Consumer Financial Protection Bureau Director Kathy Kraninger faced a barrage of questions Wednesday from lawmakers on the House Financial Services Committee covering everything from the agency's constitutionality to why it has not demanded refunds for consumers in recent settlements.
The Democrats came to the hearing with proverbial guns blazing, issuing a 333-page report that accused the CFPB under Kraninger of leaving "consumers high and dry" because of its failure to require remediation in several recent settlements.
“If the consumer bureau can’t get relief for consumers who have been harmed — and you admit they’ve been harmed — then what are you doing?” asked Rep. Carolyn Maloney, D-N.Y., early in the hearing. “If you’re not following direction from your staff to help consumers that are harmed, then you are absolutely worthless.”
Her remark sparked an immediate backlash from Republicans, who said her comments violated decorum rules. Though Maloney later apologized, the hearing in many ways was the mirror image of the days when former CFPB Director Richard Cordray was berated and harshly questioned by GOP members during his tenure.
For their part, Republicans continued to argue — as they have since the agency's creation in 2010 — that the CFPB's structure is deeply flawed. Rep. Patrick McHenry, R-N.C., called the CFPB “an unaccountable directorship,” and asked Kraninger to explain why she wanted the Supreme Court to take a case challenging the agency's constitutionality. The high court is expected to decide by Monday.
Financial industry groups and Republicans have argued that a provision in the Dodd-Frank Act is unconstitutional because the president can only fire the CFPB head “for cause."
“I believe fundamentally the Supreme Court and Congress need to decide and settle once and for all so that the bureau can move forward and actually engage in its mission proactively,” Kraninger said. “I took the position that the director's removal provision in the Dodd-Frank Act was something that needed review by the Supreme Court to settle this question and that, in my view, was unconstitutional.”
Her comments further riled Democrats.
“Congress deliberately created the CFPB as an independent regulator,” Maloney said. “For you to second-guess Congress' judgment on this constitutionality of the CFPB and to argue against the CFPB's structure in court is disrespectful of Congress.”
Rep. Greg Meeks, D-N.Y., also noted that the Federal Housing Finance Agency continues to defend the constitutionality of its single-director structure.
“In contrast to the FHFA, which is defending its constitutionality, Director Kraninger has forfeited on that matter,” Meeks said.
But Republicans welcomed Kraninger’s position.
“Let me just say on behalf of me and my colleagues, I want to thank you for respecting many of us, members of Congress, who believe that the bureau's structure is unconstitutional,” said Rep. Andy Barr, R-Ky.
The hearing, part of the CFPB’s semiannual report to Congress, later devolved into a free-for-all, with Kraninger responding to a range of questions on student loans, payday lending and debt collection.
Chairwoman Maxine Waters, D-Calif., repeatedly tried to get Kraninger to acknowledge that she had overruled CFPB staff and instead sided with political appointees in a settlement earlier this year with Enova International, a large online payday and installment lender. Enova was fined $3.2 million for extracting funds from the bank accounts of 6,829 consumers without their authorization. The lender offered to pay $1.6 million in restitution to consumers, the Democrats' staff report found, but the CFPB rejected that and did not require any redress.
“The political appointee rejected not only the recommendation of career attorneys but also the opinion of the consumer bureau's legal division that returning the money a legally debited was appropriate,” Waters said.
Kraninger defended the CFPB’s decision, saying that it was a “negotiated settlement” and that consumers owed the money. But Democrats decried the decision as failing to help harmed consumers. When Kraninger remained unflustered, Waters issued a reprimand.
"Don’t try to come to this committee and not answer the questions and filibuster," Waters said "You turned down the advice of your career employees and took the advice of political appointees and you knew exactly what was going on."
Kraninger later appeared to confirm that she'd gone against the wishes of staff by arguing that it was ultimately her decision to make.
"The decision is mine. Given it's my decision, I did not overrule anyone," she said.
Several lawmakers asked whether Kraninger planned to make any changes to the CFPB's rule to rein in payday lending. The rule has been halted from going into effect by a Texas judge and the agency is weighing making changes to it. Kraninger said the bureau is looking at the 19,000 comments received on payday lending as well as "additional research" that has been released recently. She would not give a time frame for issuing a new final rule.
On debt collection, Rep. Ayanna Pressley, D-Mass., argued that the agency's recent proposal on the topic would hurt consumers without unlimited texting on their cellphone plans, because it would allow debt collectors to repeatedly send texts to a late borrower. She estimated it could cost up to $1,400 a year and asked Kraninger who would have to bear that cost.
"To the extent there is a charge, the consumer would be charged," Kraninger said.
In another heated exchange, Rep. Joyce Beatty, D-Ohio, asked why the CFPB had not issued any fair-lending violations in a six-month period, citing a CFPB report.
"This was the first time in history when there was no discrimination in six months. Do you really expect me to believe that?" Beatty asked.
Kraninger responded that the report "is not a measure of discrimination happening."
"So there was discrimination, we just didn't deal with it?" Beatty said.
