[Senate Hearing 116-428]
[From the U.S. Government Publishing Office]
S. Hrg. 116-428
THE CONSUMER FINANCIAL PROTECTION BUREAU'S SEMI-ANNUAL REPORT TO
CONGRESS
=======================================================================
HEARING
before the
COMMITTEE ON
BANKING,HOUSING,AND URBAN AFFAIRS
UNITED STATES SENATE
ONE HUNDRED SIXTEENTH CONGRESS
SECOND SESSION
ON
RECEIVING AND DISCUSSING THE CONSUMER FINANCIAL PROTECTION BUREAU'S
SEMI-ANNUAL REPORT TO THE COMMITTEE ON RECENT RULEMAKINGS, AND
SUPERVISORY AND REGULATORY ACTIVITIES, AS WELL AS FUTURE PLANS
__________
MARCH 10, 2020
__________
Printed for the use of the Committee on Banking, Housing, and Urban
Affairs
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
Available at: https: //www.govinfo.gov /
______
U.S. GOVERNMENT PUBLISHING OFFICE
44-072PDF WASHINGTON : 2022
COMMITTEE ON BANKING, HOUSING, AND URBAN AFFAIRS
MIKE CRAPO, Idaho, Chairman
RICHARD C. SHELBY, Alabama SHERROD BROWN, Ohio
PATRICK J. TOOMEY, Pennsylvania JACK REED, Rhode Island
TIM SCOTT, South Carolina ROBERT MENENDEZ, New Jersey
BEN SASSE, Nebraska JON TESTER, Montana
TOM COTTON, Arkansas MARK R. WARNER, Virginia
MIKE ROUNDS, South Dakota ELIZABETH WARREN, Massachusetts
DAVID PERDUE, Georgia BRIAN SCHATZ, Hawaii
THOM TILLIS, North Carolina CHRIS VAN HOLLEN, Maryland
JOHN KENNEDY, Louisiana CATHERINE CORTEZ MASTO, Nevada
MARTHA McSALLY, Arizona DOUG JONES, Alabama
JERRY MORAN, Kansas TINA SMITH, Minnesota
KEVIN CRAMER, North Dakota KYRSTEN SINEMA, Arizona
Gregg Richard, Staff Director
Laura Swanson, Democratic Staff Director
Jan Singelmann, Democratic Counsel
Cameron Ricker, Chief Clerk
Shelvin Simmons, IT Director
Charles J. Moffat, Hearing Clerk
(ii)
C O N T E N T S
----------
TUESDAY, MARCH 10, 2020
Page
Opening statement of Chairman Crapo.............................. 1
Prepared statement........................................... 34
Opening statements, comments, or prepared statements of:
Senator Brown................................................ 3
Prepared statement....................................... 34
WITNESS
Kathleen L. Kraninger, Director, Consumer Financial Protection
Bureau......................................................... 5
Prepared statement........................................... 37
Responses to written questions of:
Senator Brown............................................ 51
Senator Reed............................................. 60
Senator Toomey........................................... 61
Senator Tillis........................................... 66
Senator Menendez......................................... 70
Senator Warren........................................... 72
Senator Cortez Masto..................................... 85
Senator Sinema........................................... 91
Additional Material Supplied for the Record
Semi-Annual Report of the Bureau of Consumer Financial
Protection--Fall 2019.......................................... 94
Letter submitted by ACA International, the Association of Credit
and Collection Professionals................................... 178
Letter submitted by the Consumer Bankers Association............. 184
Letter submitted by the Credit Union National Association........ 195
Letter submitted by the National Association of Federally-Insured
Credit Unions.................................................. 202
(iii)
THE CONSUMER FINANCIAL PROTECTION
BUREAU'S SEMI-ANNUAL REPORT TO CONGRESS
----------
TUESDAY, MARCH 10, 2020
U.S. Senate,
Committee on Banking, Housing, and Urban Affairs,
Washington, DC.
The Committee met at 10:01 a.m., in room SD-538, Dirksen
Senate Office Building, Hon. Mike Crapo, Chairman of the
Committee, presiding.
OPENING STATEMENT OF CHAIRMAN MIKE CRAPO
Chairman Crapo. This hearing will come to order.
Today we will receive testimony from CFPB Director Kathy
Kraninger on the CFPB's semi-annual report.
On February 3, the CFPB issued its fall 2019 semi-annual
report, which outlines the CFPB's significant work between
April 2019 and September 2019, including rulemakings and
supervisory and regulatory activities.
The report also provides insight into what the CFPB plans
to undertake in the upcoming work period.
Consumer protection is vital for a properly functioning
financial market and is best determined by a robust,
quantitative analysis.
Under Director Kraninger's leadership, the CFPB has
demonstrated a commitment to ensuring that its regulations are
data driven, appropriately tailored to satisfy statutory
obligations, and based on sound evidence and legal support.
There have been promising changes at the CFPB under
Director Kraninger's leadership.
But it remains abundantly clear that the fundamental
structure of the CFPB must be reconsidered to make it more
transparent and accountable.
Last week, the Supreme Court heard arguments for Seila Law
v. CFPB, a case that examines the constitutionality of the
CFPB's leadership structure.
On March 2, 2020, the Wall Street Journal editorial board
referred to Seila Law v. CFPB as the ``constitutional case of
the year'' and stated that the question presented by this case
``goes to the heart of the separation of powers and whether the
administrative state is accountable to the people.''
It has long been my position that the CFPB's current single
Director structure lacks sufficient accountability, and I look
forward to the Supreme Court ruling on this case later this
summer.
With that in mind, I continue to advocate for establishing
a bipartisan board of directors to oversee the CFPB; subjecting
the CFPB to the annual appropriations process, similar to other
Federal regulators; and establishing a safety-and-soundness
check for the prudential regulators.
The Banking Committee has spent significant time this
Congress evaluating the collection, protection, and use of
consumer data by Government agencies and private companies.
I have repeatedly voiced concerns about the wide-scale
collection of personally identifiable information by the CFPB,
especially with respect to credit card and mortgage data.
On February 26, the CFPB hosted a symposium on the access
and use of consumer-permissioned financial data to determine if
agency action is necessary to promote consumer access to their
financial data.
I find it concerning that when consumers choose to share
their financial data with a third party, they often unknowingly
involve a data aggregator to facilitate the transmission of
this data.
The CFPB and Congress should explore ways to ensure that
consumer data remains protected when it is shared.
We need a fundamental foundational change to our data
privacy laws that applies broadly, across industries, and
ensures domestic and international cohesion via preemption and
interoperability, respectively.
During this hearing, I look forward to hearing more about
key initiatives undertaken by the CFPB in the last year;
Director Kraninger's priorities for the CFPB in the upcoming
work period; and additional legislative or regulatory
opportunities to encourage financial innovation and widen
access to financial products and services.
Director Kraninger, thank you again for joining the
Committee this morning to discuss the CFPB's activities and
plans.
Senator Brown.
OPENING STATEMENT OF SENATOR SHERROD BROWN
Senator Brown. Thank you, Mr. Chairman. Welcome, Director
Kraninger.
I want to say a few words first about the coronavirus and
the toll it is taking on our communities, on our healthcare
system, and on our entire economy. Our first concern has to be
for Americans' safety. We also cannot ignore the millions of
Americans who are losing paychecks and the small businesses
that are losing customers. When times get tough, we come
together as Americans; we rise to the challenge. I am confident
we can do that again, and that means support for everyone who
makes this country work, not just Wall Street.
Moments like this are a reminder of why we created the CFPB
after the last financial crisis--to make sure hardworking
Americans have a voice in the room, especially at times like
this.
We know that in times of crisis, Wall Street has armies of
lobbyists who will fight to make sure we do what we need to do
to stabilize financial markets. But most people do not have
lobbyists; most people do not have that kind of power. We have
to fight for them, too. The CFPB is their voice.
During its first 6 years, the Bureau delivered results. The
CFPB made new, strong rules that protected consumers from
abusive practices. It sent Bureau employees into banks and
other corporations to make sure they were following the law. It
returned more than $12 billion to 29 million Americans. Think
of that: $12 billion to 29 million Americans.
Unfortunately, President Trump has tried to turn the
Consumer Protection Bureau into another agency that helps his
wealthy friends at the expense of the people that the agency is
supposed to serve.
Under President Trump's first appointed Director, Mick Mul-
vaney, the CFPB saw a shift away from protecting servicemembers
and rooting out discrimination to doing favors for private
corporations at the behest of political hires.
Director Kraninger has continued down the same path--
corporate protection instead of consumer protection.
Under her leadership, we see a clear pattern: sabotaging
the agency's work to hold corporations accountable.
She sided with companies, including a company the CFPB sued
for scamming 9/11 survivors, to argue that the Bureau is
unconstitutional in the Supreme Court.
It would be quite a coup for big banks and other
corporations if the Supreme Court gutted the agency that is
supposed to keep an eye on them.
Director Kraninger has also allowed Education Secretary
Betsy DeVos to block the Bureau from protecting the 43 million
Americans with Federal student debt.
If you do not think that Director Kraninger's failure to
stand up to Secretary DeVos has consequences--and we know of
Secretary DeVos' power in the Republican Party and in the
Cabinet room and with the President. But if you do not think
that Director Kraninger's failure to stand up to Secretary
DeVos has consequences, talk to the tens and tens of thousands
of teachers and nurses and firefighters and servicemembers who
are paying more money in student loans every single month
because Betsy DeVos denied them the loan forgiveness that they
earned.
Like other Trump appointees, Director Kraninger has
dutifully carried out the Administration's assault on civil
rights protections:
She weakened rules that identify discriminatory lending.
She dismantled the CFPB office that used to ferret out
discriminatory lending practices.
And she left Eric Blankenstein, a Mulvaney-era political
appointee with a history of racist and sexist writings, she
left Eric Blankenstein in charge of enforcing civil rights
laws.
And look at the result: Under Mulvaney and Kraninger, the
Consumer Protection Bureau has not brought a single case of
illegal discrimination. Not one.
They have not returned a single dollar to victims of
discrimination.
Last October we learned that, in exchange for contributions
to the Trump campaign, payday lenders were bragging about being
able to ``pick up the phone and get the President's attention''
to fend off regulation. They were bragging about their access
to the President because of that.
Director Kraninger has given them exactly what they paid
for:
She gutted rules that would protect borrowers from
predatory payday loans that trap them in cycles of debt.
She hasn't filed any new lawsuits against payday lenders.
She even let a payday lender keep $1.3 million it had
volunteered to pay back to consumers it had ripped off.
And it is not just payday lenders. Director Kraninger has
gone out of her way to let debt collectors and other
corporations keep the money they scammed from consumers.
Just last week we learned that, as he was on his way out
the door, Eric Blankenstein promised the CEO of Wells Fargo
that he would hide the bank's bad conduct and let them off
without a fine.
Let us be clear about what is happening here in this Trump-
Mulvaney-Kraninger America, in this Trump-Mulvaney-Kraninger
world: A CEO asks for a special favor, and he gets it. Never
mind the cost to everyone else.
If a worker gets laid off in Ohio or her car breaks down,
she cannot afford to pay her credit card bill that month, Wells
Fargo is still going to charge them interest. They cannot call
in any special favors to let them off the hook.
But we have seen over and over again that in President
Trump's Washington, Wall Street plays by different rules.
Director Kraninger continues to surround herself with
appointees with a history of bigotry and hostility to
consumers.
She retained Paul Watkins, a Mulvaney appointee, who worked
as senior legal counsel for a hate group--for a hate group--
that wants to criminalize LGBTQ people.
She recently hired Leonard Chanin to serve as her number
two. This is someone who failed at protecting consumers at the
Fed in the years leading up to the financial crisis.
More recently, Mr. Chanin worked at a bank--I believe he
was an Ohioan at that point--worked at the bank that the Bureau
just sued for the same type of fake account fraud that we saw
at Wells Fargo.
What we see from Director Kraninger is the same thing we
see across the Administration: protect corporations from
accountability at all costs.
It comes back to one question, Ms. Kraninger: Whose side
are you on?
Wall Street megabanks, payday lenders, and other
corporations all have allies looking out for them in the White
House and down the hall in Mitch McConnell's office.
The CFPB is supposed to be an independent advocate on the
side of everyone else.
Director Kraninger should return the CFPB to its core
mission: Put consumers first. Anything less is a neglect of
duty.
Thank you.
Chairman Crapo. Director Kraninger, we appreciate again
your attendance and look forward to our discussions with you
today. I want to remind you to honor and remember the 5-minute
rule for your oral testimony so that we have time for questions
and remind our Senators of the 5-minute rule for the
questioning period.
With that, Director, please begin with your statement.
STATEMENT OF KATHLEEN L. KRANINGER, DIRECTOR, CONSUMER
FINANCIAL PROTECTION BUREAU
Ms. Kraninger. Chairman Crapo, Ranking Member Brown,
Members of the Committee, thank you for the opportunity to
present the Consumer Financial Protection Bureau's most recent
Semi-Annual Report to Congress.
A year ago, following my listening tour, I established the
Bureau's top priority in carrying out our important mission:
prevention of harm to consumers. Ultimately, we prevent harm by
supporting dynamic and competitive markets that provide for
consumer choice. On a day-to-day basis, we prevent harm by
educating consumers to protect themselves in the moment, by
having clear rules of the road for regulated entities, and by
using supervision and enforcement to promote compliance with
the law. While prevention is not always possible, it is the
right goal, saving consumers from financial headaches,
setbacks, and devastation.
Last week, I announced three actions furthering our
strategy to prevent consumer harm. I will briefly outline those
actions and close with the agency's response to coronavirus.
First, the Bureau will launch an advisory opinion program
as another means to provide clear, transparent rules of the
road. Today if a regulated entity has a question about how
particular regulations apply to particular circumstances or
seeks an interpretation of a regulation, that entity cannot ask
the Bureau for clarification. In fact, we have a robust
guidance mechanism to provide such clarification and do so in a
fairly responsive way. However, responses to individual
regulatory inquiries are generally available only to the
individual requester. Under the advisory opinion program, the
Bureau will provide that response to such requests in the
Federal Register and on its website so that all companies,
consumer groups, and the public generally will benefit from
that interpretation.
Second, the Bureau updated its Responsible Business Conduct
bulletin to emphasize the importance of such conduct and to
strengthen the Bureau's approach for encouraging it. The
bulletin identifies four categories of responsible conduct:
self-assessing, self-reporting, remediating, and cooperating.
If an entity meaningfully engages in these activities, the
Bureau will favorably consider it along with other relevant
factors in addressing violations of Federal consumer financial
law and supervisory and enforcement matters.
Responsible conduct by businesses facilitates timely
detection of issues and potential violations of Federal
consumer financial laws, increases the effectiveness of the
Bureau's supervisory and enforcement work, and ensures more
consumers in more matters promptly receive financial redress or
other meaningful remedy for the harm they may have experienced.
But let me be clear: Responsible conduct by businesses does not
preclude the Bureau from bringing an enforcement action or
seeking a remedy if it believes such a course is necessary and
appropriate.
Finally, we want to incentivize whistleblowers to report
unlawful conduct to the Bureau. To that end, last week the
Bureau submitted its second legislative proposal to Congress,
which seeks to establish a whistleblower award program. The
Bureau envisions a program similar to those of other regulators
whereby whistleblowers who bring original information forward
that prompts the Bureau to launch an investigation which
culminates in monetary sanctions through settlement or
litigation would receive payment. Such a program would
significantly assist our enforcement actions, especially
against bad actors who are not engaged in responsible business
conduct, and especially as it relates to fair lending
violations. I urge your consideration of this proposal and
stand ready to assist in the legislative process.
In short, these three steps will advance the Bureau's
efforts to promote a fair, competitive, and transparent
consumer financial marketplace and prevent consumer harm and
help build a culture of compliance across the industries we
regulate.
Let me provide a few words on the Bureau's preparedness and
response efforts related to coronavirus.
First and foremost, we are focused on the health and safety
of our employees and our ability to perform our important
mission. In order to make the best decisions possible in a
timely manner, we have established several mechanisms to ensure
that we have the best possible information from public health
and emergency management officials and from our staff. Our
internal working group is led by my Director of Security and
Emergency Management, who reports through the Chief Operating
Officer to me. It is compromised of representatives from every
division in the Bureau in coordination with the NTEU, with a
two-way information flow of questions and answers coming in and
responses going out. My Director of Security is also our
conduit in routine calls with fellow independent regulators, so
we are able to align with our peers accordingly.
We are also in communication with Treasury, which serves as
our touch point for coordination with the Vice President's
taskforce, OPM, CDC, and FEMA to coordinate our operations.
Collectively, the financial regulators are in routine
contact with the institutions we regulate and have been
ensuring prompt
response to their inquiries as well. This is a fluid situation
that requires clear lines of communication and constant
assessment to determine appropriate actions based on up-to-the-
minute information. In this changing dynamic, we are working to
ensure the health and safety of our workforce while continuing
to protect consumers in the marketplace.
Thank you for your time today, and I look forward to your
questions.
Chairman Crapo. Thank you.
My first question is on the coronavirus, and yesterday, as
you indicated, the CFPB, the CSBS, FDIC, the Federal Reserve,
the NCUA, and the OCC issued a jointly developed statement that
mirrors the guidance that is generally issued after natural
disasters. The statement calls on financial institutions to
work with affected borrowers and notes that prudent efforts
will not be subject to examiner criticism so long as they are
consistent with safe and sound lending practices. The agencies
are also offering operational support in affected communities
and will be flexible in scheduling examinations and
inspections.
I know you have already discussed this, but I just want to
say this joint statement was appropriate and to ask you to be
sure you keep the Committee updated on these efforts.
Ms. Kraninger. I am happy to do so, Mr. Chairman. Thank
you.
Chairman Crapo. Thank you.
Last September, you informed Congress that the CFPB would
no longer defend the constitutionality of its structure and
directed the CFPB to join a Department of Justice petition
requesting the Supreme Court to review the Ninth Circuit Court
of Appeals ruling in Seila v. CFPB that upheld the
constitutionality of the Bureau. Now, the Supreme Court, as you
know, accepted the position and last week held oral arguments
on the case.
Could you please explain your position and how you view the
CFPB's structure in the context of our constitutional system?
Ms. Kraninger. Yes, Mr. Chairman. After heavy consideration
of the cases that were pending with the CFPB, the history of
those cases, the position of the Department of Justice, the
rulings by courts at many levels, I came to the position that
the Department of Justice recommended, recognizing that the
directorship and the removal clause only for neglect of duty,
malfeasance, and inefficiency was a limitation on the
President's powers under the Constitution. And the overriding
concern that I am looking to remedy and why I was incredibly
encouraged by the Supreme Court accepting the Seila Law case is
to get certainty and clarity. Only the Supreme Court and
Congress can provide that certainty. The oral arguments were
heard last week, as you mentioned. I was there, as were many
others, and we are paying very close attention to this.
It has thwarted many of our enforcement actions in the
history of the Bureau. It is an issue that is raised regularly
in litigation, and it is one that that clarity will provide
great help to the important delivery of our mission going
forward.
Chairman Crapo. Well, thank you. I agree with your
position, and we look forward to a clear resolution of this
issue by the Supreme Court.
Last year, the CFPB issued a proposal to amend its 2017
small-dollar lending rule by rescinding the mandatory
underwriting provisions. The proposal stated that the CFPB made
the determination there is a lack of evidence and legal support
for the provisions. In a recent speech, you indicated that the
CFPB intends to issue a final rule on this proposal no later
than April of this year.
Could you please discuss why the CFPB determined it was
necessary to update the 2017 small-dollar lending final rule
and how the revised proposal would improve consumer outcomes
and access to credit?
Ms. Kraninger. As you noted, Mr. Chairman. the rationale of
the proposed rule is around the rigor of the underlying
evidence in that particular rulemaking, and so it is something
that we are considering carefully. We have received 190,000
comments in response to that proposal to rescind the
underwriting provisions, and we are working through those
comments and our final position to issue a rulemaking or at
least some decision with respect to that rulemaking in April.
I think there are a number of issues that you raised, too,
that are related to this that we can do. It is evident that
there is continued demand for small-dollar short-term products
in the marketplace. This is something that consumers have
indicated they need. There are steps that the prudential
regulators can take to make sure that institutions understand
that they cannot offer such products and responsible products
to consumers who need them.
And the other thing that we are looking at very carefully
is research into disclosures. There are consumer protection
actions that we could take potentially short of the rulemaking
that the CFPB originally offered. So I think that is something
that we are very much looking at, a holistic approach to this.
