On July 19, 2018, Kathy Kraninger will testify before the Senate Banking Committee as President Trump’s nominee to direct the Consumer Financial Protection Bureau (CFPB). The CFPB was created in 2010 to protect consumers from abuse by financial firms, following widespread misconduct leading to the 2008 financial crash. Kraninger would replace Mick Mulvaney, who has headed the agency since November 2017 under disputed authority still subject to ongoing litigation. Mulvaney has savaged the agency during his tenure: he’s terminated enforcement cases; reduced penalties; demoted officers charged with combatting racial discrimination; fired all the advisory board members; and more. Most days bring a new insult to American consumers from the hands of Mulvaney.
The outstanding question for senators in advance of the July 19 hearing: Will Kraninger do the same? It’s a safe bet she’ll follow his wrongheaded lead since Kraninger currently works for Mulvaney at the Office of Management and Budget (OMB), his other full time job. Moreover, she lacks any experience for this job .Previously, she was a staffer for several senators and her most extended work experience involved the Department of Homeland Security (DHS). What she is not is a veteran of financial services, either as a banker, a financial regulator, or financial analyst. On financial regulation, Kraninger is a major question mark.
“Law students currently doing summer clerkships at the CFPB will have more experience with consumer-credit regulation than the nominee to lead the bureau,” noted conservative commenter J.W. Verret of George Mason’s Antonin Scalia School of Law.
This leads to another question: of all the candidates without experience in financial issues or consumer protection, why Kraninger? One reason may be her role in “zero tolerance,” the inhumane policy of separating immigrant children from their parents on the Mexican border. The president named her at the height of this controversy. Senators Sherrod Brown (D-Ohio) and Elizabeth Warren (D-Mass) have queried Kraninger about her role in those cruel immigration policies. OMB alumni theorize that she would have been key, given her OMB position where Kraninger oversees budgeting and policy implementation for DHS, which administers immigration law. As noted, she worked for DHS earlier in her career.
It’s now up to Banking Committee senators to get to the bottom of all of these huge questions about Kraninger. Here are the questions she must be made to answer:
- Unlike the rest of Trump’s bank regulators, who at least bring some experience in the field to their positions, Kraninger does not. She will be responsible for overseeing thousands of financial service firms, some of whom have proven to abuse consumers and she will also be a member of the board of the Federal Deposit Insurance Corp and the Financial Stability Oversight Council. How will Kraninger become conversant in these issues, let alone be a leader in critical financial risk abatement arenas if, as conservative critic Verret said, she will effectively be a trainee?
- The CFPB was created to enforce nearly 20 financial consumer protection laws previously enforced by other agencies. In doing so, Congress decided that those other agencies had subordinated consumer protection to the soundness of the banking industry, which they viewed as their primary mandate. Worse, profit, even when it came at the expense of consumer abuse, served as a proxy for industry soundness. Kraninger is endorsed by industry trade associations, such as Community Financial Services Association of America and the Chamber of Commerce yet no consumer advocacy group has endorsed her. How can Kraninger be trusted to put consumer interests ahead of bank profits?
- CFPB enforcement actions typically address companies that scam victims of millions of dollars. Under the previous director, the CFPB returned more than $12 billion dollars to some 30 million Americans. Returning sums of money to cheated customers requires a CFPB supervised restitution program. Though under Mulvaney, the CFPB has reduced enforcement actions, it did bring a $1 billion enforcement action against Wells Fargo. However, the restitution program—actually getting the money back into the pocketbooks of harmed consumers– was left to Wells Fargo. In fact, Wells has stated that in order to be compensated, victims must show an “economic or other cognizable harm” which will be decided by Wells Fargo. How would Kraninger structure restitution programs to ensure that scam victims receive fair compensation?
- Massive Wall Street misconduct led to the financial crash of 2008, yet regulators and prosecutors failed to hold one senior executive accountable. As Kraninger pursues enforcement cases, will she highlight responsible individuals, and relay these to the Department of Justice for prosecution?
- After years of deliberation, the CFPB adopted a rule on payday loans. Essentially, it requires lenders to take basic steps to ensure that borrowers have the means to repay the loans. Under Mulvaney, this rule has been Will Kraninger protect the payday rule?
- While supposedly only acting as caretaker of the Bureau, Mulvaney has ordered a full review of all CFPB functions. He’s issued so-called Requests for Information on a dozen issues, from enforcement, to rulemaking, to public engagement. Days after the comment deadline on the public engagement issue, he terminated all of the members of the CFPB’s three advisory committees, one of the primary ways in which the CFPB engages the public. Does Kraninger believe it is sound management for a caretaker to make sweeping changes? Does she agree with the termination of all advisory board members, and if so, how does she propose to get adequate input from the community?
- Mulvaney, who called the CFPB a “sad, sick joke” when he served in Congress as a Republican from South Carolina, called for the end of the agency. Does Kraninger believe the agency should exist? Are there actions Mulvaney has taken already to dismantle the agency that Kraninger would reverse?
- Critics of the CFPB say it should be led by a five person commission, instead of a single director, the way other independent financial agencies are operated like Office of the Comptroller of the Currency. Critics claim this would mean the agency is bipartisan. However, partisanship has hampered commission-structured agencies from doing the work they were tasked with and would leave accountability diluted among the five members. What is Kraninger’s view on the preferred structure of the CFPB?
- What caused the financial crisis? Some Wall Street apologists claim that reckless borrowers took out loans they couldn’t afford to repay in the hopes of flipping real estate for a profit, instead of focusing on the overleveraged banks and bad bets on toxic investment products. What does Kraninger think was the banks’ role in the crash?
- As a member of the Federal Deposit Insurance Corp board, Kraninger would oversee the Community Reinvestment Act, which encourages lenders to meet the credit needs of the communities where they operate. Does Kraninger believe the CRA should be relaxed? For example, since many banks engage in on-line services, should the definition of “community” be expanded beyond the basic geography of the bank branches, even though this would mean ignoring low income residents nearby?
- As a member of the Financial Stability Oversight Council, Kraninger would be responsible for examining risks that fall through the cracks between the various regulatory agencies. This includes designating certain institutions as “systemically important,” which means they are subject to heightened scrutiny to ensure they can survive failure without again being bailed out by taxpayers. The largest bailout in the 2008 financial crash when to AIG, an insurance giant that largely escaped federal oversight. Since Trump-appointed regulators took control, FSOC has removed this designation for some institutions formerly considered systemically important, including from AIG. Does Kraninger agree with the decision to remove AIG’s designation even though it had to be bailed out in the ’08 crash?
If on these and other questions, Kraninger is unwilling or unable to answer, then responsible senators should not confirm her. The CFPB Director should bring a proven commitment to making financial markets work for American families, and a willingness to stand up to predatory lenders and Wall Street when necessary to protect the public interest. Since Kraninger lacks experience in this field, without solid answers to these commonsense queries, proving her commitment will certainly be questionable.