Finance

The Year Ahead: Consumer agency gets new chief at crucial point

Kathy Kraninger is taking control of the Consumer Financial Protection Bureau (CFPB) at a pivotal moment for the powerful financial watchdog.

The agency is mired in controversy, and Kraninger is facing mounting questions from both supporters and critics of the CFPB over how she will wield her immense powers as director.

Kraninger, a former White House budget official, was sworn in to serve a five-year term as director on Monday by Vice President Pence, inheriting an agency that has been at the center of a long fight between Republicans and Democrats over its mission.

The CFPB's unique structure and independence make its leader one of the most influential federal regulators. Created after the 2008 financial crisis, the agency holds enormous power over banks, mortgage lenders and credit card companies.

Kraninger will have unilateral control over the CFPB's enforcement and rulemaking actions, along with its budget and staffing, making her a crucial player in President Trump's deregulatory agenda.

But, to many, Kraninger is a mystery. She has more than a decade of federal budget and management experience, but no apparent background in financial rules and has offered little insight into her policy positions.

"It's a little too soon to tell to make predictions about how's she going to be different or the same because she hasn't made a lot of public comments," said Allyson Baker, a former CFPB enforcement attorney who now represents firms with cases before the agency for law firm Venable LLP.

That's led to anxiety in the debate over the CFPB, spurring questions about how the new director will manage an agency suffering from political whiplash and internal rebellions that have spilled into public view. 

Republicans and Democrats have been locked in a vicious battle over the agency since it was created by the 2010 Dodd-Frank Wall Street reform law. Its first director, former Ohio Attorney General Richard Cordray (D), sought to protect consumers through strict rules and severe penalties for banks and lenders suspected of fraud or abuse.

Democrats cheered Cordray and the CFPB, which won almost $12 billion in restitution for consumers. But Republicans and financial services industry advocates said the agency had abused its excessive powers.

The CFPB's critics got their chance to bring the agency to heel when Cordray left the bureau in November 2017 and Trump appointed White House budget director Mick Mulvaney as acting chief.

Mulvaney marked a 180-degree turn in the agency's direction. He slashed the budget, delayed major regulations and drastically reduced legal penalties. He also stocked the agency with political appointees to oversee work originally led by nonpartisan career officials.

The top question hanging over Kraninger is whether she'll continue Mulvaney's mission to overhaul the agency's work or steer the agency toward a less controversial middle ground.

And she'll be under immense pressure from both sides: those who want her to continue Mulvaney's work and Democrats who can be expected to haul her before the House if she advances the president's deregulatory agenda.

Complicating her work are the numerous controversies at the agency after Mulvaney's tenure.

"How do you reconcile your public service instincts with the ongoing public relations issues around the bureau - good and bad?" Baker said. "There's always that tension."

CFPB watchers say the agency is mired in a war between Trump-appointed officials and Obama-era bureau veterans. Structural changes implemented by Mulvaney to bring more of the CFPB's day-to-day enforcement work under his purview set the stage for an uprising among the agency's veterans.

An internal watchdog is also investigating writings from more than a decade ago by a top official questioning reports of hate crimes and whether the N-word was inherently racist. The official, Eric Blankenstein, is the associate director of the Division of Supervision, Enforcement and Fair Lending, tasked with fighting lending discrimination. Mulvaney initially resisted calls to fire or investigate Blankenstein before requesting a probe.

Mulvaney has also begun steps to change the agency's name to the Bureau of Consumer Financial Protection, a move that could cost businesses $300 million, as first reported by The Hill.

Kraninger has said little about her plans for the agency beyond pledges to promote accountability and transparency. She has said she generally agreed with Mulvaney's actions, but many are still uncertain how closely she will follow his footsteps.

"Mulvaney had a track record of being critical of the Bureau and was known to be gunning for it when he became acting director," Alan Kaplinsky, a partner at law firm Ballard Spahr who tracks the CFPB, said in an email to The Hill.

"She seems to be a blank slate," he said of Kraninger.

Senate Democrats and allies unanimously opposed Kraninger and expressed skepticism that she'll be do anything other than dismantle the agency.

"Ms. Kraninger demonstrated a disqualifying lack of experience or qualifications for leading the consumer protection bureau and an inexcusable lack of genuine commitment to protecting consumers," said Dennis Kelleher, president and CEO of Better Markets. 

Others, though, say Kraninger's background is notably different from Mulvaney's, a staunchly conservative former congressman. They note that Kraninger spent years behind the scenes crafting budgets and overseeing policy implementation at several Cabinet departments, congressional committees and the White House Office of Management and Budget.

Brandon Barford, partner at Beacon Policy Advisors, said Kraninger "seems to be technocratic and a consensus builder," while Mulvaney "from the start was doing an audition for a Senate-confirmed Cabinet secretary job."

For now, all eyes are on the new director.

"That's a big indicator of how she wants to conduct her time there," Barford said. 

"I would expect something that is humble and quiet, and I think she's going to try to avoid internal HR scandals and problems," he said.

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