Making sure that consumers understand the products that they
are engaging with in the marketplace is a priority.
Chairman Crapo. Well, thank you very much. My time is up. I
did have another question on consumer data protection, but let
me just say I appreciate the approach you are taking to try to
assure greater protection of consumer data.
With that, Senator Brown.
Senator Brown. Thank you, Mr. Chairman.
Director Kraninger, yesterday I spoke at some length with
Treasury Secretary Mnuchin. In addition to telling me--
incredulously, I thought--that there is nothing we could have
done to prepare for the financial turmoil we have seen in the
last couple days, he said he has no plans to meet immediately,
to convene FSOC immediately in the midst of the financial and
the public health crisis that our country and our financial
institutions and our customers and employees face.
Director Kraninger, you serve on the Board of FSOC--I am
sorry--on the Board of FDIC and on the Board of FSOC. Is that
right?
Ms. Kraninger. Yes.
Senator Brown. FSOC has not met since November. The
statutes says they should meet quarterly. As I said, the
President does not plan on calling for a meeting in the
immediate future. Do you think that is a good idea?
Ms. Kraninger. Senator, I believe there is actually a
meeting scheduled later in March already. And, in addition,
there is extensive communication amongst the FSOC members and
through the interagency process.
Senator Brown. I hear that, and that is what he said, too.
But he has nothing to--considering what is happening in the
financial markets, considering what is happening in public
health around the country, and considering the law says
quarterly, you wonder what they are doing. Would you stand up
now and demand that Secretary Mnuchin call a meeting
immediately of the Council and explain publicly what this
Administration's plan is to make sure regular Americans do not
end up paying the price? Would you speak out on that today?
Ms. Kraninger. Senator, we have one scheduled, and I
believe, too, there are conversations even happening today with
the Senate and the House leadership on economic responses to--
--
Senator Brown. None of the conversations are public. The
FSOC, the purpose of FSOC was to preempt and--to predict, to
preempt, to understand, to put plans together so things were
not happening with such chaos as they are now in the financial
markets, and also the statute says that these meetings would be
public. And you can talk about discussions, and you can talk
about meetings of deputies, but the principals have not done
what they should be doing.
Let me shift to something else. Last year, I raised
concerns about Eric Blankenstein, the person you put in charge
of enforcing fair lending laws. I was critical of him because
of his history of racist statements. Last week, we found out
that Blankenstein also promised Wells Fargo's CEO that the
Bureau would settle any unresolved matters in private--there we
go back to private, not public--without fines. Blankenstein
knew his time at the CFPB was coming to an end, and he promised
that another one of your political appointees would take care
of Wells Fargo.
Did you know he promised the CEO of Wells Fargo that the
Bureau would settle any matter in private without fines?
Ms. Kraninger. Senator, I can tell you with respect to the
ongoing oversight of Wells Fargo, the buck stops with me, and I
can also tell you----
Senator Brown. Did you know that----
Ms. Kraninger.----that that is an alleged statement that is
complete hearsay in a staff report that the Committee has not
even actually voted on or in any way pushed forward.
Senator Brown. You have a reputation of being a little easy
on Wells Fargo and perhaps on Eric Blankenstein, too. Has the
Bureau brought any public enforcement action against Wells
Fargo since last May?
Ms. Kraninger. We have ongoing oversight of them, the
ongoing consent orders. We also have, as the Committee knows,
tolling agreements with respect to other areas that we continue
to work with them on.
Senator Brown. The answer is no. The answer is you have not
brought an action against Wells Fargo.
Ms. Kraninger. Well, we levied a $1 billion fine on them,
which is the largest fine in the agency's history.
Senator Brown. Which did not seem to affect much of their
behavior.
Just yesterday, CFPB sued Fifth Third Bank for the same
type of fake account scandal as at Wells Fargo. FDIC Chair
Jelena McWilliams would have known about the fake accounts. She
was legal officer at Fifth Third for a couple-year period.
Leonard Chanin was also her deputy at Fifth Third before he
became deputy at the FDIC. He would have known about the
Bureau's fake account investigation of Fifth Third. Even with
this background, you recently named Mr. Chanin to serve as
Deputy Director. Did you know about his role in the fake
account scandal at Fifth Third when you hired him?
Ms. Kraninger. I can assure you that Mr. Chanin is a
longstanding public servant who served at the Fed, who was the
head of regulations at the CFPB when it was established----
Senator Brown. Is the answer yes? It is a pretty easy
question. Did you know about--you brought the action, you as
head of the CFPB brought the action.
Ms. Kraninger. Yes.
Senator Brown. Did you know about his role in that when you
hired him?
Ms. Kraninger. I knew that he worked at Fifth Third, yes.
Senator Brown. So did you not know about his role or you
did know about his role? Your people were investigating Fifth
Third at the time, and you hired him. Did you know of his role
in this. Of course, you knew he worked there. But did you know
of his role in it? Yes or no.
Ms. Kraninger. Senator, these are all--as you know, it is
confidential investigative information with respect to, you
know, what--and there is a privacy right here as well. So I am
happy to follow up with you with any information that we can
provide from that ongoing----
Senator Brown. It is not a--Director Kraninger, it is not a
privacy right on whether or not you knew of his involvement in
something when you hired him to be your number two. I do not
know what to make of the fact that you just do not want to
answer that question.
Chairman Crapo. Senator Shelby.
Senator Shelby. Thank you, Mr. Chairman.
Director Kraninger, thank you for your service. Thank you
for what you do and your leadership over there. It is a
difficult job, a challenging job.
In past hearings before this Committee, we have discussed
the importance of utilizing cost-benefit analysis in order for
agencies--not just yours but others--to effectively achieve
intended policy outcomes. Ultimately consumers--all of us are
consumers--bear the costs of regulation. As such, we must
ensure that the benefits of any proposed agency action justify
the cost, I believe.
How does the CFPB currently utilize cost-benefit analysis?
How do you work it? And do you believe such analysis is
essential to achieve effective, tailored regulation?
Ms. Kraninger. I absolutely agree, Senator, that we need to
consider cost-benefit, whether that is qualitative in some
cases or quantitative to the extent that we can. And we do it
pretty rigorously in our rulemaking efforts with a view to
improve it.
Senator Shelby. How important is it and why is it
important?
Ms. Kraninger. Essential, Senator, because, again, we need
to understand the impacts of what we are doing and make sure
that it will be beneficial to the marketplace and to consumers
in that marketplace.
Senator Shelby. Give us an example of something you could
bring forth and explain how you did--a reg that you would
evaluate, what it would do for the consumers, what the cost-
benefit would be, and all this.
Ms. Kraninger. It is a legitimate question, Senator, so one
of the things that we are moving through is the debt collection
Notice of Proposed Rulemaking.
Senator Shelby. OK.
Ms. Kraninger. And so, again, understanding that consumers
to want to pay their debts and it is good for society for
consumers to pay their debts and pay what they owe, but
understanding the way that that collection can take place, what
the communication mechanisms are, what the limitation is in
terms of, frankly, the law requires the limit----
Senator Shelby. Stay within the laws and the regulations.
Ms. Kraninger. Absolutely. Absolutely.
Senator Shelby. So that is very, very important. Under your
leadership, I believe that the agency has made significant
strides in becoming more efficient and transparent. What
accomplishments or improvements to the CFPB are you most proud
of? And what areas do you believe that you are challenged and
will need to be addressed? I know there are many things that
pop up.
Ms. Kraninger. Yes. Increased transparency and
communication has really been a huge focus of mine. It is
something that I believe we are trying to do in terms of
forecasting, the kinds of issues we are thinking about, seeking
public input on it, and the best example I have are some of the
most challenging issues we are facing, having public symposiums
on those issues and really bringing experts together, live-
streaming those symposiums----
Senator Shelby. Is this kind of like focus groups?
Ms. Kraninger. Yes, and experts, bringing experts together
and making that public.
Senator Shelby. How does that work? How would you work it?
Do you appoint them? Do people appoint them? Or do you look for
a strata of society that could be effective here?
Ms. Kraninger. Yes, we look at, again, who are the experts
out in the field. For example, on cost-benefit analysis, we are
having a symposium at the end of April on that topic, really
bring people in to look at the way we do this, the way other
agencies do it, to see what we can incorporate into our
processes and what we can learn from others in that area.
Senator Shelby. Thank you for the job you are doing.
Thank you, Mr. Chairman.
Chairman Crapo. Thank you.
Senator Tester.
Senator Tester. Thank you, Mr. Chairman. I want to thank
you and the Ranking Member for having this hearing. I want to
thank you for being here, Director Kraninger.
In your opinion, are we in an economic emergency at this
moment in time?
Ms. Kraninger. Senator, we are certainly responding to a
public health emergency.
Senator Tester. I got you. Economically, though, do you
classify this as being an emergency or just a downturn in the
market?
Ms. Kraninger. We are certainly watching the response and
taking calibrated action----
Senator Tester. I got you.
Ms. Kraninger.----and I take my lead----
Senator Tester. I got you.
Ms. Kraninger. I take my lead, Senator, from the Secretary
of the Treasury in terms of the way that this is being framed
in----
Senator Tester. I got you, but you do have some stroke in
this. Do not downplay your belief as the Director of the CFPB.
I mean, do you feel that we are in an economic emergency? No?
Yes?
Ms. Kraninger. We are absolutely looking at how the
emergency----
Senator Tester. OK. So I am going to classify that as a no
because you did not say yes. OK? The market has dropped 5,500
points. It is down 11 in the last 13 days. Yesterday we saw the
biggest drop since 2008. And you did say there is an FSOC
meeting for the end of March that we do not even have a date
for yet.
I was here in 2008, and I was very disturbed with the folks
at that moment in time, who are all smart people, too, that
kind of surprised us. I do not think there is any surprise
here. We have got a problem, and let us hope it is not a
problem. But why wouldn't it be important for the principals to
get together and talk? The deputies have. The principals have
not. Is that too much to ask for when you have got people that
are put out on a limb?
And, by the way, if Mnuchin is the person who makes the
call, then why do we have directors for everything else?
Ms. Kraninger. So, Senator, there is a scheduled meeting. I
do not----
Senator Tester. But it is not set up. It is not set up.
There is not a certain date.
Ms. Kraninger. There is. I just do not remember off the top
of my head what it is.
Senator Tester. It is not public if there is. I certainly
do not know. I just had my staff look, and they could not tell
me.
Ms. Kraninger. Yes.
Senator Tester. OK. So I appreciate your testimony. You
talked about prevention to harm consumers was the first thing
that you talked about. And then you talked about regulated
entities, if they need information, you have got it, you
clarify it, you put it on the website. You talked about
responsible business conduct, what that meant, self-assessment,
self-reporting. You talked incentives for whistleblowers, which
I think is great, although I do not know what whistleblower
would ever come forward after they witnessed what the President
did to the last one, calling him a ``traitor'' and basically
treated like a traitor.
Have you done anything as far as educating consumers?
Because the name of the agency is the ``Consumer Financial
Protection Bureau.'' Have you done anything in that regard?
Ms. Kraninger. Yes, Senator. I am happy to talk further
about it.
Senator Tester. Let us get more specific.
Ms. Kraninger. OK.
Senator Tester. Have you done anything as it relates to
educating veterans or college students?
Ms. Kraninger. Yes, both, extensively. We have offices that
focus on precisely the needs and concerns of those two
populations.
Senator Tester. So in December, I sent you a letter asking
what the CFPB was doing to educate, coordinate, and monitor
servicemembers and college kids. In your response, you pointed
out to me--and, by the way, folks who use predatory tactics
against veterans or college kids, as far as that goes, are the
lowest form of life, in my opinion. But in your response, you
pointed out to me an education resource from March of 2015. In
fact, most of the educational material was from 2014 and 2015.
Is that the material you use to educate now? Or do you have
newer material?
Ms. Kraninger. We absolutely have newer and updated
material. I thought one----
Senator Tester. So why wasn't that referenced in the
letter?
Ms. Kraninger. I believe--Senator, I apologize. I do not
have it in front of me. I remember the letter, but I do not
remember the detail. I thought we did have updated information
specifically on the issue you raised, which was information for
veterans and their pensions, advancing their pensions.
Senator Tester. The truth is you do not have to look very
far, at least not in my position, to find veterans who have
been scammed. We had a veteran in Montana that was homeless
that served in our military that was taken to the cleaners.
Can I ask you another question? Somebody just passed you a
note. Maybe that helps you with the answer to that question
that I just asked you.
Ms. Kraninger. Yes, it does. It is not a public date, but
it is definitely happening in the next 10 days.
Senator Tester. That is going to be published?
Ms. Kraninger. When it happens, it will be, yes. The
Secretary is to announce, but it is scheduled.
Senator Tester. OK. So let us just be honest. 2014 and 2015
is quite a while ago; 5, 6 years in the financial business is a
lifetime. The number of complaints, I am told, increased from
2015 to 2018 from 19,000 to 33,000. That is a pretty
significant increase. Enforcement actions have decreased. Can
you explain that?
Ms. Kraninger. Senator, with respect to complaints, I
believe it is the job we keep doing to make the database known
and make sure that actually complaints----
Senator Tester. Yeah, but that is not the problem here. The
problem here is the complaints were known, they came in,
enforcement actions have decreased. Can you explain that?
Ms. Kraninger. We continue to take appropriate action on
all the complaints that come in.
Senator Tester. Well, I will tell you that the Chairman
talked about data driven in his opening remarks, and I agree,
but I am not sure that you are doing things that are driven by
data.
Thank you, Mr. Chairman.
Chairman Crapo. Senator Cotton.
Senator Cotton. Thank you, Ms. Kraninger, for appearing
before us. I would say I am struck by the contrast between
Senator Crapo's line of questioning on the one hand and Senator
Brown and Senator Tester's line of questioning on the other
hand. And the contrast does not reflect on you. It reflects on
us.
Senator Crapo talked about the constitutionality of your
office and your Bureau. Senator Brown and Senator Tester are
obviously dissatisfied with some of the Bureau's policies. I
would say you exercised commendable restraint in the way you
responded to them when you really have no reason to be
restrained. What can any of us do to you or your Bureau? The
answer is nothing. You have got a 5-year term. You are barely a
year into that term. You do not come to us for your budget. You
go to the Federal Reserve. And you tell the Federal Reserve how
much money you want. You do not ask them for it; you tell them.
Senator Brown wanted you to talk about whether the FSOC
should have convened, presumably a great tension between you
and Secretary Mnuchin, and maybe President Trump would be
dissatisfied. Well, guess what? President Trump does not have
much say over what you do either. You can only be removed for
cause. You may be the single most powerful person in the entire
executive branch of the Government because we created your
office in that fashion.
If the EPA Director were in front the Environmental
Committee, I bet that they would be more deferential because
they have to come to this body every year for a budget. Or if
the SEC Commissioner were in front of this Committee, he would
be deferential, because not only does he have to come every
year for a budget, but he also has to come almost every year to
get one of his five Commissioners confirmed.
So nobody in Congress, whether they are talking about you
or whether we are talking about your predecessor or even the
facts or the programs you are doing right now that we do not
care for as Republicans, has much recourse because the body was
designed in this way, and it is totally antithetical to our
founding principles. Men are not angels. If they were, no
Government would be necessary. If angels were to govern men,
neither elections nor the separation of powers would be
necessary to keep them in check. That is James Madison
describing the foundational principles of our Constitution. And
the CFPB turns all those things on its head.
Again, I commend you for your restraint and the way you
responded to Senator Brown and Senator Tester's questions when
there is no real reason from an incentive standpoint for you to
be restrained.
I would just say that all the complaints that we have about
your Bureau, the Democrats have, it does not reflect the fact
that the people working in the CFPB are necessarily bad people,
but they are people. They are people. They are not angels. Just
like we are certainly not angels up here on this dais or no one
else is either; and, therefore, they should not be given the
kind of unfettered power that this Bureau has been given.
That is why I say, with Senator Crapo, I hope the Supreme
Court corrects the errors in the Dodd-Frank law and makes this
Bureau more accountable to the American people through its
elected representatives. But until then, I want to raise the
question about how you are making sure that your people are
accountable.
My office has been in touch with yours in the past, as you
know, to encourage transparency and feedback around exams. Too
often what we hear is that examiners are doing things they
should not be doing. They have an attitude they should not
have. They treat guidance as law. But these institutions are
understandably reluctant to speak up.
Has the Bureau yet created any formal feedback mechanisms
outside of the ombudsman channel?
Ms. Kraninger. Senator, I had hoped that I would have an
answer for you on this. We do believe that we should do surveys
of institutions after an exam. The ombudsman's office is the
one that will run that, just to keep some independence from the
Supervision and Enforcement Division that oversees this, just
so that institutions feel better about the anonymous nature of
the feedback that they will provide. But I want that feedback,
and so we should have a process in the next couple months to
launch that.
Senator Cotton. Good. I am glad to hear that it will be in
the next couple months. It has been 8 years now. I understand
that you have only been there for a little over a year. But we
need that in place, some simple, confidential post-exam survey
that examined institutions can provide feedback, so you
understand what is happening on your front lines in some kind
of systematic fashion.
I thank you for your effort on that. That is maybe the best
next step we can take. Hopefully the Supreme Court, though,
will take the step we should have taken long ago in making this
Bureau more accountable to the American people through our
elected representatives.
I am glad you are there to hold your examiners to account.
But as Madison also said, ``Enlightened statesmen will not
always be at the helm.'' And, again, we certainly know that
that is the case. Both Democrats and Republicans alike know
that is the case. So let us do what we should have done and
make the Bureau more accountable.
Chairman Crapo. Senator Menendez.
Senator Menendez. Thank you, Mr. Chairman.
Director, the Federal Reserve estimates that 40 percent of
Americans cannot afford a $400 emergency expense. That leaves
over 130 million Americans vulnerable to predatory financial
practices in the event that a case of coronavirus leads to a
loss of income or an unexpected medical bill. And, furthermore,
financial hardship brought on by coronavirus could affect a
person's credit report and impact their ability to access
credit in the future.
In 2018, the CFPB performed research and issued educational
material on the financial aspects of preparing and recovering
from a natural disaster. What we are facing now may be a public
health emergency that is more geographically dispersed but just
as financially dangerous for American families.
Early last month, the SEC and FTC issued warnings to
Americans about coronavirus investment in product scams. But
even though yesterday the CFPB and other regulators encouraged
financial institutions to meet the needs of customers affected
by the virus, the CFPB's website still does not have any advice
for Americans on how to financially prepare or avoid scams and
fraud that may come as a result of the coronavirus spread.
So I am asking you a very simple question: Director, will
you commit to immediately develop and publish such advice so
that Americans whose health and lives are disrupted by the
virus are not also exploited by scam artists and fraudsters?
Ms. Kraninger. Senator, I appreciate the question you are
asking. I will look to update the things that we do have that
generally help consumers and make sure that we reference
coronavirus appropriately. It is an excellent point, so thank
you.
Senator Menendez. All right. So I hope you will not only
take that to heart but take it into action, because while
general scams and frauds and advice on that may be worthwhile,
the specific elements of fraud that we are beginning to see
already and scams we are beginning to see already as a result
of this I think merit the Bureau's attention.
Now, I would like to follow up on an important issue raised
by Ranking Member Brown. Can you commit to the Committee that
any unresolved matters still pending with Wells Fargo will be
handled in public?
Ms. Kraninger. Senator, we have a current understanding
with Wells Fargo with respect to this going through a lot of
requirements that we will remain in the supervisory tool, if we
can. And that merits cooperation and progress with respect to
their compliance plans and actually providing the remediation
and taking the right actions that were placed there----
Senator Menendez. So you cannot make that commitment, is
what you are telling me?
Ms. Kraninger. I can say that we will continue to pursue
our own responsibilities, and we are watching this incredibly
closely.
Senator Menendez. Well, the responsibilities, Mr.
Blankenstein assured Wells Fargo that matters pending would be
resolved in private--in private--through the Office of
Supervision. So if we cannot have these actions speak in
public, it seems that the CFPB does intend to keep Mr.
Blankenstein's promise to Wells Fargo after all, because doing
this in public would, in fact, be preferable obviously to
secrecy. It may not lessen the gravity of Mr. Blankenstein's
actions under your leadership, but to suggest that I am going
to take care of you politically through supervision, that does
not create any sense of confidence for consumers, especially
those who have banked at Wells Fargo and have a long history--
Wells Fargo has a long history of perversing the interests of
those consumers.
