearing titled, “Who's Keeping Score? Holding Credit Bureaus Accountable and Repairing a Broken System.” The CEOs of the three major credit reporting agencies and a panel of officials from major consumer groups testified at the hearing.
The draft bill— versions of which Waters has also introduced in previous Congressional sessions—includes (i) significant changes to the dispute process, such as allowing consumers to appeal determinations; (ii) banning the use of credit information for certain employment decisions; (iii) removing adverse information for certain private education loan borrowers who demonstrate positive payment history; (iv) shortening the time period that most adverse credit information stays on a credit report from seven to four years; and (v) establishing federal oversight over the development of credit scoring models.
Waters reminds CFPB staff of whistleblower protections
On February 21, Congresswoman Maxine Waters (D-CA), Chairwoman of the House Financial Services Committee, sent a letter to CFPB employees, reminding Bureau staff of the protections under The Whistleblower Protection Act and encouraged anyone who witnesses “waste, fraud, abuse or gross mismanagement” to reach out to her or her staff. Waters cited to the recent reports of a significant drop in Bureau staff morale and reiterated her concern with the changes that took place at the agency during acting Director Mick Mulvaney’s tenure. Waters emphasized the importance of the Bureau’s work to protect consumers and stated that she will conduct careful oversight of the agency as part of her Chairwoman duties.
Waters announces subcommittee chairs, including newly formed Subcommittee on Diversity and Inclusion
On January 24, Chair of the House Financial Services Committee, Maxine Waters, announced that Joyce Beatty (D-OH) will serve as the first Chair of the newly formed Subcommittee on Diversity and Inclusion. According to Waters’ policy speech on January 17, the new Subcommittee will be “dedicated to looking at diversity and inclusion issues under the Committee’s jurisdiction.” Specifically, Waters cited to low representation of minorities and women in the financial services industry, particularly at the management level, as a reason for the creation of the subcommittee. Using the Offices of Minority and Women Inclusion of the federal financial services regulators as an example, Waters suggested that the subcommittee be responsible for overseeing diversity in management, employment, and business activities in the financial industry. In addition to diversity and inclusion, Waters noted that, among other things, fair housing, including conducting “robust oversight” of HUD, and fintech would be top priorities for the subcommittee.
Democrats request Otting explain comments about ending the GSEs conservatorship
On January 25, top Democratic Congressional leaders, Maxine Waters and Sherrod Brown, wrote to acting Director of the FHFA, Joseph Otting, requesting that he clarify and expand on his reported remarks concerning the administration’s plan to move Fannie Mae and Freddie Mac (collectively, “GSEs”) out of conservatorship. Specifically, Otting reportedly told FHFA employees that he would soon announce a plan to move the GSEs out from under government control and that he was given a “clear mission” outlined by Treasury and the White House of “what they want to accomplish” with the agency. Waters and Brown expressed concern about Otting’s ability to lead the agency independently based on these comments, as well as a recent filing of the agency with the U.S. Court of Appeals for the 5th Circuit stating that the agency would no longer defend the constitutionality of the FHFA’s structure. (Covered by InfoBytes here.) Waters and Brown also requested that Otting submit by February 1 a copy of the “mission that Treasury and the White House have outlined.” In response, Otting stated that he appreciated the Democratic leaders’ interest in housing finance, outlined the statutory duties of the FHFA, and welcomed input as they “begin the journey of evaluating the Enterprises and developing a framework for ending conservatorship.”
As previously covered by InfoBytes, in June 2018, the White House announced a government reorganization plan titled, “Delivering Government Solutions in the 21st Century: Reform Plan and Reorganization Recommendations.” The plan covers a wide-range of government reorganization proposals, including a proposal to end the conservatorship of the GSEs and fully privatize the companies.
House Democrats urge Kraninger to resume MLA examinations
On December 14, Maxine Waters (D-CA) and 22 other House Democrats issued a letter urging the new CFPB Director, Kathy Kraninger, to resume supervisory examinations of the Military Lending Act (MLA). As previously covered by InfoBytes, according to reports citing “internal agency documents,” the Bureau ceased supervisory examinations of the MLA, contending the law does not authorize the Bureau to examine financial institutions for compliance with the MLA. In response, a bipartisan coalition of 33 state Attorneys General sent a letter to then acting Director, Mick Mulvaney, expressing concern over the decision (covered by InfoBytes here).
The letter from Waters, who is expected to be the next chair of the House Financial Services Committee, and the other 22 Democratic members of the Committee, argues that “there is no question the [CFPB] has the authority and the responsibility to supervise its regulated entities for compliance with the MLA.” As support, the letter cites to the Bureau’s authority to oversee a “wide range of regulated entities,” the establishment of the Bureau’s Office of Servicemember Affairs, and the 2013 amendments to the MLA, which gave the Bureau the authority to enforce the act. The letter also points to the Bureau’s work obtaining $130 million in relief for servicemembers, veterans, and their families through enforcement actions, as well as the 109 complaints the Bureau has received from military consumers since 2011.
Bipartisan group of state Attorneys General seek legislative enhancements to combat anonymous shell companies
On August 2, a bipartisan group of 24 state Attorneys General sent a letter to ranking leaders of the House Financial Services Committee expressing support for legislation that requires disclosure of the owners of companies at the time of incorporation—in order to prevent “individuals from using anonymous shell companies to evade accountability”—but encouraged the adoption of additional components. The letter emphasizes that the use of anonymous shell companies allows criminals to launder and spend money attained through activities such as human trafficking and drug dealing, and legislative change could assist states in their investigation and enforcement against these crimes. Specifically, the letter requests that legislation addressing anonymous shell companies include the following components: (i) availability of information to state and local law enforcement to assist in civil and criminal investigations and provide states authority to enact relevant state laws; (ii) continued access to information throughout the investigation; and (iii) the definition of “beneficial ownership” does not allow loopholes that can be exploited by criminals.
Federal Reserve chair delivers semi-annual congressional testimony, discusses U.S. financial conditions and regulatory relief act
On July 17, Federal Reserve Chair Jerome Powell testified before the Senate Banking Committee and spoke the next day before the House Financial Services Committee. In his semi-annual congressional testimony, Powell presented the Federal Reserve’s Monetary Policy Report, and discussed the current economic situation, job market, inflation levels, and the federal funds rate. Powell stressed, among other things, that interest rates and financial conditions remain favorable to growth and that the financial system remains in a good position to meet household and business credit needs. Chairman of the Committee, Senator Mike Crapo, R-Idaho, remarked in his opening statement that, while recent economic developments are encouraging, an effort should be made to focus on reviewing, improving, and tailoring regulations to be consistent with the recently passed Economic Growth, Regulatory Relief, and Consumer Protection Act S.2155/P.L. 115-174 (the Act). During the hearing, Powell confirmed that the Fed plans to implement provisions of the Act as soon as possible. (See previous InfoBytes coverage here.) When questioned by Senator Sherrod Brown, D-Ohio, about the direction the Fed plans to take to address stress test concerns, Powell responded that the Fed is committed to using stress tests, particularly for the largest, most systemically important institutions, and that going forward, the Fed wants to strengthen the tests and make the process more transparent. Powell also indicated the Fed intends to “publish for public comment the range of factors [the Fed] can consider” when applying prudential standards. Powell also stated that he believes government-sponsored-enterprise reform would help the economy in the long term.
When giving testimony to the House Financial Services Committee, Powell also commented that cryptocurrency does not currently impair the Fed’s work on monetary policy and that the Fed will not seek jurisdiction over cryptocurrency and instead will defer to the SEC’s oversight as well as Treasury’s lead to identify the right regulatory structure.