While the battle over the constitutionality of the Consumer Financial Protection Bureau moves to the U.S. Supreme Court, the Bureau continues with its daily work, releasing a final Home Mortgage Disclosure Act (HMDA) rule, filing a new lawsuit in conjunction with the South Carolina Department of Consumer Affairs and announcing the creation of a new taskforce.
Director Kathleen Kraninger also faced tough criticism when she recently testified before multiple congressional committees, receiving a grilling on issues ranging from a lack of monetary damages in CFPB settlements to the need for greater protection of student borrowers.
What happened
We discuss the latest developments on CFPB constitutionality here.
But there are many other developments worth noting:
Tough crowd. In late October, Ms. Kraninger appeared as the sole witness at a meeting of the House Financial Services Committee, ostensibly to discuss the Bureau’s semiannual report on its work from October 1, 2018 to March 31, 2019.
The hearing quickly turned personal, however, with news reports that one member of the committee regrettably called Kraninger “absolutely worthless.” A repeated criticism from multiple committee members focused on the number of CFPB settlements that have not included either civil penalties or redress for consumers.
Other areas where the Bureau (and Kraninger’s leadership) came under fire: the high number of borrowers seeking loan forgiveness that have been rejected by the Department of Education (DOE) and the proposed changes to the Payday, Vehicle Title and Certain High-Cost Installment Loans Rule.
With regard to the DOE, Director Kraninger indicated that the CFPB will now move forward with a Memorandum of Understanding between the agencies and continues to examine private education loans. A number of consumer advocates had questioned why this MOU had not been renewed.
Ms. Kraninger did not elaborate on her recent decision that the CFPB would no longer defend its constitutionality, stating only that the question needs to be answered by the U.S. Supreme Court. We discuss the latest developments here.
The following day, the CFPB Director returned to face the Senate Banking Committee, where similar topics were covered, albeit with far less hostility. Ms. Kraninger also told lawmakers that the CFPB intends to provide an update on its plans to clarify what constitutes an abusive act or practice “in the not too distant future.”
HMDA rule. The Bureau finalized its proposed rulemaking on the HMDA, extending for two years the temporary threshold for collecting and reporting data about open-end lines of credit under the statute. The CFPB proposed the HMDA rule change in May as an effort to provide relief to smaller lenders from the HMDA’s reporting requirements and clarify partial exemptions from certain statutory requirements that were added as part of the Economic Growth, Regulatory Relief and Consumer Protection Act (EGRRCPA).
Pursuant to the final rule, financial institutions that originated fewer than 500 open-end lines of credit in either of the two preceding calendar years will not need to collect and report data with respect to open-end lines of credit for data collection years 2020 and 2021. The exemption will end on January 1, 2022.
The CFPB has asked for comment on whether or not to make the threshold permanent—as well as raise the permanent coverage thresholds for closed-end mortgage loans—and intends to issue a separate final rule in 2020.
Enforcement action. Together with the South Carolina Department of Consumer Affairs, the CFPB filed a lawsuit against a company and its owner that purported to make valid purchases of consumers’ future pension or disability payments that the regulators said were in reality illegal high-interest credit offers.
The defendants brokered contracts, the majority of which were for veterans with a disability pension from the Department of Veterans Affairs or administered by the Defense Finance and Accounting Service. Although federal law prohibits agreements under which another person acquires the right to receive a veteran’s pension payments—and South Carolina similarly prohibits such contracts—the defendants told consumers the contracts were legal.
In addition, the defendants failed to disclose to consumers the interest rates for the products, which had finance charges in excess of 12 percent per year in violation of South Carolina law.
The South Carolina federal court complaint seeks injunctive relief and monetary relief in the form of consumer redress and a civil money penalty.
New taskforce. To examine ways to harmonize and modernize federal consumer financial laws, the Bureau announced the creation of the Taskforce on Federal Consumer Financial Law, which will examine the existing legal and regulatory environment facing consumers and financial service providers.
The taskforce will produce new research and legal analysis of consumer financial laws in the United States and report to Kraninger with their recommendations for ways to improve and strengthen consumer financial laws and regulations.
“An objective and independent evaluation of our current regulatory framework to identify where there may be gaps or where regulation should be simplified or modernized is needed to help us more effectively carry out our mission of protecting consumers,” Kraninger said in a statement.
The Bureau is accepting applications to fill the taskforce with approximately seven members (including the chair) who have “a broad range of expertise in the areas of consumer protection and consumer financial products or services; significant expertise in analyzing consumer financial markets, laws and regulations; and a demonstrated record of senior public or academic service.” Members will serve for a one-year period.
To read the final HMDA rule, click here.
To read the CFPB complaint, click here.
Why it matters
Given the current state of politics in Washington, Ms. Kraninger has done a remarkable job to date, enforcing the consumer financial laws to date, ensuring that enforcement activity address those seeking to victimize consumers, and halting the CFPB’s oft-criticized regulation by enforcement. Examples of aggressive activity include the Bureau’s crackdown on pension advance products while Ms. Kraninger’s new taskforce could lead to balanced regulatory and oversight initiatives down the road.
Although some will be distressed about her position on constitutionality, Director Kraninger is otherwise striking an independent approach that may very well satisfy no one completely. She is not former director Richard Cordray, nor is she former acting Director Mick Mulvaney. Notwithstanding this, Ms. Kraninger can expect Democrats to continue to posebrutal questions about the direction of the Bureau, issues that won’t be going away while the Democrats maintain a majority in the House and the issue of the CFPB’s constitutionality remains undecided.