I would just say to you that, you know, we need assurances
that you can provide the Committee that the CFPB's political
appointees are not promising these companies that they will
handle any violations of law it uncovers at these companies in
private. You know, public scrutiny is far better. And if you
are saying we will do it in private without public scrutiny and
potentially without fines, that is a problem. That is a
problem.
Has the CFPB at this point in time resumed supervisory
examinations and oversight of companies that service the $1.2
trillion of loans owned by the Federal Government?
Ms. Kraninger. Senator, yes, we have an agreement with the
Department of Education and are moving forward with a joint
exam, in fact, this month.
Senator Menendez. So you are doing supervisory
examinations?
Ms. Kraninger. Yes, Senator, starting this month.
Senator Menendez. And when you say you are--let me just
understand. You said a joint effort here. It is your
responsibility to do these supervisory examinations. So is the
CFPB--I want to make sure I have got this for the record
straight so we do not end up having a different consequence. Is
it the CFPB who is doing the supervisory examination of these
loans?
Ms. Kraninger. Yes, with respect to consumer financial
laws, and the Department of Education has the contract
oversight of their contractors.
Senator Menendez. Well, I will close just simply by saying,
as you know, I have raised this with you several times that you
have been here. We need to make sure that you use the full
scope of your authority, including if you are not getting the
direct access to audits going to court as your predecessor did,
to ensure that
student borrowers are protected. So I will look forward to
following up with you on this issue.
Thank you, Mr. Chairman.
Chairman Crapo. Senator Rounds.
Senator Rounds. Thank you, Mr. Chairman.
I listened with interest to Senator Cotton's message today,
and I had been thinking prior to his discussion with you that I
feel the same way that Senator Cotton had expressed. I think he
did a very nice job of sharing the concern that we have about
the leadership structure within your organization. And I think
today's discussion, particularly that of our Ranking Member and
several other Members and their dissatisfaction that they have
expressed, and the fact that it lends credibility to the
argument that there should be direct oversight by Congress of
your organization.
I also recognize that you have clearly laid out before the
Supreme Court your position that the existing structure is not
appropriate. Would you agree with me on that analysis?
Ms. Kraninger. Yes, Senator. With respect to the removal
provision, certainly yes.
Senator Rounds. Thank you. I think today's hearing has gone
a long ways in pointing out the reason why many of us feel that
way. At the same time, I most certainly appreciate your being
here before us today.
You may remember that late last year I joined a number of
my colleagues in sending a letter to you regarding reforms to
the definition of qualified mortgage (QM) under the CFPB's
ability-to-repay rule. In your response, you mentioned that the
Bureau is considering a revision that was move away from the
DTI, or debt-to-income, and include an alternative such as a
pricing threshold.
My question is: Since your response, have you come to a
more defined position about how the Bureau will proceed? And
are there any misconceptions about your approach that you would
like to take the opportunity to correct?
Ms. Kraninger. Thank you for that question, Senator. I
would say that the timeline for the Notice of Proposed
Rulemaking that I issued publicly is May, so we will have a
full rulemaking there outlining the details of the proposal.
The statute absolutely requires consideration of debt-to-
income ratio as part of the underwriting decision and ability-
to-repay decision that an institution formulates in the loan
process.
So what we are moving away from or going to propose to move
away from is the DTI 43 percent threshold that was established
as what makes a QM, what provides safe harbor. So that is the
issue that is, I think, a little bit misunderstood. Debt-to-
income ratio still is part of the consideration, but we will
not have at least in this proposal--we will see what comments
come in. We will not have a hard limit on 43 percent.
Senator Rounds. Thank you. You may be aware that previously
I have cosponsored legislation called the ``Business of
Insurance Regulatory Reform Act'' that would affirm or reaffirm
the CFPB's relationship with respect to the insurance industry.
Does the CFPB in your opinion have the legal authority to
regulate insurance?
Ms. Kraninger. Definitely not. The Dodd-Frank Act provides
that the States continue to regulate State-regulated insurance.
Senator Rounds. Thank you. I think Senator Tester was
looking for the opportunity or providing you with an
opportunity to respond to the concerns that many people have
expressed about what is going on right now with the
coronavirus, the impact that it has had on our economy and so
forth. The question, as I believe he phrased it, was: Is this
an emergency? I would like to give you an opportunity to
respond with regard to perhaps the way that you see the
response from your department back to the ongoing issues before
the economy right, recognizing the market has fallen, there are
issues with regard to supply chain competencies or capabilities
in the future.
Can you give us in your words the direction that you see
your organization participating or responding with regard to
the current financial situations in this country and throughout
the world?
Ms. Kraninger. Thank you, Senator. It clearly is a public
health emergency that has significant economic impact. It is
something that the Administration is, again, looking at day to
day, that, frankly, your security and emergency management
staff are looking at day to day here at the Capitol and on the
Hill. So it is something every organization needs to have,
having a business continuity plan, which is a regular part of
business these days. And, in fact, the Bureau has a pandemic
plan. We have reminded institutions we regulate that they
should have pandemic plans. So there is, again, an ongoing
business continuity concern.
There is a mission concern in terms of how this is
affecting consumers and making sure that we are getting the
best possible information out, and certainly my own staff as
part of that business continuity effort, to make sure that we
are safe and healthy as we look to continue to perform the
mission.
So it is a constant balance. It is something that every
organization is looking at and should be looking at and
involves up-to-date information, so there is a lot of
information sharing happening at the interagency level, and
guidance is being regularly updated as to what appropriate
responses are, what responses people are taking.
I have taken action with respect to larger events at the
CFPB. We have several things that were scheduled for this week.
We have now said the public can join via live stream rather
than coming to the building. So that is something that we are
working through and thinking about again as we go forward every
day.
Senator Rounds. My time has expired. Thank you.
Thank you, Mr. Chairman.
Chairman Crapo. Thank you.
Senator Warner.
Senator Warner. Thank you, Mr. Chairman.
Director Kraninger, it is great to see you. I will start
with what my colleagues have said, and particularly Senator
Cotton called you maybe the most powerful person in the
executive branch. I think you do have power. I was
disappointed, gravely disappointed, by your last response. I
think this will be an economic crisis. I am gravely concerned
that some of the solution sets that we are talking about right
now, the general tools, interest rate cuts, broad-based
stimulus, X amount of money for every family in America,
targeted tax cuts by industries, or the more recent suggestions
of a payroll tax cut miss the mark. A payroll tax cut is going
to do nothing if you have been furloughed. It is going to do
nothing if you are a waiter or waitress at a restaurant that is
shut down.
I think we desperately need to look at those affected by
the health restrictions, quarantine and otherwise. People
should not be losing their jobs, should not be losing their
pay, should have flexibility if their kids' school is shut
down.
I think we should be looking at those industries especially
around travel, hospitality, food and beverage that, through no
fault of their own, people are not out because they are taking
the healthcare recommendations, will be put in dire straits. My
hope would be we can find some common ground on this on a
bipartisan basis and make sure that we target our relief.
But as a very powerful person, as indicated by our
colleagues, you have a remarkable ability to influence how this
economic crisis will affect consumers. As you know, a number of
members sent you a letter recently--just yesterday, I believe--
to take action. I think there is precedent again here. In the
case of natural disasters, we have seen the circumstance where
the short-term financial hardships on a family or a small
business will last well beyond the effects of the national
disaster, affect credit card scores, affect the ability to
maintain credit if you are a small business.
My feeling is we are going to see that. We are going to see
that soon. We are already seeing it in an area that I have
looked at for a long time and have been urging colleagues on
both sides of the aisle to look at--independent contractors,
gig workers--who have no social insurance to fall back on. So
we are seeing the lack of that social insurance, any kind of
paid leave. I am actually happy to see some platform companies,
even the old bad boy of the industry, Uber doing a little bit
in terms of talking about some benefits or potentially some
shared healthcare activity for workers that may be constrained
due to the coronavirus.
But I do think there is going to be more. Every one of
these workers in terms of what will be immediately needed from
their employer is one set-up, but they are also going to have
financial obligations to deal with. They have got student loans
due. They have got car payments to make. They have got mortgage
and rent payments to make.
So I want to hear what specific steps you will take in the
immediate coming days. For example, have you gone to the auto
lenders or credit card lenders yet and talked about forbearance
as these kind of notes come due?
Ms. Kraninger. Senator, we did issue yesterday--in fact, I
think your letter crossed our action with respect to notifying
financial institutions that they are going to have supervisory
flexibility for any accommodation decisions they make. You
referenced disasters. This is, again, the typical step that we
take that is similar to a disaster context or a national
disaster context.
With respect to going forward, we are looking day to day,
and there are conversations even happening on the Hill today--
--
Senator Warner. Respectfully, I do not think your
response--and I know this is a quick turnaround--had any level
of detail to it, it seemed to me. And, again, if you are the
most powerful person in the executive branch, you ought to take
that power and use it now. I would like to see specifically
what kind of guidance you are giving or urging auto and credit
card lenders to give.
You mentioned disasters, so let us talk for a moment about
that. When you have disasters, credit card guidance,
particularly in terms of credit reporting relief, can be
granted so that a credit reporting enterprise can identify with
what is called ``trade lines'' that they were affected by a
natural disaster that would give the credit bureaus some
ability to note that the person's credit may have slipped a
little bit, but that it was affected by that natural disaster.
So have you been willing to reach out to the rating agencies,
the credit card reporting agencies, to use these trade lines?
And if not, why not?
Ms. Kraninger. Senator, we are monitoring this day to day.
We are in communication with industry and going back and forth
on this, and I definitely will take your recommendation under
advisement going forward and how we should deal with this.
Senator Warner. Mr. Chairman, I know my time has expired,
but if we do not jointly get ahead of this, this is not going
to be an event that ends on a single day. And I think the
American people are looking for bipartisan creative action.
This is not going to be business as usual, and the traditional
tools that we have used will not be effective this time. We
need to target these, and you have a remarkable amount of power
to urge that kind of forbearance from the lender community,
from the credit rating agencies. And for those of us who have
questioned your commitment to these issues with this enormous
power, I hope you will prove us wrong and act forthright.
Thank you, Mr. Chairman.
Chairman Crapo. Senator Cramer.
Senator Cramer. Thank you, Mr. Chairman. Thank you,
Director, for being here.
I want to explore a little bit something that Senator
Tester started on, and at least he referenced it. I have never
been a financial regulator, but I have been a regulator, and
the use of self-reporting can be a wonderful tool. It can be a
wonderful incentive for companies to self-report. Or it can be
quite a disincentive, depending on how the agency responds to
that.
I would be interested in how it is going for you under your
leadership, you know, now after a year, what is your sense of
it, and maybe just even a little bit of how it has gone and
your philosophy with regard to self-reporting. And what is the
right level of response, I guess, from the agency? I realize
that is a broad question, and maybe it has a broad answer, but
I would be interested. And then I might explore just a little
deeper on a follow-up.
Ms. Kraninger. Understood. Thank you, Senator.
Last Friday, I reissued and really strengthened our
Responsible Business Conduct bulletin, so it is something that
outlines for institutions what this means, what it means to
self-identify and report, assess--I should say self-assess and
self-report, and then remediate and cooperate. And it is
fundamental, frankly, to our ability to target out resources.
There are absolutely predatory lenders out there. There are bad
actors who have no intent of complying with the law, some who
are even ignorant of the law. And we have a broad mandate with
respect to both, you know, financial institutions, nonbank
entities. So making sure that we are focused on where we need
to be focused on, we need those who are truly engaged, who have
compliance management systems, who have a glitch or make a
mistake or have a bad actor inside the institution, when they
identify that and they report that to us, we are saying we will
favorably consider that in our actions and supervision and
enforcement around that, and true cooperation, even just
identifying an issue, it may not be a violation. The
institution does not have to concede it is a violation. It is
really letting us know about the issue, having the dialogue,
bringing that forward in a constructive way so that any harmed
consumers can be helped and that this can be addressed quickly.
So that is the kind of behavior we are trying to encourage.
My examination force is a very dedicated team of people. We are
adding to those ranks, too, and so making sure that they
understand that and they are conveying that to institutions, it
is an ongoing training effort. But I have heard very positive
things from institutions as I interact with them and go around
and talk to them about this.
Senator Cramer. Well, what sort of prompted me to ask the
question that way was that Senator Tester and you had an
interesting dialogue with relation to enforcement action versus
complaints. And he was drawing, I think, a distinction or at
least thought there should be a correlation where the more
complaints there are, the more enforcement action there ought
to be. And if we played ``gotcha'' regulation with every
complaint, guess what? You do not get a lot of--you might not
get a lot of complaints, at least from within an organization.
So I would be interested maybe in just a little bit to wrap
up your thoughts or your philosophy about the role of a
regulator with regard to enforcement action versus helping the
lenders be compliant. And I know sometimes it can be a tricky
line, but how you treat, for example, self-reporting will mean
more than the training in terms of whether you continue to have
that type of cooperation.
Ms. Kraninger. Absolutely, Senator, I agree. And the way I
have outlined our mission is really a continuum. It does start
with consumers, and we do need to educate them so they know
when they are engaging in the marketplace what they should
expect. It is getting clear rules in place and guidance
mechanisms for institutions that are trying to comply, the
ability to have back-and-forth on their questions and
interpretation issues. That is also engaged in through the
supervisory process. So what does compliance mean? How do we
get the right rigorous systems in place? And then enforcement,
it is a blunt tool but a very important one, and we need to use
it effectively to make sure we are incentivizing the right
behavior in the marketplace and going after those who are bad
actors in the system. That hurts everyone in a competitive
marketplace.
Senator Cramer. That was very well said, and I commend you
on it, considering that we are having this interesting debate
on the creation of a completely unaccountable, blank-check,
self-funded regulatory agency. It is nice to see somebody
exercising that type of balance in that role until such time as
it can be changed.
Thank you, Mr. Chairman.
Chairman Crapo. Senator Cortez Masto.
Senator Cortez Masto. Thank you. Director, thank you for
being here.
Let me follow up on the conversation and let us talk a
little bit about payday lenders. Do you think there is any
payday lender companies or agencies that are predatory?
Ms. Kraninger. I would say there are entities in every
single market that are probably operating in that kind of
fashion.
Senator Cortez Masto. So let us talk about payday lenders.
If you identify one that is predatory, what action would you
take?
Ms. Kraninger. So we do have enforcement tools, and, in
fact, we do have ongoing investigations in most corners of our
market, including in that space.
Senator Cortez Masto. Sure, so let me ask you, what
enforcement would you take? Would you take action against a
predatory lender? And what would you specifically do?
Ms. Kraninger. So, Senator, we have had this conversation
back and forth. Every case really is fact-specific and
circumstance-specific. We look at the law. We look at the
potential violations. We look at the evidence that we have been
able to build, and first priority is really remediation of
consumers who may have been harmed. That does take different
forms in different cases, and we have the full panoply from
injunctive relief to the consumer penalty--sorry, the civil
penalty that we can assess and remediation for consumers.
Senator Cortez Masto. So let me ask you this, because there
has been this line of questioning, and I agree with it. I think
many of us are worried that predatory online lenders will step
up their efforts to target vulnerable and financially
vulnerable struggling families with expensive loans during this
coronavirus crisis. And critics of your decision to weaken the
Consumer Bureau's 2017 small-dollar lending rule say that
lenders no longer have to verify a borrower's income, debt, and
spending habits to assess their borrowing threshold before
underwriting their loan. Do you agree with that?
Ms. Kraninger. Senator, the rule that is in question
stipulated very specific means by which that underwriting would
be conducted. That rule never went into effect also because it
is actually pending litigation as well. So what currently
happens----
Senator Cortez Masto. Do you intend to put it into effect
if successfully through the litigation the ability to pay is
found legitimate by the court? And you are putting----
Ms. Kraninger. We are assessing all of the comments that we
have received back on the proposal to rescind the----
Senator Cortez Masto. No, I appreciate that. But at some
point in time, you have got to make a decision.
Ms. Kraninger. Yes.
Senator Cortez Masto. And so my question to you is: If the
lawsuit goes in favor of keeping that rule and the ability to
repay, would the CFPB still continue that as well, or would you
look to change the rule?
Ms. Kraninger. All of this is a pending decision before me.
I am not trying to avoid the question directly. In April, we
will have some more information about all of this as we look at
all the comments we have received.
Senator Cortez Masto. So you are still waiting to go
through the comments to determine whether the ability to repay
should be a variable that predatory--or lenders look at in
general?
Ms. Kraninger. Not waiting. Ongoing. And that decision then
will be----
Senator Cortez Masto. So you have not made a decision one
way or the other?
Ms. Kraninger. Correct.
Senator Cortez Masto. OK. Let me ask you this: You sit as a
member of the FDIC in your current position. Is that correct?
Ms. Kraninger. Yes, it is.
Senator Cortez Masto. So is this true, that as an FDIC
Board member, you voted in November 2019 for a proposed rule
that would eviscerate State laws' caps on the interest rates on
loans and allow unregulated predatory payday lending across the
Nation? Is that true?
Ms. Kraninger. Senator, I certainly would not characterize
it that way.
Senator Cortez Masto. So please characterize it how you
would. What was your vote to allow the removal of those caps?
Ms. Kraninger. It is about the valid-when-made rule in
terms of the way this is characterized, you know, I think
factually, such that when a loan is made, it is valid. If that
loan is then sold or otherwise transitioned, the terms of that
loan would carry forward.
Senator Cortez Masto. OK. So the State laws do not have any
effect at that point in time based on what your analysis of----
Ms. Kraninger. That is--again, there are limited
circumstances, and there are other cases where that would be
the case. This gets more complicated, but in its simplest
terms, yes.
Senator Cortez Masto. So there has been a lot of talk about
lack of enforcement. You probably have had this conversation as
well. I understand that the Consumer Financial Protection
Bureau has not examined Federal student loan servicers for
compliance with the law for more than 2 years. Is that correct?
Ms. Kraninger. I think we are--yes, we are probably at 2
years on that point, but I can tell you----
Senator Cortez Masto. Let me just ask further, because I
understand that Betsy DeVos, the Secretary of the Department of
Education, has refused to allow Federal student loan servicers
to provide the Bureau with access to borrower information. Is
that correct?
Ms. Kraninger. I have sent letters back to Congress on
this, so, yes, that is correct. But I did tell Senator Menendez
a little earlier that we have an agreement, and we are going to
move forward with a joint exam this month with respect to the
Federal portfolio of the student loan servicer.
Senator Cortez Masto. Thank you. I have further questions.
I will submit those for the records.
Thank you again for being here.
Ms. Kraninger. Thank you, Senator.
Chairman Crapo. Thank you.
Senator Tillis.
Senator Tillis. Thank you, Mr. Chairman. Director
Kraninger, thank you for being here. And also, as Senator
Rounds said about Senator Cotton's comments, I want to
associate myself with them. I remember telling then-Director
Mick Mulvaney I bet his heart rate was about four or five. Many
people come before these committees. I am sure that they are
more concerned. But the fact of the matter is you just have to
come to this Committee and then go back and do whatever you
want to do.
Now, I for one think you are doing a good job, but I think
there are fundamental problems with having a regulatory entity
that is absolutely unchecked by any congressional oversight and
action. So thank you for your patience. I am not quite so sure
in response to some of the questions and some of the cutoff
back and forth that I have seen here that I would have been
quite as patient with.
I have a question about the QM patch that is set to expire,
Freddie, Fannie. You are very familiar with it. You sent us a
letter back in January, and I think in one of the passages you
were talking about moving away from the DTI toward a pricing
approach as well as a seasoning mechanism. Can you tell me--I
know that you are receiving comments right now, but can you
give me an idea or expand a little bit more on conceptually
what that means?
Ms. Kraninger. Yes, Senator. So we will issue a proposed
rule in May with respect to the first part of that. With
respect to the seasoning proposal, looking at something a
little bit later than that because we are still working through
it.
Of course, all of this starts with the law, and Title 14 of
the Dodd-Frank Act outlines what this all means with respect to
ability to repay. There are things that a lender must consider,
including debt-to-income ratio, in that underwriting decision.
But what the Bureau did several years ago when it issued its
rulemaking and there were subsequent changes and we assessed
this rule 5 years after to understand its impact better, there
are comments and concerns that we have gotten with respect to
how specific those things were, particularly as it applied to
the safe harbor of the QM.
