On Dec. 6, the U.S. Senate confirmed Kathy Kraninger as the next Consumer Financial Protection Bureau (CFPB) Director by a 50-49 vote along party lines.
Kraninger will replace Mick Mulvaney, who became CFPB’s Acting Director after former Director Richard Cordray stepped down in November 2017. Cordray often had been criticized by Republicans and the industry for his aggressive enforcement of federal consumer financial laws such as RESPA, often in the absence of clear regulatory guidance. Mulvaney was condemned by Democrats and consumer advocates for scaling back Cordray’s regulatory and enforcement initiatives and reducing the Bureau’s budget and staff.
Kraninger’s nomination in June 2018 was a surprise since few people in the financial services field had ever heard of her. So, who is Kathy Kraninger, and will she continue on the same path as Mulvaney at the CFPB?
When nominated by President Trump, Kathy Kraninger served as associate director for the Office of Management and Budget under Mulvany, overseeing a $250 billion budget across seven Cabinet departments. Previously, she had worked for the Senate Appropriations Committee and the Department of Homeland Security.
As a former Mulvaney employee, she was assumed to have a similar approach to regulation and enforcement; a belief that she confirmed during her confirmation process. “Based on the information that is available to me at this time, I cannot identify any actions that Acting Director Mulvaney has taken with which I disagree,” she said in responses to the Senators’ written questions.
Kraninger's lack of financial regulatory experience, coupled with a lack of specificity in her responses to questions during her confirmation process, makes it hard to know if she will rubber stamp Mulvaney’s initiatives during his one-year tenure at the CFPB or attempt to define her own agenda. In her July confirmation testimony, she said she would establish four initial priorities for the CFPB:
Mulvaney made clear at the outset of his tenure that he would end the regulation-by-enforcement mentality at the CFPB under Cordray’s tenure.
Kathy Kraninger assured Republicans at her confirmation hearing that she also will not allow the Bureau to regulate issues through enforcement actions. “It is critical to have clear rules so that lenders and consumers are aware of the rules,” she said. “Effective use of notice and comment rulemaking is essential for ensuring the proper balancing of all interests.”
Mulvaney provoked criticism from consumer advocates when he stripped the CFPB’s Office of Fair Lending and Equal Opportunity of its enforcement powers and moved it to the Director’s office to handle “advocacy, coordination, and education.” Under Cordray, the office had assertively enforced fair lending laws against mortgage lenders.
The CFPB under Cordray also reaffirmed its commitment to using the disparate impact theory (under which a regulator considers practices that adversely affect a protected group over others even though the practice is formally neutral) when enforcing the Equal Credit Opportunity Act (ECOA) and brought numerous cases based on the doctrine. The Bureau, under Mulvaney, announced in May that the CFPB would re-examine ECOA requirements in light of a recent Supreme Court ruling that set standards to ensure that racial imbalance alone does not create a prima facie case under the Fair Housing Act.
Kathy Kraninger assured senators at her confirmation hearing that she is committed to enforcing fair lending laws as CFPB director and that she will review Mulvaney’s decision to reorganize the CFPB’s Office of Fair Lending with “an open mind.” She said that she plans to have detailed conversations with staff to better understand the CFPB’s position on disparate impact before deciding on its usage in fair lending enforcement cases.
The CFPB director’s single-director structure term means that Kathy Kraninger will have vast unilateral power over federal consumer protection laws over her five-year term. She will approve all enforcement actions, and she will be at the helm of the CFPB during its statutorily mandated review of all significant rules under Dodd-Frank (including the Qualified Mortgage and Truth in Lending-RESPA Disclosure (TRID) regulations) that will set the stage for future rulemakings. While we know little about her, early signs point to a more transparent regulatory process and more targeted enforcement initiatives based on clearer rules.
Sue Johnson is the former executive director of RESPRO, the Real Estate Services Providers Council Inc. She retired in 2015 and is now a strategic alliance consultant.
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