The Trump administration recently proposed slashing the Consumer Financial Protection Bureau's budget, but the head of the agency has other ideas.
CFPB Director Kathy Kraninger, who formerly worked in President Trump's budget office, has sought a 14% increase in the bureau's fiscal 2020 budget to $580 million. Kraninger, who has broad authority to request CFPB funds from the Federal Reserve, has highlighted funding needs for consumer education initiatives, hiring key experts and other areas.
But that runs counter to the White House proposed budget for next year, which seeks CFPB funding cuts of $150 million this year and $110 million next year.
The difference between the two approaches is noteworthy, many say. They point out that Kraninger wants to increase spending after having overseen the biggest CFPB downsizing since the bureau was created in 2011. Last year, the bureau’s budget and headcount dropped to their lowest levels in five years.
“The fact that Kraninger is talking about increasing the budget when the administration isn’t going in that direction does show some independence," said Michael Flynn, of counsel at the law firm Buchalter. “That she is taking a position saying she wants to grow the agency also sends the message that the CFPB is here to stay.”
Just four days before Trump released his proposed 2021 budget this month calling for a 12% cut to the CFPB’s staff, Kraninger told lawmakers about her plans to increase hiring.
“We’re back on buildup to get to the right staffing levels,” Kraninger told lawmakers at a House Financial Services Committee hearing on Feb. 6. “I have a staffing plan where I have empowered managers to tell me if they need additional resources to carry out the mission and we are in the process of building back up to those target staffing levels.”
The CFPB's funding stream from the Fed has long been a point of contention for Republicans. The Trump administration has sought in each of the past three budgets to move the bureau’s funding from the Fed system to congressional appropriations, but that would require legislation.
The bureau collects requested funds from the Fed on a quarterly basis. Kraninger's projection of $580 million is for this entire fiscal year; the agency has already requested and received $321.1 million in funding for the first half of fiscal 2020.
Experts say that Kraninger will get the budget increases she is asking for, while Trump’s budget is seen as a wish list that has no bearing on the bureau’s actual funding levels.
“The issue here is the CFPB will get what it needs,” said Richard Gottlieb, a partner at Manatt. “They are the only regulator for a number of entities, so they need people to conduct their exams and do the supervisory work they exist to do.”
Because Kraninger has said that education is her No. 1 goal, the largest increases will go toward consumer education initiatives, the CFPB said in a budget
Kraninger told lawmakers that the CFPB has challenges hiring economists and cybersecurity experts. The CFPB also is looking for “lawyers with particular skill sets because they are valuable, frankly, to other entities besides the government,” she said.
In some areas, the agency has already begun hiring more staff. Kraninger has said that recruitment efforts and new hires are having an impact.
“I will say the staffing planning changes are a really big difference, seeing new hires come in, seeing that support, that is something that is already making a big difference,” Kraninger said.
Financial institutions are closely watching to see where Kraninger is investing in staff.
“The real question is, does the claimed uptick in hiring signal greater enforcement or supervision,” Gottlieb said. “Anyone doing enforcement work is seeing increased activity on the enforcement side but arguably less so in targeted vertical and horizontal exams.”
Indeed, the largest portion of the CFPB’s budget, at roughly 38%, goes toward supervision and enforcement activities including litigation costs. The budget report said personnel costs “will increase across all programs,” including “increased staffing levels in the Supervision, Enforcement, and Fair Lending program, responsible for conducting examination activities.”
Yet it is unclear if those resources will go toward taking enforcement actions against firms. Kraninger has signaled recently she wants the agency to focus more on preventive supervision rather than penalizing institutions after the fact.
Some say Kraninger will focus her efforts in other areas.
“I don’t think the hiring is necessarily geared toward enforcement,” Flynn said. “If she gets her way, I don’t think an increase in the budget means anything about enforcement long-term.”
The CFPB has struggled with a large number of vacancies. In 2018, former acting CFPB Director Mick Mulvaney, now the White House chief of staff, imposed a hiring freeze with many critical positions left open. Kraninger began hiring again late last year, but there has been plenty of attrition, including in top management.
Because Kraninger's approach has generally been kinder to businesses than that of former CFPB Director Richard Cordray, there is likely less hand-wringing in the industry about the bureau's bigger budget.
“People perceive that [the CFPB] now believes more strongly in regulation by transparency so there wouldn’t be a need for as many enforcement actions, but they also aren’t going to back away from enforcement actions where they see a real problem,” Flynn said. “They are putting a lot more energy now into analyzing the impacts of the regulations, so she may also be hiring for other groups in the bureau like analytics, marketing and other areas that help them understand what they are accomplishing.”