So what we are looking at is what was in that QM in terms
of specific underwriting actions and how you determine ability
to repay that went beyond the statute, how limiting that was.
And then also with respect to the QM, the debt-to-income ratio
threshold set at 43 percent, as you know, the patch allowed
Fannie and Freddie to set their own rules, and there are many,
really hundreds of thousands of borrowers who otherwise would
not have a home whose debt-to-income ratio is higher than 43
percent and, in fact, some that were given loans, given the
mitigating factors, of more than 50 percent DTI.
So that in and of itself did not seem to be the right QM
threshold. It is still very much a back-and-forth in terms of
taking comments, as you noted, so there is no final decision.
But the proposal we are looking to finalize here and then put
out in May will rely instead on a pricing threshold, and so the
difference there.
So that is the part that we are very much looking at
comments on. What should that pricing threshold be? But DTI
still is very much a part of the process.
Senator Tillis. And at the end of the day, allowing the QM
patch to expire and moving to this new mechanism is one that
would be basically the rule for anybody underwriting a
mortgage? That seems to be the appropriate----
Ms. Kraninger. Yes, really having an equal playing field.
Senator Tillis. Is there any rational basis for why you
would come back and reconsider the QM patch if you are moving
toward this mechanism?
Ms. Kraninger. No. With respect to the patch, no. I made
very clear that that is ending as intended.
Senator Tillis. Good. Thank you.
I have one question here about balancing access to credit
with consumer protections, the balance, I should say. And I was
wondering, are you guys engaging with the MBS investor
community as it seeks to strike a balance here?
Ms. Kraninger. With respect to, I am sorry?
Senator Tillis. I am sorry. Actually, we are talking about
balancing access to credit with consumer protections. I know
that you are dealing with that. But it seems that the crisis--I
am doing a bad job of gluing together my thought, but what I am
trying to do is figure out how do you allow access to credit
but protecting consumer--having appropriate consumer
protections in there. This is basically the discussion we had
over here with Senator Cortez Masto. I am worried, on the one
hand, if we do not strike a balance, that there is an entire
segment of the people that will be underbanked and unbanked.
Ms. Kraninger. Yes.
Senator Tillis. And I think if we overreach on some of
these things that I know get the headlines and make everybody
feel like they are being protectors of the consumers, at the
end of the day--I have seen this in North Carolina--there are
going to be people who are unbanked, underbanked, or going
toward funding mechanisms that are far worse than a well-
regulated regimen or execution under your control.
Ms. Kraninger. Thank you, Senator. You have articulated it
well, and it is a balance that we constantly need to look at.
And disclosure is, again, a typical means of consumer
protection. It is something that we look at as a first action,
making sure consumers have the information they need to make
the best decision for themselves. That is something we look at
regularly.
Senator Tillis. I just think it is important to--we want to
target one segment of lenders as bad actors and eliminating
them, and if we do that with a broad brush, without looking at
bad actors across the spectrum of the financial services
industry, then we run the risk of taking a segment of our
population out of any sort of financial network that provides
some ability to give them the capital they need. As a kid that
grew up on 90-day notes with my dad, I understand if you do not
get cash to a certain segment of society, they are either not
going to be able to do their job, not be able to pay their
bills, or not be able to have the opportunities that I had when
we were living on 90-day notes.
Chairman Crapo. Senator Van Hollen.
Senator Van Hollen. Thank you, Mr. Chairman. Welcome,
Director Kraninger. And thank you for the statement you made at
the outset about your plans to address whatever needs arise
with your own employees with respect to responding to the
coronavirus.
Do you have a telework plan that have you put in place?
Ms. Kraninger. We do have telework policies for literally
just about every single employee. We are actually trying to get
the last 50 holdouts, get them done so that we have that. It
includes situational telework and a weather provision that we
can work through to meet the current circumstances as well.
Senator Van Hollen. Good. I am glad you are taking those
steps.
I also want to associate myself with Senator Warner's
comments about the need to use both your persuasive abilities
but also your authorities with respect to forbearance by credit
card companies and others with respect to consumers who are now
going to see their debts go up and maybe not be able to pay on
those debts and credit cards because they are out of work
because of the coronavirus.
I did see the statement that was issued. I hope in the
coming days you will take even more aggressive action, because
that could obviously turn a lot of households upside down. We
know that 40 percent of households are literally $400 away from
essentially going underwater and are not going to be able to
make the payments on car payments, mortgage payments, those
kinds of things. So I really hope we will have a comprehensive
response there.
Let me turn to student debt. In the next couple days, we
may have a vote here with respect to the Administration's
overturning of what was the borrower's defense rule, which is
designed to protect students who were effectively defrauded by
student loan agencies and some mostly private colleges in the
process. I hope that this body will have a majority vote to
overturn that.
In the meantime, I was glad to hear that finally--it is
long overdue--you have entered into this MOU with the
Department of Education, and I hope you will keep us posted on
what actions you are actually taking. As you know, it has been
a source of great frustration to many of us that this has taken
so long, that you got rid of the old MOU that had been in place
during the previous Administration, finally reinstated this new
one. I think you are going to see a lot of Members of this
Committee actively watching to see how that is implemented.
Another area of student debt is in the area of credit cards
and debit cards. And as you know, years ago Congress passed the
CARD Act that essentially prohibited colleges from teaming up
with credit card companies and co-marketing credit cards at
really usurious rates to students. We limited that. But debit
cards were not included, and there was a study done by the CFPB
during the previous Administration. It got kind of deep-sixed
early in this Administration, but it surfaced through what I
believe was a FOIA request. And it pointed out that Wells
Fargo, which has been in the news a lot lately, had been
charging excessive amounts for debit cards.
So my question is: Are you using your authorities today to
address that issue of potentially abusive practices in the
debit card space aimed at students on campuses?
Ms. Kraninger. Senator, I am aware of the report that you
are referencing. As you noted, the CARD Act did not address any
debit card issues associated with this area. But I can assure
you that we absolutely are using our enforcement power to take
any action that we deem necessary really in any area of
predatory lending. And so I am happy to take any particular
circumstances you might be aware of. We take it from every
source of information we can. We are continually looking at
CARD Act compliance and making sure that that is happening as
well. So it is an ongoing effort.
Senator Van Hollen. So you agree that it is within the sort
of scope of work and jurisdiction of CFPB to look at these? If
there were fraudulent or predatory debit card practices going
on on campuses, you agree that that is within your
jurisdiction, right?
Ms. Kraninger. Yes.
Senator Van Hollen. OK. Thank you, Mr. Chairman.
Chairman Crapo. Senator McSally.
Senator McSally. Thank you, Mr. Chairman.
Director Kraninger, I am a veteran. I served 26 years. I
have always said there is a special place in Hell for people
who prey upon our military and our veterans. The last time that
the Office of Servicemember Affairs at CFPB published an annual
report was January of 2019. Can you tell me what major themes
and trends you are seeing related to our military and veterans
since then? And when can we see the next report?
Ms. Kraninger. Absolutely, and we are working actually
internally to finalize that next report, as you know, outlining
the complaints that we have received from servicemembers and
some of the outreach activities that we have done, including
with the Department of Defense, to make sure we are constantly
assessing what information servicemembers are facing and
veterans are facing in the marketplace and looking at what
actions we can take to help them arm themselves, certainly
including any enforcement actions that we should take. So we
have ongoing efforts in many of those areas.
In terms of the complaints that we have received, there are
some with respect to student loan servicing and understanding
different processes, and so in that respect, servicemembers are
similar to the student population generally. So there are
things we are working through on that front, some things, too,
with respect to add-on products in the auto loan context. And
that is not going to be highlighted in this current report
because we think there has been some clarification on that
particular issue that has happened in the last year.
I know there was a third highlight in that last year's
report, but I am not recollecting what that is.
Senator McSally. OK.
Ms. Kraninger. But we very much look at those complaints
that come in, highlight the ones that are most prevalent, and
what we are doing about them.
Senator McSally. Great. I appreciate that. I want to ensure
that there are appropriate financial protections for our
veterans and our military families as they are serving. The
last thing they need to worry about, especially when they are
deployed, is being preyed upon in the financial marketplace,
them and their families.
I believe that Congress should very clearly codify into law
that the Bureau clearly has supervisory authority over the
Military Lending Act, something many Republicans and Democrats
agree upon. If we were to pass this legislation, how would that
impact your posture specifically for your supervisory
authority?
Ms. Kraninger. Thank you, Senator. It is something that I
am seeking. It is the first legislative proposal that I sent to
the Congress, explicitly calling for that authority. The
Military Lending Act is not one of the enumerated Federal
consumer financial laws, and for that reason, given our
supervisory authority is different in the statute from our
enforcement authority, that is something I have determined we
do not have the ability to do, is supervise in that context.
Senator McSally. So if you had that authority, how would
that better protect veterans and military?
Ms. Kraninger. It would really enable us to make that a
pointed effort of our exams, and it gets back to my push to
prevent harm. That supervisory tool that we have helps
institutions comply with the law, understand what compliance
means, is a faster ability to engage with an entity than the
enforcement tool, which, you know, does take time to bear out
an investigation.
Senator McSally. Great. Thanks. And you believe, I assume,
that the CFPB is the best agency for MLA supervision and
enforcement?
Ms. Kraninger. Yes, with respect to nonbank entities,
because the prudential regulators can do this with respect to
banks and credit unions. It is really the nonbank space where
that is in question.
Senator McSally. OK. Great. And if you had that authority,
that would also allow the Bureau to work with other agencies to
promulgate rules and regulations to protect active-duty members
and veterans?
Ms. Kraninger. We have the ability to do rulemaking
separate from, so I will say that at least, in some respects. A
lot of the Military Lending Act rules come from the Department
of Defense, though. But we have other areas where we can
certainly declare--address issues of rulemaking as needed.
Senator McSally. OK. Great. Is there any downside, in your
view, from us just passing this and making it very clear that
you have the authority for that supervisory----
Ms. Kraninger. That is an interesting question. I certainly
do not see a downside to Congress providing clarity,
particularly where it is clear that everyone would like us to
act, I would like to act, and I do not have the authority
today.
Senator McSally. Great, nor do I, and I plan on leading on
that legislation in order to give that clear authority so we
can protect my fellow servicemen and -women and veterans and
give you the authorities you need in order to protect them.
Thank you.
Ms. Kraninger. Thank you.
Senator McSally. Thank you, Mr. Chairman.
Chairman Crapo. Senator Jones.
Senator Jones. Thank you, Mr. Chairman. Thank you, Director
Kraninger, for being here.
I want to return to the payday lending questions that
Senator Cortez Masto asked, and you and I have talked about
this. It is a huge problem in Alabama where, you know, the
average payday borrower in Alabama takes out eight loans a
year. And I have got a concern like Senator Tillis does. I do
not want to just--I want to make sure that people that need the
ability to get cash and access to credit have that. And like
him, my dad, and me to some extent, had these 90-day notes. But
my guess is--and this is just a hunch, but my guess is neither
Senator Tillis' dad or mine had to pay 300 to 400 percent
interest on those 90-day notes. And my guess is they also
either had to put up some collateral or there was some
indication that they would ultimately have the ability to repay
that 90-day note, either continuing just to pay interest on it
or do whatever.
So I am concerned, frankly, that the updated payday lending
rule does not require lenders to determine whether borrowers
can pay back a loan. And Senator Cortez Masto asked you that.
To me, that just seems like a no-brainer, that looking at the
ability to pay a loan is integral to whether or not to give
that loan in the first place. There could be other factors, but
explain to me why this is even under discussion that that would
not be something that every payday lender should be looking at.
Ms. Kraninger. Senator, I can tell you that the rule
stipulated specifically how that underwriting would be done and
had an impact on the availability of credit in general to
consumers that was dramatic and substantial. And that is----
Senator Jones. In what way--I mean, I am trying to
understand, and I have not seen all of it, but I am trying to
understand how dramatic and how substantial, because it seems
to me if they cannot pay it back, they are going to get caught
in this circle of debt. So how do these new rules have a
dramatic impact on those folks so that they can ultimately
stroke a check and pay this back without having to take out
another loan from another lender?
Ms. Kraninger. So the rule took one tack, Senator, and it
really was a complete turning-over of the industry as it
operates and reducing--the numbers should be at my head, but we
are talking roughly 70 percent of the availability out there
with respect to branches. That was the CFPB's assessment of the
impact on the reduction in access to small-dollar loans.
I would say, too, several years ago the prudential
regulators issued guidance that was taken to heart by banks
that they should not provide small-dollar products. And so that
is in my estimation another part of the problem because we want
responsible institutions to provide the kind of credit that
consumers are seeking.
There is a product that credit unions can offer under the
NCUA's rules, and it is called ``PAL.'' I forget what it stands
for, but they have been looking to update that, too. And so
what I would like to see is encouraging competition with
responsible products by responsible service providers, to look
at the opportunity potentially for disclosures in this space,
because the bottom line is making sure that consumers
understand and are informed about what products they are
actually seeking in the marketplace to meet their own needs,
and enforcement. It is our backstop. Predatory lending is
absolutely not appropriate in any market.
Senator Jones. But if you do not have any rule or
regulation that requires them to look at whether or not you can
ever pay this back, ever pay it back, how are you going to
enforce something that you are not even beginning to regulate
in the first place? I am sorry, but I am just having a real
hard time with everything you are saying only because it just
seems like we are just getting this payday lending spiraling
people into debt. Eight loans a year from folks in Alabama.
They need help, but they also need the help paying it back as
well.
You know, I am just having a hard time with this and
understanding why that is not even a consideration. And I am
not sure you have really answered why it is not a
consideration.
Ms. Kraninger. Well, Senator, in fairness, too, this is a
proposed rescinding of that underwriting provision that is in
front of me now, so I cannot give you a fulsome articulation of
a decision on that because it is an ongoing rulemaking process.
Senator Jones. And that has been ongoing ever since I have
been in the Senate just about, since January of 2018. When will
that be final so that you can give me that information?
Ms. Kraninger. We are going to assess this and make the
decision, whether that be a final rule or otherwise, in April.
So it is very soon.
Senator Jones. All right. Thank you. I will have some other
questions because I really want to ask about housing since
there seems to be no housing discrimination in America anymore,
which I think is great, because there is no enforcement
actions. I do have some questions about that for the record,
but I will save those since I am 14 seconds over, Mr. Chairman.
Senator Jones. Thank you very much.
Chairman Crapo. Thank you.
Senator Reed.
Senator Reed. Well, thank you, Mr. Chairman. And, Director,
I was paying attention as you spoke with Senator McSally. I am
very disappointed that you do not exercise supervisory
responsibility over payday lenders. I think you do have the
authority. It is under your leadership that change took place.
I believe your predecessor made it clear that he felt he had
that authority.
As you know, the Department of Defense has stated in
writing that, ``The Department believes that the full spectrum
of tools, including supervisory examinations, contribute to
effective industry education about, and compliance with, the
MLA.'' And those are the people who have very strong vested
interest in protecting soldiers, sailors, airmen, and marines.
Even your own legal analysis states, and I quote again,
``One possible reading of the statute would allow that the
Bureau may seek to uncover and remedy violations of the MLA in
the course of exercising its authorities, i.e., supervision.''
So your own agency has concluded that there is a reading of the
statute that would allow you to do this, yet you ignore that.
Instead, you would ask for different legislation, which I think
in the context is not really a plea for supervisory authority.
It is an excuse and a diversion so that you do not have to
supervise for the benefit of the payday industry, which I find
very disappointing.
If we are going to pursue legislation, then we should, I
believe, extend the benefits of the MLA, the chief benefit,
which is a 36 percent interest cap, to all Americans. That is
why many of us on a bipartisan basis support the Veterans and
Consumers Fair Credit Act. This would, I think, be strong
legislation. In fact, it is
supported by a significant coalition including the Iraq and
Afghanistan War Veterans, Military Officers Association of
America, the United States Conference of Catholic Bishops, and
the Committee on Domestic Justice and Human Development.
So I do think you have the authority, and I think you are
reneging on that authority, and it is a great disappointment.
Do I make myself clear?
Ms. Kraninger. Yes, Senator, and I respectfully disagree. I
know we have had this conversation. I very much do want the
authority to do this. I do not believe that I have it.
Senator Reed. Well, your own analysis by your own legal
department in the material they have submitted says there is an
interpretation that will give you that authority. Has this
authority ever been challenged in court when it was exercised
by your predecessor?
Ms. Kraninger. Senator, it has not, and we----
Senator Reed. Well, isn't that a good indication that even
the people who are subject do not object, at least do not
have--feel the legal footing to object?
Ms. Kraninger. I believe that is a very slippery slope, and
I do believe I have the responsibility to determine where our
authority lies. And, certainly, as I noted to you, the possible
reading would lead to many other interpretations that would be,
I think, problematic and detrimental.
Senator Reed. I think this reading would lead to the
interpretation that you are going to protect men and women who
are protecting us from being abused by lenders, and I would
hope you would reconsider. Thank you.
Chairman Crapo. Thank you. That concludes all of the
Senators. Senator Brown has asked for an additional 5 minutes,
and so, Senator Brown, please proceed.
Senator Brown. Thank you, Mr. Chairman. Thank you always
for your--and thank you for staying around a little bit longer,
Director Kraninger.
I want to follow up on something you had said earlier when
I asked you whether the CFPB had taken any public action
against Wells Fargo since Eric Blankenstein private promises
last May. I think you used the word ``hearsay'' when we
actually have emails, which decidedly are not hearsay. But,
more importantly, you referenced a $1 billion fine. I just want
to make clear that was in--you had said that CFPB did that,
which was a true statement, but it was in 2018, before you were
Director. And so we have not--the implication was that you had
been tough on them when you decidedly have not been. So we hope
that you will reconsider that.
Let me ask a couple of questions on a couple of subjects.
We created the CFPB because we knew that too many other
agencies were not protecting consumers. There may be no better
example of that than what a few people have asked about, the
Department of Education under Secretary DeVos. She has gutted
rules to protect student borrowers. She has shut down
investigations of abuse and fraud by for-profit colleges. She
was recently held in contempt by a Federal court. For the past
2 years, she blocked the CFPB from doing its job to protect
more than 43 million student borrowers.
Why would you hand over the Consumer Financial Protection
Bureau's responsibility to protect student borrowers to
Secretary DeVos? Why would you do such a thing?
Ms. Kraninger. Senator, I have not done that. As we have
talked about very clearly, I believe it is in the interest of
the Federal Government to speak with one voice and to have
agreement with respect to how the CFPB carries out its
responsibilities for ensuring compliance with Federal consumer
financial law, and the Department of Education has a very real
role. These are their contractors, their servicers. They have
contract provisions that they need to oversee. Doing those two
things in concert is what is in the Government interest and in
the consumers' interests.
Senator Brown. I would like to think that is true. I would
like to think that you are genuine about doing something. I
have sat here and you have sat there before over the last year,
and we have asked you many times why you have not examined
Federal student loan servicers. You have said for a year you
will take action. Now you are saying--I would like to ask you,
whatever you are going to do on joint exams, that you would
disclose to us what the specific plans are. But I just do not
understand the question as Americans--I mean, another year is
wasted, and more students are overwhelmed by their debt. And
they do not want to hear excuses. Your job is to fight for
student borrowers, and I do not understand why you think you
need permission from Betsy DeVos.
So my request of you is to publicly tell us that you will
be public about this entire process with the timetable with
Secretary DeVos on this joint exam that you talk about.
Ms. Kraninger. Senator, I pledge that we will share what we
can publicly as I am doing today. As you know, the supervisory
process is confidential inherently, and it should be to be
effective. So we have to balance those interests. But I was
very clear in wanting to make sure you knew that we are
carrying out our responsibilities.
Senator Brown. I just am discouraged--that disappoints me
because I think a year from now we might be having this same
conversation. So prove me wrong.
Last question, or series of questions. You formed a
taskforce that is supposed to provide recommendations on how to
update Federal consumer financial laws. You select the members
of the taskforce, correct?
Ms. Kraninger. Yes. It was through a public competitive
process.
Senator Brown. OK. You selected a gentleman named Howard
Beales, correct?
Ms. Kraninger. Yes.
Senator Brown. He was described by the Wall Street Journal,
not a liberal publication, as an academic whose studies have
been used by a tobacco company to fight Federal regulators. He
actually argued that Joe Camel and other big tobacco campaigns
were not trying to get kids to smoke. He argued that payday
loans with a 448 percent interest rate are beneficial to
consumers.
You also selected Todd Zywicki for the taskforce, correct?
