86 Days In: Lawmakers Seek Balance Going Forward with CFPB Director Kathy Kraninger

Regulation by enforcement, congressional oversight of the bureau through legislation and more dominate questions at House Financial Services Committee’s semiannual review hearing for the CFPB.

3/7/2019 4:30 PM

86 Days In: Lawmakers Seek Balance Going Forward with CFPB Director Kathy Kraninger

Legislators on both sides of the aisle discussed the direction of the Consumer Financial Protection Bureau in a House Financial Services Committee semiannual review hearing with testimony from Director Kathy Kraninger and Scott Weltman, managing shareholder with Weltman, Weinberg & Reis Co. LPA., an ACA member invited to discuss his experience with a CFPB lawsuit that resulted in a dismissal. Former CFPB Student Loan Ombudsman Seth Frotman also testified.

“It’s a new day in the CFPB and I welcome that,” said Ranking Member U.S. Rep. Patrick McHenry, R-N.C., in his opening statements at the hearing, “Putting Consumers First? A Semiannual Review of the Consumer Financial Protection Bureau” attended by ACA International staff including Leah Dempsey, vice president and senior counsel of federal advocacy, Rae Ann Bevington, vice president of congressional and political affairs, and Kim Coghill, vice president of communications.

McHenry noted that he invited Weltman to testify in reference to the bureau’s previous approach to “regulation by enforcement.”

“Our case with the CFPB was the epitome of an effort to legislate through misguided enforcement instead of by rulemaking,” Weltman told the committee during the daylong hearing.

Weltman, Weinberg, Reis Co., LPA was the subject of a CFPB lawsuit that was ultimately dismissed by the U.S. District Court for the Northern District of Ohio in 2017. The CFPB alleged that Weltman Weinberg’s attorneys were not meaningfully involved in reviewing consumer accounts but sent demand letters and made collection calls falsely representing that attorneys were involved in collecting the debts.  Ohio Judge Donald C. Nugent found the bureau’s lawsuit lacked merit.

[Editor’s Note: ACA International will provide more coverage in ACA Daily of Weltman’s testimony in the coming days.]

Regulation by Enforcement

Weltman Leah Dempsey Web

The “regulation by enforcement” process that reportedly led to Weltman’s case came under review during the hearing as it relates to the bureau’s approach to supervisory actions and developing rulemakings as well as the separate role of Congress to develop legislation connected to accountability and transparency and the bureau’s leadership structure.

“It’s a dangerous approach to regulation,” McHenry said.

Since the bureau’s inception, several legislative proposals have surfaced to bring its funding under congressional appropriations and change its leadership structure to a bipartisan commission, for example.

“The bureau still has an unfettered line of credit with the Federal Reserve and there is still no CFPB inspector general,” McHenry said.

Several members of the committee stressed the bureau, under Kraninger’s leadership, needs to focus on acting under existing statutes that guide its authority and let Congress decide if the law should be changed.

“It’s a very confusing thing when we see legislation to get into your space and interfere with your independence,” McHenry said. “We’re talking about the broad structural challenges with the bureau that we see and how that impacts consumers. We have a fundamental debate here within Congress that is a debate as us for lawmakers to make. You need to act under the statute as designed not based on what is being yelled at you via a congressional hearing. Let’s not allow politics to distract consumer protection that is so vital and dear,” McHenry said.

Consumers First Act

Given that, in conjunction with the hearing, Chairwoman U.S. Rep. Maxine Waters, D-Calif., reintroduced legislation the “Consumers First Act” H.R. 1500 cosponsored by 28 members of the committee. The proposal attempts to address concerns that the consumer bureau recently has not “fulfilled both the spirit and the plain letter of the law,” according to a memorandum for the hearing.

“The consumer bureau is the centerpiece of the Dodd-Frank Wall Street Reform and Consumer Protection Act, which Congress passed after the financial crisis to provide America’s consumers with a watchdog that would swiftly and effectively crack down on unscrupulous financial practices, products and actors,” Waters said in her opening statement.

McHenry challenged the legislation during the hearing and said several of its components, especially with respect to organizational issues, could be accomplished by the bureau without a bill being signed into law.

“I want to change that structure, so you have a bipartisan board, a structure that puts you on budget, but that’s something that’s for me to fight about, not you,” McHenry said.

U.S. Rep. Michael San Nicolas, D-Guam, one of the sponsors of the Consumers First Act, said it is designed to bring the bureau back on issues where it has “tipped too far.”

“The variable of your predecessors has caused both sides of the aisle to try to find balance,” San Nicolas told Kraninger during the hearing. “We’re left with having to rely on you to be that source of balance.”

Bureau Rulemaking

Questions during the hearing also turned to rulemaking, including its reconsideration of the small-dollar lending rule and Unfair, Deceptive, or Abusive Acts or Practices (UDAAPs.)

In Kraninger’s testimony and semiannual report, she said the bureau continues to consider the imminent rule regarding Fair Debt Collection Practices Act collectors’ communications practices and consumer disclosures.

“Looking ahead, I will be setting priorities for the bureau, including setting the tone for how we will operate as an agency. I expect to emphasize stability, consistency, and transparency as hallmarks as we mature the agency and institutionalize the many partnerships that are key to our success,” Kraninger said. “I am also examining how we can best utilize all the tools that Congress has given us— broadening our efforts to focus on prevention of harm as a primary goal for our actions.”

U.S. Rep. Andy Barr, R-Ky., asked for clarity on what constitutes a UDAAP violation for a business as well as what the bureau plans to do to provide further clarity.

“Because of lack of clarity, they sometimes fall short of these unknown standards,” Barr said.

“With respect to definition of (UDAAPs), there is one in the statute and the bureau has taken actions in its history with respect to that definition,” Kraninger said. “The regulatory agenda for the agency includes consideration of pre-rulemaking activity to have a discussion around that definition.”

Committee members also focused their questions for Kraninger on the bureau’s authority over fair lending, such as for servicemembers under the Military Lending Act, student loan debt, innovation in financial technology and more.

“I am certainly committed to having clarity in the rules that entities that are seeking to comply can rely upon,” Kraninger said during the hearing. “I do think that the regulatory tool that Congress gave the bureau is an important one in terms of setting out what those rules are. The supervisory and examination process that we have is geared toward that. I am looking at all of the tools that the bureau has and trying to assess how best to utilize them and apply them.”

Pictured above:

CFPB Director Kathy Kraninger and Scott Weltman, managing shareholder, Weltman, Weinberg & Reis Co., L.P.A.

Leah Dempsey, ACA International’s vice president and senior counsel, federal advocacy, joins Robert Weltman, Scott Weltman and Melanie Weltman before Scott Weltman, of ACA member company Weltman, Weinberg & Reis Co., testifies on Capitol Hill during the House Financial Services Committee hearing.

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