It has been another eventful news cycle for the Consumer Financial Protection Bureau (CFPB or Bureau), as its new director, Kathy Kraninger, appeared before the House Financial Services Committee, facing tough questions about her leadership. In addition, the CFPB reauthorized its Memorandum of Understanding (MOU) with the Federal Trade Commission (FTC), received its annual summary of enforcement activity with regard to the Equal Credit Opportunity Act (ECOA) and continued to support an indefinite stay of the Payday Rule.
What happened
At the “Putting Consumers First? A Semi-Annual Review of the [CFPB]” hearing, Kraninger faced Democratic criticism for the changes made at the Bureau under Acting Director Mick Mulvaney. Democrats expressed particular displeasure at the overall decline in enforcement efforts, the CFPB’s efforts to gut the ability to repay (ATR) provisions of the Payday Rule, the move to halt Military Lending Act (MLA) compliance examinations, the closure of the Office of Students and Young Consumers, and the CFPB’s move of the Office of Fair Lending from the Supervision, Enforcement and Fair Lending Division to the Office of the Director.
Kraninger defended the CFPB’s new direction. Although she underscored her commitment to the CFPB’s mission of protecting consumers, Kraninger said her tenure will be focused on supervision and prevention, not enforcement.
“I expect to emphasize stability, consistency and transparency as hallmarks as we mature the agency and institutionalize the many partnerships that are key to our success in protecting consumers,” Kraninger told lawmakers during her opening remarks. “I am also examining how we can best utilize all of the tools that Congress has given this agency, broadening our efforts to focus on the prevention of harm for the primary goal of our actions.”
Kraninger did agree with her predecessor on one issue: the supervision of regulated entities for compliance with the MLA. Mulvaney took the position that existing law does not provide the CFPB with the authority to examine financial institutions for compliance with the statute, a move that triggered an outpouring of criticism from Democratic legislators.
When questioned at the hearing about whether she believes the CFPB currently has authority to supervise financial firms for MLA compliance, Kraninger replied, “I do not,” noting the proposal she sent to lawmakers earlier this year asking Congress to grant the Bureau “clear authority” to supervise for MLA compliance.
Semi-Annual Report—As for the ostensible reason for Kraninger’s visit to the House, the Fall 2018 Semi-Annual Report covered the period from April 1, 2018, through September 30, 2018, discussing supervisory and enforcement actions as well as rules and orders adopted by the Bureau during the relevant time period. The CFPB received approximately 329,000 complaints between October 1, 2017, and September 30, 2018, but did not file any new enforcement actions in federal court, initiate any fair lending public enforcement actions or refer any matters to the Department of Justice (DOJ) with regard to discrimination.
The report also highlighted two issues facing consumers with regard to consumer financial products or services: credit invisibility and mortgage shopping. During the time period covered by the report, the Bureau released “The Geography of Credit Invisibility,” a data point that examined the relationship between geography and credit invisibility.
Key findings of the CFPB included that over 90 percent of consumers transition out of credit invisibility by their mid-to-late 20s, possibly indicating that a focus on the population of consumers age 25 and older will be most useful in identifying geographic areas where traditional sources of credit are scarce (a phenomenon known as “credit deserts”).
The research found that credit invisibility among adults 25 and older is concentrated not just in rural areas but in highly urban geographies as well. The elevated likelihood of credit invisibility in rural areas was found regardless of the tract’s income level, in contrast to a strong relationship between neighborhood income and the likelihood of credit invisibility in highly urban areas.
A lack of Internet access appears to have a stronger impact on credit invisibility than the presence of a bank branch, the CFPB found, with credit invisibility more prevalent in areas with less Internet access.
In May 2018, the Bureau published a series of research briefs on the issue of mortgage shopping. Although mortgage interest rates and loan terms can vary considerably across lenders, the CFPB found that more than 30 percent of borrowers reported that they did no comparison shopping for their mortgage and more than 75 percent applied for a mortgage with only one lender. Consumers who shop can save over $700 per year on a $200,000 mortgage and “many thousands” over the lifetime of the loan.
According to the Bureau’s research, consumers who were encouraged to shop for a mortgage did in fact contact more lenders, received more loan estimates, and gained additional knowledge and confidence in the process, and may have reduced the cost of their mortgage.
Consumers First Act—Although it has virtually no chance of becoming law, House Financial Services Committee Chairwoman Maxine Waters introduced the “Consumers First Act” bill, an amended version of the same bill she introduced in the previous session. The purpose of the proposed legislation would be to reverse “all anti-consumer actions” taken by prior Acting Director Mick Mulvaney.
Payday Lending—You may recall the still-pending Texas lawsuit by industry groups challenging the CFPB’s new Payday Rule, in which both the plaintiffs and the CFPB (after then-Acting Director Mick Mulvaney took the reins) proposed to stay implementation of the rule. Now, the CFPB and the industry group plaintiffs have again chimed in, urging the court to continue the stay. The continued stay means ongoing problems for industry, leaving short-term lenders in limbo as they await the lifting of a stay that would cause almost immediate strain on their ability to operate.
FTC Memorandum of Understanding Renewed—In other CFPB news, the Bureau reauthorized its formal relationship with the FTC in an updated MOU, first executed in 2012, then renewed in 2015. “The agreement reflects the ongoing coordination between the two agencies under the terms of the Consumer Financial Protection Act, and is designed to coordinate efforts to protect consumers and avoid duplication of federal law enforcement and regulatory efforts,” the CFPB and FTC said in a joint statement. Unlike the first two MOUs (each of which was effective for three years), this version has an indefinite term.
Equal Credit Opportunity—Providing its annual summary of activities under the ECOA, the FTC sent a report to the CFPB sharing its efforts with regard to education and enforcement for most non-bank financial service providers. Over the past year, the FTC conducted a qualitative study of consumers’ experiences in buying and financing automobiles at dealerships and held a hearing on the use of algorithms, artificial intelligence, and predictive analytics in business decisions and conduct.
The FTC also continued the work of its Military Task Force, focused on military consumer protection issues, as well as its participation as a member of the Interagency Task Force on Fair Lending, a joint undertaking with the CFPB, the DOJ, the Department of Housing and Urban Development, and the federal banking regulatory agencies.
To read the Fall 2018 Semi-Annual Report, click here.
To read the MOU between the CFPB and the FTC, click here.
To read the FTC’s ECOA report to the CFPB, click here.
Why it matters
With a Democrat-controlled lower house, expect the CFPB to continue to take a more pragmatic approach than it took during Mr. Mulvaney’s tenure at the head of the Bureau. “While I am Director, the CFPB will vigorously and even-handedly enforce the law,” Kraninger promised in the report. “As I begin my stewardship of the CFPB, I will also be moving forward with the agency as a team to make sure the American people have access to the financial products and services that best suit their individual needs, the financial institutions that serve them are competing on a level playing field[,] and the marketplace is innovating in ways that enhance consumer choice.” As demonstrated by the tough questioning lawmakers put to Kraninger at the hearing, her efforts at the Bureau will continue to be examined under a microscope. Stay tuned.