Ms. Kraninger. Yes.
Senator Brown. In addition to his career trying to
influence the Bureau on behalf of Wall Street, Mr. Zywicki
helped defend a debt relief company that the Bureau sued that a
court later found cheated consumers out of well in excess of
$100 million. These are the people that you selected,
competitive bidding or not, competitive process or not. So is
it true that two of the taskforce members have such close ties
to industry they needed a waiver of Federal ethics laws to
participate in the taskforce?
Ms. Kraninger. Senator, we wanted the foremost experts on
consumer financial law and economics, and I believe that we
have found that. These are five individuals who have extensive
public service careers----
Senator Brown. You gave two of them----
Ms. Kraninger.----and who have represented industry
because, again, they are individuals who have experience with
how the laws----
Senator Brown. But they needed----
Ms. Kraninger.----and regulations actually apply in
practical circumstances. So that is hugely beneficial. There
will also be an extensive public engagement. In fact, we are
starting that today. We have our first roundtable where the
taskforce members are engaging with leaders in trade
associations, consumer advocacy groups, as well as business
trades, and engaging with our Advisory Committee members this
week. So this is going to be an ongoing process to really bring
in the best information that we can to think about the way to
move forward.
Senator Brown. The best information from sort of Wall
Street's viewpoint. You asked for the waiver. The waivers were
granted. You personally gave them the waivers, your office did.
I mean, there is already--the criticism of you, the
dissatisfaction with the work you do, is that it is always too
slanted toward the most privileged, wealthy interest groups in
this Government and in this country. This just plays more to
that perception. This is where the advice comes from. You have
made it clear to me and to a lot of us that you are not here to
carry out the CFPB's mission of protecting consumers. You are
here to carry out President Trump's agenda of protecting Wall
Street mega banks and the richest interest groups in this
swamp.
Thank you.
Chairman Crapo. Thank you. That concludes the questioning
for today's hearing. For Senators who wish to submit questions
for the record, those questions are due to the Committee by
Tuesday, March 17th.
Director Kraninger, we ask that you respond to those
questions as promptly as you can. Again, thank you for your
service and for being here with us today.
This hearing is adjourned.
[Whereupon, at 11:42 a.m., the hearing was adjourned.]
[Prepared statements, additional material, and responses to
written questions supplied for the record follow:]
PREPARED STATEMENT OF CHAIRMAN MIKE CRAPO
Today, we will receive testimony from Consumer Financial Protection
Bureau (CFPB) Director Kathy Kraninger on the CFPB's semiannual report.
On February 3, the CFPB issued its Fall 2019 Semiannual Report,
which outlines the CFPB's significant work between April 2019 and
September 2019, including rulemakings and supervisory and regulatory
activities.
The report also provides insight into what the CFPB plans to
undertake in the coming work period.
Consumer protection is vital for a properly functioning financial
market place and is best determined by a robust, quantitative analysis.
Under Director Kraninger's leadership, the CFPB has demonstrated a
commitment to ensuring that its regulations are data driven,
appropriately tailored to satisfy statutory obligations, and based on
sound evidence and legal support.
There have been promising changes at the CFPB under Director
Kraninger's leadership.
But, it remains abundantly clear that the fundamental structure of
the CFPB must be reconsidered to make it more transparent and
accountable.
Last week, the Supreme Court heard arguments for Seila Law LLC v.
CFPB, a case that examines the constitutionality of the CFPB's
leadership structure.
On March 2, 2020, the Wall Street Journal Editorial Board referred
to Seila Law v. CFPB as the ``constitutional case of the year,'' and
stated that the question presented by this case ``goes to the heart of
the separation of powers and whether the administrative state is
accountable to the people.''
It has long been my position that the CFPB's current single
director structure lacks sufficient accountability, and I look forward
to the Supreme Court ruling on this case later this summer.
With this in mind, I continue to advocate for establishing a
bipartisan board of directors to oversee the CFPB; subjecting the CFPB
to the annual appropriations process, similar to other Federal
regulators; and establishing a safety-and-soundness check for the
prudential regulators.
The Banking Committee has spent significant time this Congress
evaluating the collection, protection and use of consumer data by
government agencies and private companies.
I have repeatedly voiced concerns about wide-scale collection of
personally identifiable information by the CFPB, especially with
respect to credit card and mortgage data.
On February 26, the CFPB hosted a symposium on the access and use
of consumer-permissioned financial data to determine if agency action
is necessary to promote consumer access to their financial data.
I find it concerning that when consumers choose to share their
financial data with a third party, they often unknowingly involve a
data aggregator to facilitate the transmission of this data.
The CFPB and Congress should explore ways to ensure that consumer
data remains protected when it is shared.
We need a foundational change to our data privacy laws that applies
broadly, across industries, and ensures domestic and international
cohesion via preemption and interoperability, respectively.
During this hearing, I look forward to hearing more about key
initiatives undertaken by the CFPB in the last year; Director
Kraninger's priorities for the CFPB in the upcoming work period; and
additional legislative or regulatory opportunities to encourage
financial innovation and widen access to financial products and
services.
Director Kraninger, thank you again for joining the Committee this
morning to discuss the CFPB's activities and plans.
______
PREPARED STATEMENT OF SENATOR SHERROD BROWN
Thank you, Mr. Chairman.
First I want to say a few words about the coronavirus, and the toll
it's taking on our communities, on our healthcare system, and on our
entire economy.
Our first concern has to be for Americans' safety. We also can't
ignore the millions of Americans who are losing paychecks and the small
businesses that are losing customers.
When times get tough, we come together as Americans and we rise to
the challenge. I'm confident we can do that again--and it has to mean
support for everyone who makes this country work, not just Wall Street.
Moments like this are a reminder of why we created the CFPB after
the last financial crisis--to make sure hardworking Americans have a
voice in the room, especially at times like this.
We know that in times of crisis, Wall Street has armies of
lobbyists who will fight to make sure we do what we need to do to
stabilize financial markets. But most people don't have lobbyists and
don't have that kind of power. We have to fight for them too. And the
CFPB is their voice.
During its first 6 years, the Bureau delivered results: the CFPB
made new, strong rules that protected consumers from abusive practices.
It sent Bureau employees into banks and other corporations to make sure
they were following the law. And it returned more than $12 billion to
29 million Americans.
Unfortunately, President Trump has tried to turn the Consumer
Protection Bureau into another agency that helps his wealthy friends at
the expense of the people it's supposed to serve.
Under President Trump's first appointed director, Mick Mulvaney,
the CFPB saw a shift away from protecting servicemembers and rooting
out discrimination to doing favors for private corporations at the
behest of political hires.
Director Kraninger has continued down the same path-corporate
protection instead of consumer protection.
Under her leadership, we see a clear pattern: sabotaging the
agency's work to hold corporations accountable.
She sided with corporations--including a company the CFPB sued for
scamming 9/11 survivors--to argue that the Bureau is unconstitutional
in the Supreme Court.
It would be quite a coup for big banks and other corporations if
the Supreme Court gutted the agency that's supposed to keep an eye on
them.
Director Kraninger has also allowed Education Secretary Betsy DeVos
to block the Bureau from protecting the 43 million Americans with
Federal student debt.
If you don't think that Director Kraninger's failure to stand up to
Secretary DeVos has consequences, talk to the tens of thousands of
teachers, nurses, firefighters, and servicemembers who are paying more
money in student loans every single month because Betsy DeVos denied
them the loan forgiveness that they earned.
Like other Trump appointees, Director Kraninger has dutifully
carried out the Administration's assault on civil rights protections:
She weakened rules that identify discriminatory lending.
She dismantled the CFPB office that used to ferret out
discriminatory lending practices.
And she left Eric Blankenstein, a Mulvaney-era political
appointee with a history of racist and sexist writings, in
charge of enforcing civil rights laws.
And look at the result--under Mulvaney and Kraninger, the Consumer
Protection Bureau has not brought a single case of illegal
discrimination.
They have not returned a single dollar to victims of
discrimination.
Last October we also learned that, in exchange for contributions to
the Trump campaign, payday lenders were bragging about being able to
``pick up the phone and get the President's attention'' to fend off
regulation.
Director Kraninger has given them exactly what they paid for:
She gutted rules that would protect borrowers from
predatory payday loans that trap them in cycles of debt.
She hasn't filed any new lawsuits against payday lenders.
And she even let a payday lender keep $1.3 million it had
volunteered to pay back to consumers it had ripped off.
It's not just payday lenders. Director Kraninger has gone out of
her way to let debt collectors and other corporations keep the money
they scammed from consumers.
Just last week we learned that--as he was on his way out the door--
Eric Blankenstein promised the CEO of Wells Fargo that he would hide
the bank's bad conduct and let them off without a fine.
Let's be clear about what's happening here--a CEO asks for a
special favor, and he gets it. Never mind the cost to everyone else.
If a worker in Ohio gets laid off, or their car breaks down, and
they can't afford to pay their credit card bill that month, Wells Fargo
is still going to charge them interest--they can't call in any special
favors to let them off the hook.
But we have seen over and over again that in President Trump's
Washington, Wall Street gets to play by different rules.
Director Kraninger also continues to surround herself with
appointees with a history of bigotry and hostility to consumers.
She retained Paul Watkins, a Mulvaney appointee, who worked as
senior legal counsel for a hate group that wants to criminalize LGBTQ
people.
She also recently hired Leonard Chanin to serve as her number two.
This is someone who failed at protecting consumers at the Fed in
the years leading up to the financial crisis.
More recently, he worked at the bank that the Bureau just sued for
the same type of fake account fraud that we saw at Wells Fargo.
What we see from Director Kraninger is the same thing we see across
the Trump administration: protect corporations from accountability at
all costs.
It comes back to one question--whose side are you on?
Wall Street megabanks, payday lenders, and other corporations all
have enough allies looking out for them in the White House and in Mitch
McConnell's office.
The CFPB is supposed to be an independent advocate on the side of
everyone else.
Director Kraninger should return the Consumer Protection Bureau to
its core mission: put consumers first.
Anything less is a neglect of duty.
Thank you, Chairman Crapo.
______
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
RESPONSES TO WRITTEN QUESTIONS OF SENATOR BROWN FROM KATHLEEN
L. KRANINGER
Debt collection
Q.1. The interaction between the debt collection notice of
proposed rulemaking (NPRM) and the supplemental time-barred
disclosure rule the CFPB recently released allows debt
collectors to send required notices by electronic means. The
NPRM does not require compliance with the E-Sign Act or
consumer consent to receive communications from the debt
collector before attempting electronic communications with
consumers, making it even more likely that many consumers may
not even receive the disclosure.
Q.1.a. What is the CFPB's plan to address?
A.1.a. The May 2019 notice of proposed rulemaking (May 2019
NPRM) described how a debt collector can provide three required
disclosures--the validation notice, the original-creditor
disclosure, and the validation-information disclosure--
electronically. These disclosures are subject to the E-SIGN
Act. The NPRM proposes to require compliance with the E-SIGN
Act plus additional requirements. The NPRM also proposes an
alternative under which the Bureau would create an exception to
the E-SIGN Act but impose alternative consumer protections,
including providing the consumer notice and an opportunity to
opt out of receiving hyperlinked delivery of these notices. The
NPRM also proposes special consumer protections where the
validation notice is the collector's initial communication with
the consumer. In all cases, under the proposed rule, the debt
collector would also be required to take other steps--
including, for example, monitoring for notices of
undeliverability and providing validation notices in a
responsive format--to increase the likelihood that consumers
receive and access required disclosures delivered
electronically.
In response to the May 2019 NPRM, the Bureau received over
14,000 comments, a significant number of which addressed
electronic delivery of required disclosures. The Bureau is
analyzing those comments as part of the process of taking final
action on the May 2019 NPRM.
Q.1.b. Will the CFPB amend the proposed rule to require
consumer consent before sending electronic communications?
A.1.b. In response to the May 2019 NPRM, the Bureau received
over 14,000 comments, a significant number of which addressed
electronic communications. The Bureau is analyzing those
comments as part of the process of taking final action on the
May 2019 NPRM.
Q.2. The CFPB's disclosure testing report shows that almost
half (45.76 percent) of people in the study are not willing to
receive a required notice by email (45.76 percent). Problems
with hyperlinks are well established--they often contain
viruses and interfere with data security and privacy. To no
surprise, the number of people who are unwilling to click on
any notices received through hyperlinks are much higher in the
CFPB's disclosure testing--70.12 percent are not at all willing
to click on a link delivered in an email, and 82.21 percent are
not at all willing to click on a link delivered by text
message. Hyperlinks by text and email are expressly permitted,
without any limits, in the current NPRM. Given these results,
will the CFPB amend the proposed rule to not allow hyperlinks?
A.2. As noted in the previous response, a number of provisions
in the May 2019 NPRM address required disclosures delivered
electronically. In response to the May 2019 NPRM, the Bureau
received over 14,000 comments, a significant number of which
addressed electronic communications and, specifically, the use
of hyperlinks or text messages. The Bureau is analyzing those
comments as part of the process of determining the provisions
the Bureau may decide to include in a final rule. As noted, the
Bureau also completed testing subsequent to the release of the
May 2019 NPRM and is considering the results of that testing as
part of its current work.
Q.3. The FTC filed comments on the CFPB's proposed debt
collection rule stating that the FTC and courts have said that
``it is a violation of the FDCPA for a debt collector . . . to
file an action in court to collect on a time-barred debt'' and
also that it is ``likewise a clear violation of the FDCPA to
threaten to file such an action.'' The debt collection
proposals outlined by Director Cordray for the small business
review panel in 2016 would have codified these clear rules. The
CFPB has instead proposed to inject a state of mind element
that would bar lawsuits or threats only if the collector
``knows or should know'' that the legal deadline has passed.
How does the CFPB square this proposal with the FTC's position
that ``requiring a showing that the debt collector knew or
should have known the debt was time-barred places unnecessary
additional burdens on law enforcement agencies?''
A.3. The Bureau's May 2019 NPRM proposed to prohibit a debt
collector from bringing or threatening to bring a legal action
against a consumer to collect a debt that the debt collector
knows or should know is a time-barred debt. In proposing the
``know or should know'' standard, the Bureau noted that, in
many cases, a debt collector will know, or can readily
determine, whether the statute of limitations has expired. In
some instances, however, a debt collector may be genuinely
uncertain even after undertaking a reasonable investigation;
this could occur, for example, when the case law in a State is
unclear as to which statute of limitations applies to a
particular type of debt. In response to the May 2019 NPRM, the
Bureau received over 14,000 comments, a significant number of
which addressed time-barred debt, including the proposed ``know
or should know'' standard. The Bureau is analyzing those
comments as part of the process of taking final action on the
May 2019 NPRM.
Q.4. Under what types of circumstances would the CFPB find that
a debt collector ``should'' have known that a debt was so old
it could not be pursued in court?
A.4. Please see the response to question 3.
Q.5. What is the justification for not requiring debt
collectors to be responsible for knowing if the legal deadline
has passed before they sue or threaten a lawsuit on an old
debt? Why should courts have to figure out the debt collector's
state of mind?
A.5. Please see the response to question 3.
Q.6. In 2016, when the CFPB first released its outline of
proposals for debt collection rulemaking, it discussed the
serious problem of collectors pursuing the wrong person or
wrong amount, and identified ``substantial deficiencies in the
quality and quantity of information collectors receive at
placement or sale of the debt.'' But the current proposal,
without providing any guidance on what documentation collectors
must have, protects debt collection attorneys who make false,
deceptive or misleading representations in court pleadings as
long as they review unspecified ``information.'' Why shouldn't
a debt collector be required to review original account
documents and admissible evidence, and otherwise be held
responsible for filing a lawsuit with false accusations?
A.6. Debt collection attorneys who make false, deceptive, or
misleading representations in debt collection court pleadings
would, in general, violate Federal laws (including the Fair
Debt Collection Practices Act (FDCPA)) or State laws or
professional ethical standards for attorneys. The May 2019 NPRM
addressed the specific potentially deceptive claim that
consumers may take away from an attorney's name on a court
pleading that the attorney has been meaningfully involved in
the preparation of that pleading. To reduce uncertainty as to
when an attorney has been meaningfully involved in the
preparation of such a pleading, the May 2019 NPRM provides that
an attorney has been meaningfully involved in the preparation
of debt collection litigation submissions if the attorney: (1)
drafts or reviews the pleading, written motion, or other paper;
and (2) personally reviews information supporting the
submission and determines, to the best of the attorney's
knowledge, information, and belief, that, as applicable: the
claims, defenses, and other legal contentions are warranted by
existing law; the factual contentions have evidentiary support;
and the denials of factual contentions are warranted on the
evidence or, if specifically so identified, are reasonably
based on belief or lack of information. The factors in the May
2019 NPRM are similar to some of the nationally recognized
standards for attorneys making submissions in civil litigation.
In response to the May 2019 NPRM, the Bureau received over
14,000 comments, including a number of comments on the safe
harbor for meaningful attorney involvement in debt collection
litigation. The Bureau is analyzing those comments in deciding
what provisions to include in a final rule.
Q.7. The CFPB has proposed to allow debt collectors to deliver
legally required information about the debt and people's rights
through hyperlinks in emails or texts sent to people who have
not agreed to receive emails or texts from the debt collector.
How does the DFPB reconcile this proposals with CFPB, FCC, and
FTC warnings that consumers should not click on links from
unknown parties and encourage phishing scams that impersonate
debt collectors?
A.7. The Bureau is aware of concerns about consumers accessing
disclosures through hyperlinks; the May 2019 NPRM states that
``[f]ederal agencies have advised consumers against clicking on
hyperlinks provided by unfamiliar senders'' and cites to two
Federal Trade Commission (FTC) articles and a Federal Deposit
Insurance Corporation (FDIC) publication on this topic. Because
of these concerns, proposed Sec. 1006.42(c)(2)(ii) and
1006.42(d) describe consumer notice-and-opt-out processes meant
to ensure that, before a debt collector sends a required
disclosure by hyperlink, the consumer expects to receive it and
does not object to such receipt. By helping the consumer
identify the sender in advance, a notice-and-opt-out process
may also reduce the risk that the consumer will treat an email
containing a hyperlink as spam. The Bureau requested comment on
the use of hyperlinks to deliver disclosures and is reviewing
those comments now. The Bureau will continue to consider
feedback and other information in reviewing the proposed rule's
interventions as it moves forward toward a final rule.
Q.8. The CFPB surveyed a large number of consumers as part of
the recent supplemental debt collection rulemaking. Results of
that survey indicated that fewer than 15 percent of consumers
are very willing to receive information from a debt collector
by email, not even 6 percent are very willing to receive
information by clicking a link delivered in an email, and under
3 percent are very willing to receive information by clicking a
link delivered in a text message. In light of these results,
will the CFPB amend the NPRM to prohibit debt collectors from
using these methods to contact consumers without their consent?
A.8. In response to the May 2019 NPRM, the Bureau received over
14,000 comments, a significant number of which addressed
electronic communications and, specifically, the use of
hyperlinks or text messages. The Bureau is analyzing those
comments in deciding the provisions to include in a final rule.
The Bureau also completed disclosure testing subsequent to the
release of the May 2019 NPRM and is considering the results of
that testing as part of its current work.
Taskforce Qs
Q.9. In the Bureau's February 19, 2020, letter, the Bureau
indicated that two members of the Taskforce on Federal Consumer
Law had received ethics waivers. Please provide the following
information:
Q.9.a. Identify the Taskforce members who received the waivers:
A.9.a. Pursuant to 18 U.S.C. Sec. 208(d)(1), a copy of a
determination to grant an exemption under Section 208(b)(1) may
be made available upon request pursuant to the procedures set
forth in Section 105 of the Ethics in Government Act. Those
procedures require a requester to make attestations
acknowledging the legal prohibitions on certain uses of the
information, which can be done by completing OGE Form 201. See
5 CFR Sec. 2634.603(c).
Q.9.b. Identify the Bureau employee who signed the waivers.
A.9.b. Pursuant to 18 U.S.C. Sec. 208(b)(1), the waivers are
issued by the Government official responsible for appointing
the employee to his (or her) position. Both waivers were signed
by the Bureau's Chief Human Capital Officer, Mr. Jeffrey
Sumberg.
Restitution
Q.10. The Bureau has claimed that it obtained $777 million in
relief for consumers in FY 2019. Please identify the name of
each such action and, for each action, provide the following:
Q.10.a. The type(s) of consumer relief (e.g., restitution,
damages);
A.10.a. See the table below.
