The House Financial Services Committee and the Senate Banking Committee heard testimony from CFPB Director Kathy Kraninger regarding the Bureau’s Semi-Annual Report to Congress, in hearings on October 16 and October 17 (respectively). The House Financial Services Committee hearing was entitled “Who is Standing Up for Consumers? A Semi-Annual Review of the Consumer Financial Protection Bureau.” The Senate Banking Committee hearing was entitled “The Consumer Financial Protection Bureau’s Semi-Annual Report to Congress.” Topics raised by members of Congress included consumer redress in CFPB consent orders and settlements, the Bureau’s supervision of student loan servicers, and proposed revisions to the Payday Rule, as well as the constitutionality of the Bureau’s structure.

Summary

The House Financial Services and Senate Banking Committees held their second hearings of the year with CFPB Director Kathy Kraninger, and the narratives from both sides of the aisle were similar to the CFPB hearings in March. Republicans continued to argue for more accountability and remained critical of the Bureau’s structure, while Democrats countered that the agency needs to remain as an independent agency. Below are a few notable topics and exchanges from the House and Senate hearings.

Chairwoman Maxine Waters Opening Statement

House Financial Services Chairwoman Waters hit Kraninger on the decision to weaken the CFPB’s small-dollar and car title rule, which, she said, “would have put a stop to abusive payday loans.” Waters was also critical of the CFPB’s debt collection rule, stating that “you have helped predatory debt collectors by issuing a weak debt collection rule giving a green light for debt collectors to intimidate consumers by sending unlimited emails and text messages and calling them seven times a week per debt to collect debts.” Additionally, Waters was displeased with Kraninger’s decision not to defend the CFPB’s structure as constitutional.

Ranking Member Patrick McHenry Opening Statement

Ranking Member McHenry praised Director Kraninger for her letter to the Department of Justice and the Speaker of the House regarding the cause or removal provision for the CFPB Director. McHenry said Democrats have “buyer’s remorse syndrome” because they did not raise concerns with Director Cordray’s tenure. In turn, McHenry called for more accountability and oversight of the CFPB.

Chairman Mike Crapo Opening Statement

Senate Banking Committee Chairman Mike Crapo lauded Director Kraninger’s first months in her role and complimented her efforts to meet with the “full spectrum” of CFPB stakeholders on her cross-country listening tour. Crapo also praised the CFPB’s efforts to promote innovation through the new Trial Disclosure policy, the Compliance Assistance Sandbox policy, and the No Action Letter policy. Additionally, Crapo was complimentary of the CFPB decision to update the mandatory underwriting provisions of the 2017 small-dollar lending rule, scrapping the QM patch that is currently under an advance notice of proposed rulemaking, and raised support for implementing a commission structure at the CFPB.

Ranking Member Sherrod Brown Opening Statement

Ranking Member Brown said the CFPB was created to “stand up for students and service members and hard-working Americans to protect them from big banks and crooked corporations that rob them of their homes and their jobs and their savings.” Brown went on to say that Kraninger has protected “Wall Street banks, payday lenders, and shady debt collection companies.” He raised concerns with the CFPB’s payday lending rule and the decision to scrap the Office of Fair Lending.

Settlements

Democrats in the House and Senate raised concerns in both hearings over the CFPB’s lack of monetary settlements and restitution for consumers. Chairwoman Waters and Sen. Cortez Masto each highlighted separate settlements cases where a company was found to have cheated consumers out of money, but restitution was either non-existent or low. Waters’ example, a CFPB settlement with Enova (payday lender), found that the company “took $2.6 million from consumer bank accounts without authorization,” but the CFPB did not require Enova to return any of the funds. Sen. Cortez Masto brought up the CFPB settlement with Asset Recovery Associates, which included a restitution amount of $36,800. In each example, Director Kraninger maintained that the settlements brought justice and resolution.

In one of the more notable exchanges on the topic, Rep. Carolyn Maloney said “if the consumer bureau can’t get relief for consumers who have been harmed—and you admit they’ve been harmed—then what are you doing? If you’re not following direction from your staff to help consumers that are harmed, then you are absolutely worthless.” The statement drew harsh criticisms from the Republican side, and Rep. Maloney later apologized for her comment.

Public Service Loan Forgiveness Program

Both hearings featured discussions on the Public Service Loan Forgiveness Program and, specifically, the rate at which applicants are being denied. Reps. Wexton and Adams and Sens. Brown, Menendez, and Smith criticized the CFPB and the Department of Education for denying 99% of applicants to the program. SBC Ranking Member Brown said the program was designed to help individuals serve their country and community in exchange for student loan forgiveness. Sen. Menendez discussed an NPR report that analyzed the CFPB’s efforts to review the program, but the Department of Labor pushed back. Director Kraninger said that “it behooves the federal government to actually act in a more united manner” and that the CFPB is “moving forward with the MOU that is statutorily required to share complaint information.” The Department of Labor maintains that the CFPB only has oversight of private student loans, but Kraninger said they are working with the Department of Education to make sure consumer laws are followed.

CFPB Structure

Republicans, mainly in the House hearing, continued to criticize the CFPB’s structure, with a single director who is ultimately not accountable to Congress or the administration. HFSC Ranking Member Patrick McHenry called the bureau an “unaccountable dictatorship” and pressed Kraninger about her decision to challenge the constitutionality of the agency’s structure. Kraninger said, “I believe fundamentally the Supreme Court and Congress need to decide and settle once and for all so that the bureau can move forward and actually engage in its mission proactively.” SBC Chairman Mike Crapo said he “continues to support transitioning the CFPB to a bipartisan commission from a single director, subjecting the CFPB to appropriations and providing safety and soundness checks for prudential regulators.”

Democrats defended the CFPB’s structure, saying that “Congress deliberately created the CFPB as an independent regulator … and for you to second guess Congress’ judgment on the constitutionality of the CFPB and to argue against the CFPB’s structure in court is disrespectful of Congress” (Rep. Maloney). Rep. Greg Meeks highlighted the fact that the Federal Housing Finance Agency (FHFA) uses the same structure as the CFPB, and the agency is currently defending the constitutionality of its structure.

SBC Ranking Member Sherrod Brown asked Director Kraninger about her opinion that the CFPB leadership structure is unconstitutional. Brown brought up a question posed to Kraninger during her confirmation hearing, where she did not take a position on the subject, and he then said that “if someone comes to Congress, commits to do one thing and then does another, is that just lying to Congress?” Kraninger responded that “it was not a decision I had to take at that time, and I still believe it is for the Supreme Court and Congress to settle it.” Brown questioned Kraninger’s credibility during the exchange, as she “came in to this committee and said that you wouldn’t speak on issues of constitutionality and then you did.”

Conclusion

Neither the House Financial Services Committee hearing nor the Senate Banking Committee hearing covered new material, but instead both displayed the stark contrast in opinions regarding the CFPB by Republicans and Democrats. Both parties are well entrenched in their beliefs about the role the CFPB should play as a regulator, and we expect future hearings to follow a similar playbook where both sides retreat to their talking points.

Regarding the constitutionality of the CFPB’s structure, the Supreme Court has not yet decided if it will hear a case that challenges the president’s ability to remove the director for just cause. We will continue to watch this development.