By an extremely close 50-49 vote by the Senate, Kathleen Kraninger became the new director of the Consumer Financial Protection Bureau (“CFPB”), a federal agency created in 2011 as part of the Dodd-Frank Wall Street reform to supervise and enforce federal laws relating to consumer financial products and services. CFPB Director is historically a powerful position because the Bureau, while created as a watchdog agency to protect consumers, has a reputation for being an aggressive regulator with an unfettered amount of unilateral power. This reputation, however, has diminished over the last year and many will be watching to see what path Director Kraninger decides to take.
During her confirmation hearing, Kraninger proclaimed her intent to further the agenda of her predecessor, Mick Mulvaney, but also her desire to implement a new agenda focused on free market reform, greater competition in the marketplace, and a “lighter-touch” approach to enforcement actions. Director Kraninger did not provide details regarding her anticipated “lighter-touch” enforcement, but such a concept is good news for non-conventional money lenders, many of whom are afraid to expand into consumer lending for fear of CFPB enforcement actions.
Director Kraninger has big shoes to fill after her predecessor, former Director Mulvaney, advanced the CPPB’s agenda last year by abolishing the Consumer Advisory Board—just one of many decisions by Director Mulvaney which dramatically pared back the CFBP’s enforcement and rulemaking powers. Several national media outlets have reported that the CFPB is less active under the Trump Administration, and the confirmation of Director Kraninger makes it seem as though 2019 will be more of the same. Even so, the incoming Director is facing several critical reform priorities that will need to be addressed in 2019.
Specifically, in its Fall 2018 rulemaking agenda, the CFPB indicated that it would reexamine the requirements of the Equal Credit Opportunity Act (“ECOA”) as it relates to the disparate impact doctrine. For example, in the past, the Bureau has been extremely aggressive in enforcing the ECOA by initiating enforcement actions against companies on the basis of a perceived, rather than actual, unfair effect of alleged actions, without requiring any evidence that actual discriminatory conduct took place. Such tactics have pushed companies into a preverbal corner, leaving them no choice but to pay multi-million-dollar settlements to end the unfair prosecution.
Additionally, the Bureau previously announced that it will work to define the term “abusive”, as it relates to Dodd-Frank’s prohibition against “Unfair, Deceptive, and Abusive Acts or Practices” (“UDAAP”) by those who offer financial products or services to consumers. Non-conventional lenders have historically feared the term “abusive” because the CFPB has enormous discretion to enforce terms that are so broad and vague. Lenders may not know that an activity will be deemed “abusive” by the CFPB until after a complaint has been filed against them and a subsequent determination is made. This has led to unexpected punishment for activities that were previously lawful and has left many lenders terrified to enter into consumer markets for fear of arbitrary enforcement by the CFPB. Defining the “abusive” standard will hopefully be at the forefront of Director Kraninger’s 2019 agenda and will clarify specific actions that lenders can—but more importantly, cannot—take.
We will closely monitor the changes and policies implemented in 2019, and over Director Kraninger’s term. We hope she will pick up where Director Mulvaney left off with his policy changes and implement the free-market approach promised at her confirmation hearing. Director Kraninger has a golden opportunity to complete the much-needed overhaul in a way that ensures the CFPB is more focused on promoting a lender-friendly financial marketplace moving forward, and we hope that 2019 will show even more opportunity for non-conventional lenders to step into consumer loans free from the CFPB’s prior reign of terror.