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
Q.10.b. For each type of consumer identified in (a), the amount
of consumer relief;
A.10.b. Please see the response to question 10.a.
Q.10.c. Whether the entity provided the entire amount of the
consumer relief or whether any amount was suspended based on
the entity's financial condition; and
A.10.c. Please see the response to question 10.a.
Q.10.d. Any relief provided to consumers through the Bureau's
civil penalty funds.
A.10.d. The $777 million in relief does not include amounts
distributed or allocated to consumers from the Civil Penalty
Fund. In fiscal year (FY) 2019, $120 million was allocated to
harmed consumers in five cases. Also during FY 2019, the Bureau
had seven active and ongoing Civil Penalty Fund case
distributions. Funds related to those cases were initially
distributed in FY 2017 and FY 2018 and totaled approximately
$350 million. During FY 2019, the Bureau released funds in one
new case totaling approximately $1 million.
Advisory Opinions
Q.11. On March 6, 2020, the CFPB announced an advisory opinion
program. The current guidance mechanism advises inquirers that
the interpretations offered by staff are not binding. Will the
advisory opinions under the new program also be nonbinding?
A.11. Advisory opinions under the new program will be
interpretive rules under the Administrative Procedure Act that
respond to a specific request for clarity on an interpretive
question. The Bureau summarized the manner in which
interpretive rules can be binding in its Request for
Information Regarding Bureau Guidance and Implementation
Support, 83 Fed. Reg. 13959, 13960 (Apr. 8, 2018), https://
www.federalregister.gov/d/2018-06674.
Q.12. When will procedures for the new advisory opinion program
be announced?
A.12. The announcement date for further program details is
still under internal consideration at this time. Full details
of the program will be announced at a later date, at which time
the Bureau will also notify the Committee and relevant Member
offices.
Q.13. Will the public be given an opportunity for notice and
comment on advisory program procedures?
A.13. Program procedures are still under internal consideration
at this time. Full details of the program, including any
requests for public comment on program procedures, will be
released at a later date.
Q.14. How will the CFPB ensure that the advisory opinions
comply with APA standards, executive orders on guidance, and
all existing statutory interpretations?
A.14. In formulating advisory opinions, the Bureau will review
their compliance with any applicable law and their consistency
with existing statutory interpretations through its internal
review processes.
Q.15. How will the CFPB make sure that consumer interests are
adequately represented in issuing advisory opinions? Will the
CFPB consult with consumer advocates or other organizations
before issuing advisory opinions or will it rely entirely on
the requester for information?
A.15. Program procedures are still under internal consideration
at this time. Full details of the program will be announced at
a later date.
Q.16. Which office at the CFPB will have responsibility for the
advisory opinion program?
A.16. Program procedures are still under internal consideration
at this time. Full details of the program will be announced at
a later date.
Q.17. Does the CFPB plan to include TILA in the advisory
opinion program? If so:
A.17. Program parameters are still under internal consideration
at this time. Full details of the program will be announced at
a later date.
Q.17.a. Will the CFPB update the introduction to the TILA
Official Interpretations which provides that the commentary is
the vehicle by which the CFPB issues official interpretations
on TILA and that no official interpretations are issued other
than through the commentary?
A.17.a. Please see the response to question 17.
Q.17.b. Will the CFPB afford an opportunity for notice and
comment on any proposed changes to that language?
A.17.b. Please see the response to question 17.
Q.17.c. How does the CFPB reconcile TILA Simplification process
with an advisory opinion program?
A.17.c. The Bureau does not see any conflict between an
advisory opinion program and the Truth in Lending
Simplification and Reform Act of 1980, commonly referred to as
TILA simplification.
Q.17.d. Does the CFPB believe that advisory opinions would
afford creditors the good faith reliance defense under Section
130(f) of TILA?
A.17.d. Generally, if the Bureau were to issue an advisory
opinion under TILA, acts done or omitted in good faith in
conformity with it would qualify for the safe harbor from
liability in Section 130(f) of TILA.
Coronavirus
Q.18. When will the CFPB issue more detailed guidance to its
regulated entities on forbearance and loss mitigation?
A.18. The Bureau, along with other regulators, released
guidance\1\ publicly over the past few weeks to financial
institutions, lenders, and creditors encouraging them to work
constructively with borrowers and customers affected by COVID-
19. In addition, the Bureau, along with other regulators,
released guidance on forbearance and loss mitigation.\2\
---------------------------------------------------------------------------
\1\ See https://www.consumerfinance.gov/about-us/newsroom/agencies-
provide-additional-information-encourage-financial-institutions-work-
borrowers-affected-covid-19/, https://www.con-
sumerfinance.gov/about-us/newsroom/cfpb-provides-flexibility-during-
covid-19-pandemic/, and https://www.consumerfinance.gov/about-us/
newsroom/federal-agencies-encourage-banks-savings-associations-credit-
unions-to-offer-responsible-small-dollar-loans-consumers-small-
businesses-affected-covid-19/.
\2\ See https://www.consumerfinance.gov/about-us/newsroom/federal-
agencies-encourage-mort-
gage-servicers-work-struggling-homeowners-affected-covid-19/.
Q.19. Will the CFPB impose any affirmative obligations on its
regulated entities to assist borrowers during and in the wake
---------------------------------------------------------------------------
of the crisis? If so, please explain. If not, why not?
A.19. The Bureau, along with other regulators, released
guidance\3\ publicly over the past few weeks to financial
institutions, lenders, and creditors encouraging them to work
constructively with borrowers and customers affected by COVID-
19. The Bureau is considering issuing more guidance to assist
borrowers.
---------------------------------------------------------------------------
\3\ See https://www.consumerfinance.gov/about-us/newsroom/agencies-
provide-additional-infor
-mation-encourage-financial-institutions-work-borrowers-affected-covid-
19/, https://www.consu-
merfinance.gov/about-us/newsroom/cfpb-provides-flexibility-during-
covid-19-pandemic/, https://www.consumerfinance.gov/about-us/newsroom/
federal-agencies-encourage-banks-savings-associations-credit-unions-to-
offer-responsible-small-dollar-loans-consumers-small-businesses-
affected-covid-19/, and https://www.consumerfinance.gov/about-us/
newsroom/federal-agencies-encourage-mortgage-servicers-work-struggling-
homeowners-affected-covid-19/
Q.20. What steps is the CFPB taking to minimize predatory
---------------------------------------------------------------------------
lending during the pandemic?
A.20. The Bureau continues to employ its tools of education,
regulation (including guidance), supervision, and enforcement
aggressively to address the impacts of the pandemic on
consumers in the consumer finance marketplace. As U.S.
consumers confront the spread of the COVID-19 pandemic, many
are struggling with its economic impact. The virus, and the
necessary actions to combat it, have affected the U.S. economy,
and therefore U.S. consumers, profoundly. Using market
monitoring, stakeholder engagement, law enforcement
partnerships, our complaint system, and our aforementioned
tools, we are seeking to prevent consumer harm and acting on
issues of concern as they arise, including any instances of
predatory lending. The Bureau does not comment on nonpublic
supervisory or enforcement matters.
Q.21. Is the CFPB taking any steps to assess the adequacy and
appropriateness of its loss mitigation rules under RESPA during
the pandemic? Has the CFPB, for example, evaluated whether the
timeframes for borrowers to submit documents are reasonable
during a pandemic?
A.21. The Bureau has received questions about the loss
mitigation provisions and has taken steps already to provide
guidance on these issues.
On March 9, 2020, the Bureau, with its interagency
partners, issued a press release encouraging financial
institutions to work constructively with borrowers and other
customers affected by COVID-19. The Bureau has existing
regulatory flexibilities on our mortgage servicing rules that
should make it easier for mortgage servicers to quickly offer
short-term help (such as forbearance) to homeowners who may
start to have trouble making their mortgage payments.\4\ We
know consumers' first stop in the face of hardship is with
their creditors and their financial institutions, so our
message was important for regulated entities to hear. We also
know many financial institutions want to help customers
navigate this situation. We will continue to work with our
Federal and State partners, and seek feedback from
stakeholders, to ensure we are providing appropriate
flexibilities to benefit consumers during this time.
---------------------------------------------------------------------------
\4\ See https://files.consumerfinance.gov/f/documents/
bcfp_statement-on-supervisory-practices
_disaster-emergency.pdf.
---------------------------------------------------------------------------
On March 18, 2020, I issued a statement after the U.S.
Department of Housing and Urban Development (HUD) and the
Federal Housing Finance Agency (FHFA) announced a moratorium on
foreclosures and evictions.\5\ In the statement, I noted that
actions taken by HUD and FHFA are timely and an important step
in providing assurance to consumers.
---------------------------------------------------------------------------
\5\ See https://www.consumerfinance.gov/about-us/newsroom/cfpb-
director-kraninger-statement-joint-hud-fhfa-announcement-foreclosure-
and-eviction-moratorium/.
---------------------------------------------------------------------------
On March 22, 2020, the Bureau, the Federal financial
institution regulatory agencies, and the State banking
regulators issued an interagency statement encouraging
financial institutions to work constructively with borrowers
affected by COVID-19 and providing additional information
regarding loan modifications.\6\
---------------------------------------------------------------------------
\6\ See https://www.consumerfinance.gov/about-us/newsroom/agencies-
provide-additional-in-
formation-encourage-financial-institutions-work-borrowers-affected-
covid-19/.
---------------------------------------------------------------------------
Finally, on April 3, 2020, the Bureau, the Federal
financial institution regulatory agencies and the State
financial regulators issued a joint policy statement providing
needed regulatory flexibility to enable mortgage servicers to
work with struggling consumers affected by the COVID-19
emergency.\7\
---------------------------------------------------------------------------
\7\ See https://www.consumerfinance.gov/about-us/newsroom/federal-
agencies-encourage-mort
gage-servicers-work-struggling-homeowners-affected-covid-19/.
---------------------------------------------------------------------------
The Bureau is continuing to monitor the impact of COVID-19
and will issue additional information and guidance, as
warranted. Regularly checking our website:
www.consumerfinance.gov/corona-
virus will ensure that you have the most recent information
that the Bureau has posted.
Q.22. How is the CFPB planning to conduct examinations given
limitations on examiners being able to go onsite to examined
institutions?
A.22. Despite the unprecedented nationwide disruptions being
caused by COVID-19, the Bureau is continuing to perform
examinations and other supervisory work, but we are doing that
important work remotely for the time being. Our examiners are
conducting supervisory activities from their home-duty stations
by leveraging technology and adjusting work as necessary. We
also remain in close contact with our sister Federal and State
regulatory agencies as we continue to ensure consumers are
protected, coordinating across regulatory jurisdictions.
Q.23. What are the CFPB's plans to examine financial
institutions if the Coronavirus pandemic restricts examiners
for going onsite for more than 2 months, 6 months, 12 months?
A.23. While we have adjusted our work in the short term to
accommodate offsite examinations, we are planning for multiple
contingencies in the event that health and safety concerns
dictate that we continue to conduct examination work from
alternate locations for a longer term. We will continue to be
in close contact with other Federal and State regulatory
agencies, as well as with our supervised entities, to ensure
that we continue to protect consumers through our supervisory
work while working to ensure the health and safety of our
remote examination staff and employees of our supervised
institutions. As we conduct our supervisory work, we will
consider the circumstances that supervised entities are facing
and will be sensitive to ensuring those entities focus good-
faith efforts to assist consumers, particularly those in need
during the pandemic.
Chanin
On March 3, 2020, the Bureau announced that Director
Kraninger had selected Leonard Chanin to serve as Acting Deputy
Director. Mr. Chanin will serve part time in this position
while he remains Deputy to FDIC Director McWilliams. Prior to
joining the FDIC in March 2019, Mr. Chanin was the Deputy
General Counsel and Senior Vice President at Fifth Third Bank
since March 2017.
The Bureau filed suit against Fifth Third Bank on March 9,
2020, alleging that it had opened unauthorized bank and credit
card accounts for consumers from 2008 through ``at least
2016.'' The lawsuit does not foreclose that the alleged illegal
activity occurred in 2017.
As Deputy General Counsel and Senior Vice President at
Fifth Third Bank beginning in March 2017, Mr. Chanin either
worked at the bank while it was still engaged in alleged
illegal activity or would have known about the prior alleged
illegal activity and participated in defending Fifth Third Bank
from the Bureau's investigation.
Q.24. Did the Bureau provide a waiver of Federal ethics law to
Mr. Chanin. If so, please state whether the waivers are under:
L18 U.S.C. Sec. 280(b)(1);
L18 U.S.C. Sec. 208(b)(3);
LExecutive Order 13770;
LAn authorization under 5 C.F.R. Sec. 2635.502(d);
or
LOther.
A.24. No. The Bureau has not issued any waivers of Federal
ethics law to Mr. Chanin. Currently, Mr. Chanin is recusing
himself from participating in particular matters involving
specific parties in which Fifth Third Bank is a party at the
Bureau.
------
RESPONSES TO WRITTEN QUESTIONS OF SENATOR REED FROM KATHLEEN L.
KRANINGER
The Memorandum of Understanding (MOU) the Consumer
Financial Protection Bureau (CFPB) recently signed with the
Department of Education regarding student loan borrower
complaints includes the following provision:
For complaints regarding private loans with Federal
consumer financial law issues, the Bureau is responsible for
attempting to resolve informally such complaints, in accordance
with 12 U.S.C. Sec. S535(c)(l), and as appropriate, will
discuss issues with ED regarding products offered by, or on the
premises of, Institutions of Higher Education or other issues
that may impact Federal programs overseen by ED.
Q.1.a. Will CFPB be working with the Department of Education to
review and analyze the Tier 1 and Tier 2 financial agreements
between institutions of higher education and financial service
providers and identify those having higher than average fees,
such as the previous finding for Wells Fargo, for violating the
requirement that they be ``not inconsistent with the best
financial interests of students''?
A.1.a. The complaints MOU provides a mechanism for the Bureau
and the Department of Education to discuss and collaborate on a
variety of issues related to complaints, and the attempted
resolution of complaints, within their respective roles and
responsibilities. The MOU contemplates discussion and
collaboration regarding products offered on college campuses
which includes those products offered under Tier 1 and Tier 2
agreements.
Tier 1 agreements are between colleges and a third-party
servicer under which the servicer performs one or more of the
functions associated with processing direct payments of Title
IV funds on behalf of the college, and offers one or more
financial accounts under the arrangement, or where the college
or third-party servicer directly communicates information about
the account to students. Tier 2 agreements are 1) between a
college and a vendor that offers financial accounts through a
financial institution and 2) under which financial accounts are
offered and marketed directly to students.
The Credit Card Accountability Responsibility and
Disclosure Act (CARD Act) mandates annual reporting on college
credit card agreements. The Bureau's reports have complied with
the requirements of the CARD Act regarding reporting on college
credit card agreements and will continue to do so.
Additionally, the Bureau is committed to vigorously monitoring
financial markets which impact students. Whenever the Bureau's
market monitoring efforts uncover harm or risk of harm, the
Bureau employs its most effective tool or tools, including
education, regulation, supervision, and enforcement, to
mitigate or remediate those harms and risks.
Q.1.b. Will CFPB make such analysis available to the public?
A.1.b. In meeting its mission, the Bureau is committed to
transparency and public discourse. In the abstract, it is
challenging to commit to making analysis available. However,
through mechanisms such as the CARD Act reporting referenced in
the response to question 1.a., the Private Education Loan
Ombudsman's annual report, our research efforts, our
Supervisory Highlights, and my testimony, the Bureau provides
extensive information to the public and will continue to do so.
------
RESPONSES TO WRITTEN QUESTIONS OF SENATOR TOOMEY FROM KATHLEEN
L. KRANINGER
Q.1. Director Kranginger, I appreciate that the CFPB signed a
joint statement on the coronavirus with other banking
regulators that promised to ``provide appropriate regulatory
assistance to affected institutions subject to their
supervision.'' The statement also noted that ``[p]rudent
efforts [to help borrowers impacted by the coronavirus] that
are consistent with safe and sound lending practices should not
be subject to examiner criticism.'' How does the CFPB intend to
implement this regulatory and supervisory flexibility? Does the
CFPB intend to provide any more concrete details about these
flexibilities to regulated entitites?
A.1. The Bureau, along with other regulators, released
guidance\1\ publicly over the past few weeks to financial
institutions, lenders, and creditors encouraging them to work
constructively with borrowers and customers affected by COVID-
19. This guidance emphasizes that prudent efforts to modify the
terms on existing loans for affected customers will not be
subject to examiner criticism. For example, when appropriate, a
financial institution may restructure a borrower's debt
obligations due to temporary hardships resulting from COVID-19
related issues. Such cooperative efforts can ease cash-flow
pressures on affected borrowers, improve their capacity to
service debt, and facilitate the financial institution's
ability to collect on its loans. The Bureau's guidance also
provides temporary and targeted flexibility for financial
institutions to apply their resources to consumers' most urgent
needs by deferring less urgent regulatory obligations. The
Bureau continues to consider what guidance it can issue to
regulated entities that will help consumers through this time
and has issued guidance on myriad topics, including compliance
with the assistance provided under the CARES Act.
---------------------------------------------------------------------------
\1\ See https://www.consumerfinance.gov/about-us/newsroom/agencies-
provide-additional-information-encourage-financial-institutions-work-
borrowers-affected-covid-19/, https://www.con-
sumerfinance.gov/about-us/newsroom/cfpb-provides-flexibility-during-
covid-19-pandemic/, https://www.consumerfinance.gov/about-us/newsroom/
federal-agencies-encourage-banks-savings-associations-credit-unions-to-
offer-responsible-small-dollar-loans-consumers-small-businesses-
affected-covid-19/ and https://www.consumerfinance.gov/about-us/
newsroom/federal-agencies-encourage-mortgage-servicers-work-struggling-
homeowners-affected-covid-19/.
---------------------------------------------------------------------------
The Bureau has also provided flexibility with respect to
certain reporting requirements, comment submissions, and data
collections, preferring that institutions focus their resources
on accommodating consumers in need. Specifically, the Bureau
extended the comment period on its Supplemental Notice of
Proposed Rulemaking implementing the FDCPA to June 5, 2020. The
Bureau also announced on March 26, 2020, that:
a. LUntil further notice the Bureau does not intend to cite
in an examination or initiate an enforcement action
against any institution for failure to report its HMDA
data quarterly;
b. LUntil further notice the Bureau does not intend to cite
in an examination or initiate an enforcement action
against any entity for failure to submit to the Bureau
certain information relating to credit card and prepaid
accounts; and
c. LThe Bureau will work with affected financial institutions
in scheduling examinations and other supervisory
activities to minimize disruption and burden.
Furthermore, the Bureau continues to work closely with other
financial regulators and has issued additional joint statements
with them, including the Joint Statement Encouraging
Responsible Small-Dollar Lending in Response to COVID-19 on
March 26, 2020.\2\ The Bureau anticipates making additional
statements and taking further action as appropriate in the
coming days and weeks.
---------------------------------------------------------------------------
\2\ https://www.consumerfinance.gov/about-us/newsroom/federal-
agencies-encourage-banks-savings-associations-credit-unions-to-offer-
responsible-small-dollar-loans-consumers-small-businesses-affected-
covid-19/.
---------------------------------------------------------------------------
The Bureau also provided concrete details about regulatory
and supervisory flexibility in its September 2018 Statement on
Supervisory Practices Regarding Financial Institutions and
Consumers Affected by a Major Disaster or Emergency.\3\ In that
statement, the Bureau noted a few examples from Regulation B,
Regulation X, and Regulation Z where supervised entities can
make use of existing regulatory flexibility where doing so will
benefit consumers affected by a major emergency. For example,
the Bureau noted regulatory flexibility in Regulation X that
permits servicers to offer relief to borrowers affected by a
major disaster or emergency without first having to collect a
complete loss mitigation application. The Bureau also noted in
that statement that ``when conducting examinations and other
supervisory activities, the Bureau will consider the
circumstances that supervised entities may face following a
major disaster or emergency and will be sensitive to good-faith
efforts to assist consumers.'' The Bureau's 2018 statement
remains applicable to the current pandemic.
---------------------------------------------------------------------------
\3\ https://files.consumerfinance.gov/f/documents/bcfp_statement-
on-supervisory-practices
_disaster-emergency.pdf.
