Her remarks outlined her vision for the agency — one that is more consumer-protection focused than that of her immediate predecessor, Acting Director Mick Mulvaney, yet more restrained than that of the watchdog agency’s first permanent director, Richard Cordray, who was appointed by President Obama.
Financial institutions and market participants regulated by the Bureau should not anticipate a respite from future supervision, rulemaking, and enforcement activities. Under Kraninger’s leadership, the Consumer Financial Protection Bureau (Bureau or CFPB) remains focused on preventing violations of laws and regulations. During her 27-minute speech, Kraninger elaborated upon the broad authorities provided to the Bureau by Congress, including those related to consumer engagement. The Bureau will follow a “purposeful enforcement regime” that addresses wrongdoing, fosters compliance, and prevents consumer harm. The director’s remarks also demonstrated a resolute focus on empowering consumers through education.
A Deeper Dive into Kraninger’s Remarks: Analysis of Supervision, Enforcement, and Rulemaking Work
New Proposed Rulemakings. Following an initial “listening tour” in early 2019, Kraninger emphasized the need to articulate clear rules for regulated entities and vowed to lead the agency “deliberately and transparently in its rulemakings.”
Regulatory Oversight. The Bureau’s new leadership clearly intends to march forward in fulfilling the existing authorities under the agency’s enabling statute, title x of the Dodd-Frank Wall Street Reform and Consumer Protection Act, which has not been amended since its passage in 2010.
Kraninger emphasized that bank and non-bank supervisory programs remain “the heart of [the] agency,” and the Bureau will deploy this tool “as effectively and efficiently as possible to prevent consumer harm.” However, the director also hinted at a more deliberative Bureau approach: she noted the importance of ensuring “we do not impose unmanageable burdens while performing our duties.”
Greater Coordination Between FFIEC, Prudential Regulators, and the Bureau. Within the first few months since becoming Bureau Director, Kraninger has also become the chairman of the Federal Financial Institutions Examination Council (FFIEC). The FFIEC is a formal interagency body comprising the federal prudential regulators – the Board of Governors of the Federal Reserve System (FRB), the Federal Deposit Insurance Corporation (FDIC), the National Credit Union Administration (NCUA), and the Office of the Comptroller of the Currency (OCC) as well as the CFPB. The FFIEC is charged with coordinating with the State Liaison Committee to promote uniform examination standards by state and federal regulators. Institutions and vendors primarily interact with the FFIEC through the FFIEC’s technology (IT) audit function.
The ascendency of Bureau Director Kraninger to the role of Chairman of the FFIEC indicates that the financial services industry may experience increased collaboration among regulators who are reviewing the “same or similar information at the same institutions.” In addition, the Bureau may also approach its own consumer-financial examinations of companies engaged in the FinTech industry with greater knowledge based on the FFIEC’s expertise on IT audits.
Bureau Enforcement Oversight? Kraninger’s view is that Enforcement should be used sparingly and only when appropriate, “proceed[ing] carefully and purposefully to ensure a fair and thorough evaluation of the facts and the laws,” with a commitment to expeditious resolution of enforcement matters.
The CFPB’s enforcement activities will move forward within the greater landscape of ongoing rulemaking and consumer empowerment activities. Several examples are depictive:
- The CFPB’s enforcement division remains active on the dockets. Compared to the eleven enforcement actions announced in 2018 under Mulvaney, there have already been ten enforcement actions announced in the first six months of 2019 under Kraninger. Kraninger acknowledged in her speech that every case is “fact and circumstance specific” alluding that ongoing investigations will not die on the vine simply because of a change in leadership. If the facts presented by Enforcement staff to Bureau leadership are demonstrative of a consumer finance violation, the Bureau will continue forward in accordance with its mandate to protect consumers.
- Kraninger reversed a key decision by Mulvaney and enhanced the Consumer Advisory Board and three other committees that advise the agency on important economic and financial issues, as well as on the consumer-focused policy making issues that often underpin new rules. Kraninger also announced in her remarks that the CFPB will commence a symposia series exploring consumer protections in the financial services marketplace, with the focus of the first symposium on looking to clarify the meaning of abusive acts or practices under Section 1031 of the Dodd-Frank Act.
- Indeed, the Bureau is not only alive and well, it’s continuing to fight for constitutional legitimacy. In March, the Bureau’s attorneys argued in the Fifth Circuit defending the agency’s structure and opposing a business’s interlocutory appeal from the district court’s ruling upholding the CFPB’s constitutionality. (CFPB v. All American Check Cashing, Inc., et al., No. 18-60302 (5th Cir.).)
Market participants should herald these developments as substantive steps forward to clarify how businesses should comply with the enabling statute, and regard this as a tacit admission by the agency that the days of attacking itself as a constitutionally defective entity are likely over.
Conclusion and Next Steps
Regulated entities should prepare for Kraninger’s influence.
For institutions and businesses subject to supervisory reviews or Civil Investigative Demands, no concrete, data-based cessation appears on the horizon. It therefore remains incumbent upon entities and their legal counsel to vigorously maintain compliance management programs in areas of interest to the Bureau, and to shore up the facts and legal rationale that are relevant to decision-making on an enforcement or examination matter. Entities’ business lines must continue to remain diligent and discuss with in-house counsel and outside counsel the roadmap for defense.
Kraninger’s changed “tone at the top” could also present new opportunity for industry. On one hand, we believe that the new director’s approach lies in greater alignment with the views of Enforcement staff (many of whom were hired on in the Obama administration at the agency’s inception). On the other hand, the new principles asserted in the recent remarks present institutions and businesses with opportunity to direct fresh perspectives to an evolving agency — whether the debate arenas are rulemaking, supervision, or enforcement.