---------------------------------------------------------------------------
At the same time, the Bureau has focused its efforts on
being a resource to consumers with accurate, timely information
regarding their rights and expectations in the consumer
financial marketplace during this challenging time. We have
made resources available in multiple formats and languages,
including emphasizing the continued availability of the
complaint database for consumers who encounter issues. The
Bureau also continues to employ its supervision and enforcement
tools to enforce compliance.
Q.2. Director Kraninger, I'd like to continue our discussion
about the definition of abusive practices under Section 1031 of
Dodd-Frank, which we discussed when you were in front of this
Committee last October. I appreciate your leadership in
directing the CFPB to release clarifying guidance on the
definition of ``abusive'' under Section 1031. This guidance
does not and should not impose a legally binding requirement on
the public.
Q.2.a. Does the CFPB intend for the guidance to be a standard
for all new lawsuits filed after the guidance's January 24,
2020, issuance?
A.2.a. The Policy Statement describes certain aspects of how
the Bureau intends to approach its use of the abusiveness
standard in its supervision and enforcement matters going
forward. In issuing this Policy Statement, however, the Bureau
does not foreclose the possibility of engaging in a future
rulemaking to further define the abusiveness standard.
Q.2.b. Last month you told the House Financial Services
Committee that the CFPB would not amend any court filings where
the CFPB is prosecuting under Section 1031's abusive practices
prong, despite this new guidance. I'm confused by this because
it seems to contradict footnote 21 of the new guidance, which
clarifies that the CFPB may re-evaluate currently pending cases
in light of this guidance and that the CFPB generally intends
to ``take this Policy Statement into account when seeking
monetary relief in pending cases asserting abusiveness
claims.'' How can the CFPB prosecute cases that do not conform
to the CFPB's current definition of abusive?
A.2.b. The Bureau does not intend to amend any Bureau filings
that pre-dated the Policy Statement based on the Policy
Statement. In general, however, the Bureau intends to take this
Policy Statement into account when seeking monetary relief--
specifically civil money penalties and disgorgement--in pending
cases asserting abusiveness claims. This is consistent with the
approach set forth in the Policy Statement.
Q.2.c. Regarding enforcement actions, you said in an April 2019
speech that you were reviewing the CFPB's enforcement process
to reduce rulemaking by enforcement and ensure a more fair and
effective process. Have you completed this review and
particularly re-evaluated pending enforcement cases given that
review?
A.2.c. The decision to bring an enforcement action or to settle
an enforcement action is one I make as the Director of the
Bureau. I take this responsibility seriously and have
thoroughly reviewed the recommendations brought to me. Given
relatively new leadership within the Supervision, Enforcement
and Fair Lending Division and the Office of Enforcement, we
continue to refine our processes to ensure we are moving
expeditiously to bring bad actors to justice and applying the
appropriate tool choice to address a market issue we identify--
whether that is education, regulation, supervision, or
enforcement. To your point, because rules are general
standards, they are not best articulated on a case-by-case
basis through enforcement actions. To the extent the Bureau
engaged in that practice in the past, that does not occur
today.
Q.3. I have long advocated for the regulatory agencies to use
guidance documents properly. I led the effort to invalidate the
CFPB's Indirect Auto Lending Guidance using the Congressional
Review Act. This effort was necessitated because the CFPB
violated requirements under this Act when it issued its
guidance. More broadly, agencies should never sidestep the
APA's notice and comment rulemaking process by issuing guidance
that imposes legally binding requirements on the public.
Unfortunately, Director Cordray seemed to be inclined to follow
this approach. The CFPB still has many guidance documents from
Director Cordray's tenure in effect, including those that cover
credit cards, debt collection practices, and compliance under
the Real Estate Settlement Practices Act. Has the CFPB reviewed
all of this previously issued guidance to ensure that they do
not impose any legally binding obligations to the public and
are consistent with your philosophy on consumer financial
protection? If so, what was the result of that review? If not,
does the CFPB plan to do so?
A.3. Unlike a law or regulation, a guidance document does not
have the force and effect of law and the Bureau agrees that
guidance should not impose legally binding requirements on the
public. The Bureau has reviewed and will continue to review its
guidance documents to ensure that the documents do not purport
to impose legally binding requirements on the public. Through a
recently issued Policy Statement on Compliance Aids, the Bureau
has tried to publicly clarify its approach to certain guidance
documents, including through explaining the legal status and
role of such documents. The Bureau is currently considering a
number of issues related to its guidance documents, including
the review of past guidance to determine, among other things,
which documents might fall under the Bureau's new Compliance
Aids policy.
Q.4. Director Kraninger, my understanding is that the CFPB
intends to issue a rulemaking to implement Section 1071 of
Dodd-Frank, which generally requires financial institutions to
collect and compile demographic data and other information on
small business lending.
I'm very concerned about this requirement. The CFPB should
be a consumer bureau, not a business bureau, and this
requirement could prove to be unwieldy for small financial
institutions.
Q.4.a. At your confirmation hearing, you promised me that you
would explore invoking your authority under Section 1071 of
Dodd-Frank to exempt certain financial institutions from this
requirement. Is the CFPB seriously exploring invoking this
authority in the rulemaking? For example, while I am skeptical
of arbitrary asset thresholds, exempting all small financial
institutions with less than $1 billion in assets from this
requirement would help 85 percent of banks and thrifts. The
exemption would, however, only impact 10 percent of the number
of small business loans.
A.4.a. As part of its rulemaking process, the Bureau is
exploring potential ways to implement section 1071 in a
balanced manner with a goal of obtaining and publishing small
business lending data that achieves the statutory objectives
without unnecessarily affecting the cost or availability of
credit to small businesses and while minimizing burden and
unintended consequences on financial institutions and small
businesses.
Section 1071 authorizes the Bureau to adopt exceptions to
any requirement in 1071, and to ``conditionally or
unconditionally [ . . . ] exempt any financial institution or
class of financial institutions from the requirements'' of
1071, as the Bureau deems ``necessary or appropriate to carry
out the purposes of this section.'' The Bureau continues to
explore what it should consider in making this determination.
For example, one of the topics the Bureau explored in the
symposium it held in November 2019 regarding section 1071 is
whether exempting certain financial institutions, such as
smaller lenders, would further or diminish the statutory
purposes of 1071.
The Bureau's November 2019 symposium also explored how to
efficiently collect appropriate data without imposing
unnecessary or undue costs that could limit access to credit
from existing market participants or discourage new entrants
into the market for small business credit.
The next step in the Bureau's rulemaking process will be
the release of materials in advance of convening a panel under
the Small Business Regulatory Enforcement Fairness Act, in
conjunction with the Office of Management and Budget and the
Small Business Administration's Chief Counsel for Advocacy.
These materials will describe how the Bureau is considering
implementing section 1071, discuss other alternatives the
Bureau has considered, and identify the potential impact that
the proposals under consideration might have on small entities.
The information and feedback obtained during the Small Business
Regulatory Enforcement Fairness Act process will help inform
the Bureau's policymaking leading to a notice of proposed
rulemaking.
Q.4.b. Section 1071 permits but does not require the CFPB to
collect ``any additional data the Bureau deems appropriate,''
beyond the statutorily required data points. Given that
collecting additional data could be costly for small financial
institutions and could introduce new privacy concerns, can you
promise to me that the CFPB will not use this authority to
require the collection of any additional data points?
A.4.b. The Bureau is not prejudging the outcome of its
rulemaking. As part of its rulemaking process, the Bureau is
exploring potential ways to implement section 1071 in a
balanced manner with a goal of obtaining and publishing small
business lending data that achieves the statutory objectives
without unnecessarily affecting the cost or availability of
credit to small businesses and while minimizing burden and
unintended consequences on financial institutions and small
businesses.
------
RESPONSES TO WRITTEN QUESTIONS OF SENATOR TILLIS FROM KATHLEEN
L. KRANINGER
Q.1. In 2015, under Director Cordray's leadership, the Bureau
issued guidance (Compliance Bulletin 2015-05) related to
marketing service agreements (MSAs). MSAs are currently subject
to statutory restrictions already in place under the Real
Estate Settlements Procedures Act (RESPA) and additional
regulatory restrictions under Regulation X. The Bureau's 2015
MSA guidance presented a new interpretation of RESPA to caution
against MSAs altogether. Under Director Cordray, the Bureau
then brought enforcement actions utilizing this new guidance.
In 2018, the U.S. Court of Appeals for the D.C. Circuit
unanimously overturned then-Director Cordray's new
interpretation of RESPA. In PHH Corp. v. CFPB, the DC Circuit
ruled that the Bureau's new interpretation ``is a facially
nonsensical reading of Regulation X.''
Q.1.a. Director Kraninger, how does the Bureau intend to move
forward with the MSA guidance?
A.1.a. In its 2015-05 Compliance Bulletin, the Bureau noted
that it appeared, based on the Bureau's investigative efforts,
that many mortgage service agreements (MSAs) ``are designed to
evade RESPA's prohibition on the payment and acceptance of
kickbacks and referral fees.'' The Bureau is open to hearing
concerns about the Bulletin and will consider whether any
action should be taken to better clarify existing RESPA
obligations.
Q.1.b. Is the Bureau using the guidance in any supervisory or
enforcement programs at present time?
A.1.b. The Bureau considers the guidance in a manner consistent
with the Policy Statement on Supervisory Guidance issued in
2018.
Q.2. Third-party litigation financing (TPLF) is private
investment in civil litigation in exchange for a portion of a
settlement or judgment or some agreed value above the amount
loaned to a claimant. Despite growth in recent years, this
industry has largely operated in the shadows as Federal and
State officials have largely declined to regulate or
investigate TPLF.
Q.2.a. Is the Bureau currently working to identify and
investigate other investors and law firms that may be
exploiting vulnerable consumers through litigation financing?
A.2.a. The Bureau cannot comment on any specific matter because
the Bureau does not comment publicly on confidential
enforcement investigations or litigation. The Bureau's purpose
is to ensure all consumers have access to markets for consumer
financial products and services and that such markets are fair,
transparent, and competitive.
Q.3. The Bureau has explored changes to the collecting and
reporting of data pursuant to the Home Mortgage Disclosure Act
(HMDA) Rule--including amendments to the reporting thresholds
and decreasing the total HMDA data set.
How is the Bureau ensuring this relief for small financial
institutions reaches those entities?
A.3. The Bureau's recent final rule that permanently increases
the thresholds for collecting and reporting data on closed-end
mortgage loans and open-end lines of credit, respectively, will
relieve a large number of smaller financial institutions of
their obligations under HMDA. The Bureau issued an Advance
Notice of Proposed Rulemaking in May 2019 seeking information
on data collection and
reporting requirements to ensure that the data requirements
established in the 2015 HMDA Rule appropriately balance the
benefits and burdens associated with data reporting. The Bureau
is carefully considering the public's input as it determines
whether to
formulate a proposed rule relating to changing any of the data
collection and reporting requirements. This consideration will
also take into account the relief from collecting most of the
new data points that some institutions received through the
Economic Growth, Regulatory Relief, and Consumer Protection Act
(EGRRCPA). The Bureau intends to release a proposed rule late
this summer to follow up on the May 2019 Advanced Notice of
Proposed Rulemaking related to certain data points that are
reported under the 2015 HMDA Rule and coverage of certain
business- or commercial-purpose loans.
Q.4. The Bureau's debt collection proposal would create the
first substantive rule implementing the FDCPA in the law's 40-
plus years in existence.
Q.4.a. Is the Bureau aware of the impact the rule may have on
collectors?
A.4.a. As part of the May 2019 NPRM, the Bureau considered the
proposal's potential benefits, costs, and impacts. The proposal
would further the FDCPA's goals of eliminating abusive debt
collection practices and ensuring that debt collectors who
refrain from such practices are not competitively
disadvantaged. The proposed rule would also benefit both
consumers and debt collectors by increasing clarity and
certainty about what the FDCPA prohibits and requires. As noted
in the preamble, to better understand potential effects of the
proposed rule on industry, the Bureau engaged in significant
outreach to industry, including a survey of debt collection
operations (https://www.consumerfinance.gov/documents/755/20
160727_cfpb_Third_Party_Debt_Collection_Operations_ Study.pdf).
In July 2016, the Bureau consulted with small entities as part
of the Small Business Enforcement and Regulatory Fairness Act
process and obtained important information on the potential
impacts of proposals that the Bureau was considering at the
time, many of which are included in the proposed rule.
As discussed in the preamble, the proposed rule would
affect many aspects of debt collector operations, including the
way debt collectors communicate with consumers, and the
potential impacts of the proposed provisions are likely to
interact with each other. The Bureau received many comments
from the public, including from debt collectors, about likely
impacts on debt collectors and it is carefully considering
these comments as it moves forward with the rulemaking process.
Q.4.b. I appreciate that the Bureau is reviewing regulations
and analyzing ways it can relieve regulatory burden for smaller
and less complex financial institutions such as credit unions.
What efforts is the Bureau taking in the next year to review
regulations for these less complex institutions?
A.4.b. In March 2018, the Bureau released two requests for
information (RFIs) requesting comments on the Bureau's
inherited and adopted rules, which included, among other
things, our plans for reviewing our regulations. The comments,
including comments from associations representing community
banks and credit unions, has informed how the Bureau has set
priorities for rulemakings.
Moreover, the Bureau has taken steps to identify and
address outdated, unnecessary, or unduly burdensome regulations
on industry, including on small and less complex financial
institutions such as credit unions:
LIn FY 2019, the Bureau published reports of
assessments of the Remittance Rule, the ATR-QM Rule,
and the 2013 RESPA Servicing Rules. The reports
discussed our findings on the effects of the rules on
community banks and credit unions.
LIn FY 2020, the Bureau conducted a review of its
overdraft rule under RFA section 610, which requires
agencies to consider the effects of the rule on small
entities. The Bureau will announce the outcome of the
review in the Spring 2020 Unified Agenda.
LIn FY 2021, the Bureau plans to complete a review
of its credit card rules' effects on small credit card
issuers under RFA section 610.
LThe Bureau has also taken actions to implement
provisions of EGRRCPA that provide regulatory relief to
community banks and credit unions.
The Bureau has also engaged in rulemaking with the
objective of reducing unwarranted regulatory burdens:
LIn October 2019, the Bureau issued a final rule to
adjust the thresholds for reporting HMDA that provides
temporary relief to small lenders. The Bureau also
announced plans in the Fall 2019 Unified Agenda to
issue a final rule to address proposed increases to the
permanent thresholds for collecting and reporting data
on open-end lines of credit and closed-end mortgage
loans in 2020.
LIn December 2019, the Bureau issued a Notice of
Proposed Rulemaking to amend the Bureau's Remittance
Rule. One of the amendments would in effect exempt 400
more community banks and almost 200 more credit unions
from the rule.
Q.5. Congress contemplated the need for exemptions to certain
Bureau rules and crafted the Dodd-Frank Act to authorize the
Bureau to tailor its rules so those acting responsibly--like
credit unions and other community-based financial
institutions--are not negatively impacted by rules addressing
the behavior of others.
Q.5.a. What is the Bureau's current perspective on its
exemption authority under the Dodd-Frank Act?
A.5.a. The Bureau will use its exemption authority when doing
so advances the Bureau's overall objectives as expressed in
section 1021 of the Consumer Financial Protection Act.
Q.5.b. Has there been a productive dialogue between NCUA and
the Bureau on issues like small dollar lending and consumer
protection examinations?
A.5.b. Yes, the Bureau and NCUA coordinate frequently on our
priorities and activities. In a recent example on small dollar
lending, on Thursday, March 26, 2020, the Bureau joined the
NCUA and other Federal financial regulatory agencies in a joint
statement to encourage banks, savings institutions, and credit
unions to offer small-dollar loans to consumers and small
businesses affected by the COVID-19 coronavirus.\1\ In
addition, given the Bureau's supervisory authority over insured
credit unions (as defined in 12 U.S.C. 1752) with more than $10
billion in total assets and any affiliate thereof, supervision
staff and management coordinate regularly with their
counterparts at NCUA to share information about these credit
unions.
---------------------------------------------------------------------------
\1\ See https://www.consumerfinance.gov/about-us/newsroom/federal-
agencies-encourage-banks
-savings-associations-credit-unions-to-offer-responsible-small-dollar-
loans-consumers-small-businesses-affected-covid-19/.
Q.6. The Bureau seems to pride itself on being a modern, data-
driven Government agency. It's clear that a critical part of
that effort is ensuring rulemakings are always grounded in
sufficient evidence and research--including cost-benefit
analysis. The Bureau has recently established an office for
this very purpose.
How does the Bureau plan to integrate meaningful cost and
benefit analysis into its rulemakings going forward?
A.6. I am committed to ensuring that the Bureau's cost benefit
analyses are rigorous and robust and that the Bureau carefully
considers the regulatory burden of any proposed or final rule.
Before issuing any legislative rule, the Bureau is required by
section 1022(b)(2)(A) of the Dodd-Frank Wall Street Reform and
Consumer Protection Act (Dodd-Frank Act) to consider the
benefits and costs to consumers and to providers of consumer
financial products or services, including the potential
reduction of access by consumers, impacts on small depository
institutions, and the effect on consumers in rural areas. In
addition, if a proposed rule will have a significant impact on
a substantial number of small entities, the Bureau is required
under the Small Business Enforcement and Regulatory Fairness
Act to convene a panel to confer with a group of small entity
representatives. The Bureau's Office of Research continues to
conduct cost-benefit analysis for rulemakings. Furthermore,
section 1022(d) of the Dodd-Frank Act uniquely requires the
Bureau to assess the effectiveness of its significant rules,
reflecting available evidence and data, within 5 years of such
rule's effective date. The Bureau is committed to robust
assessment of its rules and is considering the necessary data
collection in the rule development process to support later
assessments.
------
RESPONSES TO WRITTEN QUESTIONS OF SENATOR MENENDEZ FROM
KATHLEEN L. KRANINGER
Q.1. Director Kraninger, in response to a question I asked you
regarding the CFPB's oversight of Federal student loan
servicers, you stated that the CFPB would conduct a joint
examination this month with the Department of Education.
Q.1.a. Will these examinations be conducted by the CFPB staff
reporting up the chain of command at the CFPB, or will they be
conducted by detailees reporting to the Department of
Education?
A.1.a. The Bureau is currently conducting an examination at a
student loan servicer that includes review of Federal Direct
Loans and federally held Federal Family Education Loan Program
(FFELP) loans. This examination is being conducted in
coordination with the Department of Education's own
examinations of these servicers for compliance with their
programmatic requirements. The Bureau
examiners are conducting this work under the supervision and
direction of managers and executives of the Bureau. In
addition, to further development of a coordinated examination
process, the Bureau has offered to detail two staff members to
the Department of Education. The detailee(s) will be working on
a coordinated examination process and supporting the Department
in building out its contract management oversight capabilities
to the extent that they want to use Bureau examination
techniques as a model. As in any detail, the detailee(s) will
be working under the day-to-day supervision and direction of
managers at the Department of Education. However, the
detailee(s) will also report to the Bureau through the Office
of Supervision Policy to ensure that the Bureau's mission needs
are met. This is separate from the ongoing supervisory event
which is being conducted. Due to the pandemic crisis, the
details have not yet been executed.
Q.1.b. Will the CFPB have full discretion over which loan
servicers to examine and the scope of these examinations?
A.1.b. The Bureau recognizes the public interest in the conduct
of the current examination. However, the level of information
provided in response to this question does not set a precedent
regarding what may be determined in the future as confidential
supervisory information.
In the examination that is ongoing, the Bureau coordinated
with the Department of Education on the requests for
information. Information from the subject servicer is being
transmitted directly to the Bureau as well as to the Department
of Education. However, this examination may not be the model
for future events.
Q.1.c. Will the CFPB have unrestricted access to all data and
loan information while conducting examinations?
A.1.c. Please see the response to question 1.b.
Q.1.d. Will the CFPB have sole authority over the findings and
content of examination reports based on these examinations?
A.1.d. The Bureau will maintain the integrity of the
supervisory process and will issue the findings it determines
appropriate.
Q.2. You have previously testified that the CFPB is working
with the Department of Education to reestablish the Memorandum
of Understanding rescinded by Secretary DeVos over 2 years ago
that allowed for CFPB to conduct its own supervisory
examinations and fulfill its statutory oversight obligations.
Q.2.a. What is the current status of this Memorandum of
Understanding?
A.2.a. Please see the response to question 1.a. At this time,
the Bureau and the Department of Education have not determined
whether establishing the process will require an MOU.
Q.2.b. Does reestablishing the MOU remain a priority for the
CFPB, despite your statement that you would be resuming
supervisory examinations of Federal student loan servicers this
month?
A.2.b. The Bureau is committed to carrying out its supervisory
authorities consistent with its risk prioritization and will
take appropriate action to do so.
Q.3. Debt collector abuses consistently rank as a top issue
reported to the CFPB's public Consumer Complaint Database. Yet,
the proposed rule the CFPB issued in 2019 contains no
requirement that a debt collector have original documentation
or other information to substantiate that the debt they are
attempting to collect is legitimately owed by the consumer they
are contacting. The rule also weakens protections for consumers
whose debts are no longer enforceable under State or Federal
law.
Q.3.a. The FTC filed comments on your proposed debt collection
rule stating that the FTC and courts have said that ``it is a
violation of the FDCPA for a debt collector . . . to file an
action in court to collect on a time-barred debt'' and also
that it is ``likewise a clear violation of the FDCPA to
threaten to file such an action.'' You instead have proposed to
inject a state of mind element that would bar lawsuits or
threats only if the collector ``knows or should know'' that the
legal deadline has passed. What is your response to the FTC's
question whether ``requiring a showing that the debt collector
knew or should have known the debt was time-barred places
unnecessary additional burdens on law enforcement agencies?''
A.3.a. The Bureau's May 2019 NPRM proposed to prohibit a debt
collector from bringing or threatening to bring a legal action
against a consumer to collect a debt that the debt collector
knows or should know is a time-barred debt. In proposing the
``know or should know'' standard, the Bureau noted that, in
many cases, a debt collector will know, or can readily
determine, whether the statute of limitations has expired. In
some instances, however, a debt collector may be genuinely
uncertain even after undertaking a reasonable investigation;
this could occur, for example, when the case law in a State is
unclear as to which statute of limitations applies to a
particular type of debt. In response to the May 2019 NPRM, the
Bureau received over 14,000 comments, a significant number of
which addressed time-barred debt, including the proposed ``know
or should know'' standard. The Bureau is analyzing those
comments as part of the process of taking final action on the
May 2019 NPRM.
Q.3.b. Under what types of circumstances would the CFPB find
that a debt collector ``should'' have known that a debt was so
old it could not be pursued in court?
A.3.b. Please see the response to question 3.a.
------
RESPONSES TO WRITTEN QUESTIONS OF SENATOR WARREN FROM KATHLEEN
L. KRANINGER
Supervision and Enforcement
Q.1. In January 2020, the CFPB issued a statement of policy
regarding its use of the standard for ``abusiveness'' in its
supervision and enforcement matters.\1\ Among the changes
announced, the Bureau stated that it ``intends to focus on
citing conduct as abusive in supervision and challenging
conduct as abusive in enforcement if the Bureau concludes that
the harms to consumers from the conduct outweigh its benefits
to consumers.'' This policy substantially narrowed the
statutory language the Bureau previously cited in its
enforcement actions, which defined a practice as abusive ``if
it takes unreasonable advantage of consumers' lack of
understanding of the material risks, costs, or conditions of a
financial product or service.''
---------------------------------------------------------------------------
\1\ Consumer Financial Protection Bureau, ``Statement of Policy
Regarding Prohibition on Abusive Acts or Practices,'' January 24, 2020,
https://files.consumerfinance.gov/f/documents/cfpb_abusiveness-
enforcement-policy_statement.pdf.
Q.1.a. Will the Bureau only consider quantitative costs and
---------------------------------------------------------------------------
benefits to consumers when applying the new policy?
A.1.a. As stated in the Policy Statement, the Bureau's
consideration of the harms and benefits of the potentially
abusive conduct (i.e., its effects) on consumers can be
qualitative as well as quantitative. That is, a quantitative
analysis is not necessary for every citation or challenge to
conduct as being a violation of the abusiveness standard.
Q.1.b. If the Bureau will consider qualitative costs, how will
it evaluate whether or not the costs outweigh the benefits?
A.1.b. The Bureau intends to focus on citing conduct as abusive
in supervision or challenging conduct as abusive in enforcement
if the Bureau concludes that the harms to consumers from the
conduct outweigh its benefits to consumers. The Bureau will
evaluate whether the harms to consumers outweigh the benefits
consistent with similar considerations in the application of
unfairness.
Q.1.c. The following are two previous enforcement actions for
which the Bureau has applied the abusiveness standard but did
not explicitly evaluate the costs and benefits to consumers.
Please explain how each of these acts would be considered with
respect to the abusiveness standard under the Bureau's new
policy.
I. LOn June 17, 2015, the CFPB brought an enforcement action
against Security National Automotive Acceptance
Company, LLC.\2\ The complaint alleged that, through
their threatened and actual contacts with
servicemembers' command, SNAAC engaged in abusive acts
or practices by taking ``unreasonable advantage of
consumers' inability to protect their interests,
leveraging consumers' military status in collection of
debt.''
---------------------------------------------------------------------------
\2\ United States District Court, Southern District of Ohio,
Western Division, ``Consumer Financial Protection Bureau v. Security
National Automotive Acceptance Company, LLC,'' June, 17, 2015, https://
files.consumerfinance.gov/f/201506_cfpb_complaint-security-national-
automotive
-acceptance-company.pdf.
II. LOn November 21, 2016, the Bureau cited the abusiveness
standard in an enforcement action against Maryland
Attorney Charles Smith for his relationship with Access
Funding, a limited liability company that ``provided
advances to consumers that were to be repaid through a
deduction from the proceeds of structured-settlement
transfers once those transactions were completed.''\3\
Many of the consumers from whom Access Funding
purchased settlements ``were lead-poisoning victims
with cognitive impairments.'' Smith was paid by Access
Funding despite claiming to be an independent financial
advisor. The Bureau's complaint alleged that Smith did
not consider information about the consumers' best
interests and instead advised them ``without having any
information about the consumers' financial situations''
and ``took unreasonable advantage of consumers'
reliance on him to act in their best interests.
---------------------------------------------------------------------------
\3\ United States District Court for the District of Maryland,
Baltimore Division, ``Consumer Financial Protection Bureau v. Access
Funding, LLC, et al.'' November 21, 2016, https://
files.consumerfinance.gov/f/documents/
201611_cfpb_Access_Funding_Complaint_filed.pdf.
A.1.c. The Bureau has not conducted a backward-looking analysis
of enforcement actions to determine whether conduct addressed
as abusive in any of those actions would potentially not be the
basis of an abusiveness claim under the policy statement. There
are several examples of conduct previously addressed as
abusive, however, that likely would not be affected by the
---------------------------------------------------------------------------
policy statement.
Q.1.d. The new policy also provides that ``the Bureau generally
does not intend to seek monetary remedies for abusive acts or
practices if the covered person made a good-faith effort to
comply with the law based on a reasonable--albeit mistaken--
interpretation of the abusiveness standard.'' How will the CFPB
determine whether a covered person made a ``good-faith effort''
to comply with the law? How will the Bureau determine whether a
mistaken interpretation of the abusiveness standard is
reasonable?
A.1.d. As stated in the Policy Statement, in determining
whether a covered person made a good-faith effort to comply
with the abusiveness standard, the Bureau intends to consider
all relevant factors, including but not limited to the
considerations outlined in the Bureau's Bulletin 2013-06
regarding Responsible Business Conduct,\4\ which was referenced
in the Policy Statement. The Policy Statement indicates that a
``reasonable'' interpretation for purposes of the policy
statement is one based on the text of the abusiveness standard
set forth in the Dodd-Frank Act, as well as prior precedent and
guidance, including judicial precedent, the Bureau's
administrative decisions, rulemakings, supervisory guidance,
and past allegations of abusive acts or practices in public
enforcement actions.
---------------------------------------------------------------------------
\4\ See https://files.consumerfinance.gov/f/
201306_cfpb_bulletin_responsible-conduct.pdf. See also 12 U.S.C.
5565(c)(3)(A).
Q.1.e. Which political appointees assisted with developing this
policy? For each individual, please include exactly what part
of the policy they worked on, including their specific input in
---------------------------------------------------------------------------
the process.
A.1.e. Similar to other Bureau guidance, a number of staff
across the Bureau supported the development and review of this
Policy Statement, including appropriate line staff and senior
executives in relevant divisions. The decision to issue is mine
as Director.
Q.2. The CFPB has issued a statement on the use of alternative
data in credit underwriting with the Federal Reserve, Federal
Deposit Insurance Corporation, National Credit Union
Administration and Office of the Comptroller of the
Currency.\5\ The statement acknowledged, ``data that present
greater consumer protection risks warrant more robust
compliance management,'' including ``appropriate testing,
monitoring and controls to ensure consumer protection risks are
understood and addressed.''
---------------------------------------------------------------------------
\5\ Board of Governors of the Federal Reserve System, Consumer
Financial Protection Bureau, Federal Deposit Insurance Corporation,
National Credit Union Administration, Office of the Comptroller of the
Currency, ``Interagency Statement on the Use of Alternative Data in
Credit Underwriting,'' December 3, 2019, https://
files.consumerfinance.gov/f/documents/cfpb_
interagency-statement_alternative-data.pdf.
Q.2.a. Describe how the process and procedures under which the
Bureau, in its supervision and enforcement activities,
evaluates the use of alternative data with respect to consumer
---------------------------------------------------------------------------
protection and fair lending laws:
I. LTraditional lending models
II. LAlgorithmic lending models
A.2.a. Fair lending examinations and investigations assess
whether there is discrimination in policies and practices
governing a creditor's underwriting or pricing decisions. The
Bureau cannot comment on or confirm any supervisory activity or
investigations that may have involved these assessments.
Examination teams use the Bureau's Equal Credit Opportunity Act
(ECOA) Baseline Review examination procedures to evaluate how
supervised firms identify and manage fair lending risks under
ECOA, including fair lending risks related to models.\6\
Generally, reviews also include evaluating whether
underwriting, pricing, or other policies or procedures contain
factors (including the use of alternative data factors, if
applicable) that result in disparate treatment or could have a
disproportionately negative, unjustified impact on a prohibited
basis.
---------------------------------------------------------------------------
\6\ https://www.consumerfinance.gov/documents/4676/
cfpb_supervision-and-examination-manual_ecoa-baseline-exam-
procedures_2019-04.pdf.
Q.2.b. When evaluating the use of alternative data in an
algorithmic lending model, against what baselines does the
---------------------------------------------------------------------------
Bureau compare the outcomes of that model?
A.2.b. In its supervision and enforcement activities, the
Bureau evaluates compliance with ECOA and its implementing
regulation, Regulation B. The Bureau enforces fair lending laws
as they apply to all lenders, whether they use traditional or
nontraditional lending models. As noted above, the Bureau
cannot comment on or confirm any supervisory activity or
investigations that may have involved these assessments. In its
outreach, innovation and market monitoring activities, the
Bureau is focused on understanding the benefits and risks
associated with alternative data or modeling techniques that
may be used in the market, including whether they produce
incremental benefit or risk relative to the status quo. Such
techniques may expand access to credit for consumers who are
credit invisible or who lack enough credit history to obtain a
credit score.
Q.2.c. When evaluating the use of alternative data in a
traditional lending model, against what baselines does the
Bureau compare the outcomes of that model?
A.2.c. Please see the response to question 2.b.
Q.3. On March 6, 2020, the Bureau released additional details
regarding its proposed advisory opinion program.\7\ ``Under the
advisory opinion program, parties will submit requests for an
advisory opinion to the Bureau via its website. The Bureau will
issue additional procedures for how requests will be addressed,
including how the Bureau will prioritize requests. To increase
transparency and to provide regulatory certainty to all
regulated entities and other stakeholders, the Bureau will
publish the responding advisory opinion in the Federal Register
and on its website. The opinion will include an interpretation
of the Bureau's existing rules.''
---------------------------------------------------------------------------
\7\ Consumer Financial Protection Bureau, ``CFPB Takes Key Steps to
Prevent Consumer Harm; Proposes Whistleblower Award Program, Other
Measures,'' March 6, 2020, https://www.consumerfinance.gov/about-us/
newsroom/cfpb-takes-key-steps-prevent-consumer-harm-proposes-
whistleblower-award-program/.
Q.3.a. Will the advisory opinion program itself, including all
relevant policies and procedures under which opinions be
submitted, be published in the Federal Register subject to a
---------------------------------------------------------------------------
notice and comment period?
A.3.a. Program procedures are still under internal
consideration at this time. Full details of the program,
including any requests for public comment on program
procedures, will be released at a later date.
Q.3.b. Will the individual advisory opinions published in the
Federal Register be subject to a notice and comment period?
A.3.b. Program procedures are still under internal
consideration at this time. Full details of the program will be
announced at a later date.
Q.3.c. Will the opinions be binding on the entire industry or
exclusive to the particular entity that requests them?
A.3.c. Recognizing that program procedures are still under
internal consideration at this time, advisory opinions are
intended to cover the factual situation presented by the
requesting entity in its request and all entities in situations
with relevantly similar facts and circumstances. To increase
transparency and to provide regulatory certainty to all
regulated entities and other stakeholders, the Bureau will
publish advisory opinions in the Federal Register and on its
website.
Q.3.d. Will political appointees be involved at any stage of
the advisory opinion process? If so, please describe which
appointees and their specific role in selecting which opinions
to respond to; drafting, reviewing and approving the opinions,
and any subsequent publication of the opinions.
A.3.d. While program procedures are still under internal
consideration at this time, the appropriate staff will be
involved in the advisory opinion process at the senior and line
levels. Full details of the program will be announced at a
later date.
Q.4. Please describe the CFPB's jurisdiction over the auto
lending market, including auto dealers, nonbank lenders, and
bank lenders and the relationships between these different
parties.
Q.4.a. As stated in the Bureau's Auto Finance Examination
Procedures, when a loan is issued via indirect financing, ``the
dealer, rather than the consumer, typically selects the lender
that will provide financing,'' and the dealer ``may have
incentives to select a particular lender over another.''\8\
---------------------------------------------------------------------------
\8\ Consumer Financial Protection Bureau, ``CFPB Examination
Procedures: Auto Finance,'' June 2015, https://
files.consumerfinance.gov/f/201506_cfpb_automobile-finance-examination-
procedures.pdf.
Q.4.a.i. Does the Bureau believe that this incentive structure
---------------------------------------------------------------------------
can create risks to consumers?
A.4.a.i. As a general matter, the Bureau has observed through
its market monitoring, supervision, and enforcement work that
the unintended effects of incentives can be complex and bear
careful attention by supervised entities' institutional
leadership and compliance officers.\9\ As stated in the
Bureau's Risk Assessment template, incentives may ``encourage
the sale of high-cost products regardless of [the] consumer's
request or situation.''\10\ Accordingly, the Bureau expects
supervised entities that choose to use incentives to institute
effective controls for the risks these programs may pose to
consumers, including oversight of both employees and service
providers involved in these programs. As the Bureau has
emphasized repeatedly, a robust compliance management system
(CMS) is necessary to detect and prevent violations of Federal
consumer financial law. An entity's CMS should reflect the
risk, nature, and significance of the incentive programs to
which it applies, and be tailored to the specific incentives
being offered, considering both intended and unintended
outcomes for consumers.
---------------------------------------------------------------------------
\9\ CFPB Compliance Bulletin 0016-03, Detecting and Preventing
Consumer Harm for Production Incentives, available at https://
files.consumerfinance.gov/f/documents/201611_cfpb
_Production_Incentives_Bulletin.pdf.
\10\ Consumer Fin. Prot. Bureau, ``Consumer Risk Assessment,''
October 2012. https://files.consumerfinance.gov/f/documents/
102012_cfpb_risk-assessment_template.pdf.
Q.4.a.ii. Does the Bureau consider whether lenders are
intentionally charging rates higher than the normal market rate
---------------------------------------------------------------------------
because of their arrangements with auto dealers?
A.4.a.ii. As a general matter, during its supervisory and
enforcement work, the Bureau will evaluate risks to consumers
and whether the entity has complied with applicable Federal
consumer financial laws and regulations. In conducting reviews
of auto lenders, the Bureau evaluates all aspects of a lender's
compliance management program, which usually includes a review
of arrangements with any affiliated entities. The reviews may
also include a review of fees and costs paid for by the
consumer, to ensure that they are in compliance with Federal
consumer financial laws and regulations.
Q.4.a.iii. The CFPB's Examination Procedures include
instructions to ``obtain records of and evaluate the
communications between the entity and the dealers regarding
sales incentives and production goals.''\11\ Does the Bureau
follow these procedures for each examination of an auto lending
company? If not, under what circumstances would the CFPB not
follow these examination procedures?
---------------------------------------------------------------------------
\11\ Id.
A.4.a.iii. Examiners use the examination procedures as a guide
to ensure that companies that engage in automobile financing
are complying with the requirements of Federal consumer
financial law. Typically, Bureau examiners scope their exams on
a risk-basis, with the goal of ensuring appropriate consistency
across examinations. The scope of each examination varies by
product market, and to some extent, by entity within a product
market, depending on the Bureau's assessment of the risks
presented by an entity. During an auto finance examination,
Bureau examiners typically complete the Automobile Finance
Examination Procedures modules, as scoped and as applicable,
enabling them to develop a thorough understanding of a
---------------------------------------------------------------------------
regulated entity's practices and operations.
Q.4.a.iv. What type of actions does the Bureau take when it
identifies a problematic relationship between a lender and
dealer? Has the Bureau ever barred a lender from associating
with a problematic dealer?
A.4.a.iv. The Dodd-Frank Act excludes from the Bureau's
authority auto dealers that are predominantly engaged in the
sale and servicing of motor vehicles, the leasing and servicing
of motor vehicles, or both.\12\ Thus, on our examinations
Bureau examiners will focus on the activities of the auto
lender and its compliance with Federal consumer financial laws.
If examiners found information indicating violations of law by
the dealer, and thus not within the Bureau's authority, the
Bureau would pass that information on to the appropriate
Federal or State regulator. To date, through the Bureau's
supervisory work, we have not barred a lender from associating
with a problematic dealer. In several public enforcement
actions,\13\ the Bureau found and the DOJ alleged that indirect
auto lenders who allowed auto dealers to charge a higher
interest rate when they finalize the deal with the consumer may
have discriminated against loan applicants in credit
transactions on the basis of characteristics such as race and
national origin. In those matters, the injunctive relief the
Bureau obtained included such things as: remediation; a
requirement for the lender to implement compliance programs
that include prompt corrective action against dealers' rate
disparities; and requirements to reduce the level of discretion
afforded dealers is setting rates.
---------------------------------------------------------------------------
\12\ The Bureau does have authority, however, over some auto
dealers that extend retail credit or leases without routinely assigning
them to unaffiliated third parties. The Bureau's Larger Participant
Rule for the automobile financing market however excludes these dealers
from the rule. 12 CFR 1090.108(c)(2).
\13\ See https://www.consumerfinance.gov/about-us/newsroom/cfpb-
and-doj-order-ally-to-pay-80-million-to-consumers-harmed-by-
discriminatory-auto-loan-pricing/; https://www.consumerfi-
nance.gov/about-us/newsroom/cfpb-and-doj-reach-resolution-with-toyota-
motor-credit-to-address-loan-pricing-policies-with-discriminatory-
effects/; https://www.consumerfinance.gov/about-us/
newsroom/cfpb-and-doj-reach-resolution-with-honda-to-address-
discriminatory-auto-loan-pricing/; and https://www.consumerfinance.gov/
about-us/newsroom/cfpb-takes-action-against-fifth-third-bank-for-auto-
lending-discrimination-and-illegal-credit-card-practices/.
Q.4.a.v. When was the last time the Bureau took an enforcement
action against a lender for incentivizing a dealer to offer a
consumer a larger loan than the market value of the vehicle?
---------------------------------------------------------------------------
Please provide a list of all such actions.
A.4.a.v. The Bureau has exercised its authority over lenders,
including Buy Here Pay Here dealers and auto finance companies,
in 14 public enforcement actions. It has not brought any
actions against a lender for incentivizing a dealer to offer a
consumer a larger loan than the market value of the vehicle.
Q.4.a.vi. When was the last time the Bureau issued such an
action against a lender that incentivized a dealer to offer a
buyer a loan at a greater interest rate than what is typical
for the market? Please provide a list of all such actions.
A.4.a.vi. In the public enforcement actions against Ally Bank
and Ally Financial, Inc.,\14\ Toyota Mortgage Credit
Corporation;\15\ American Honda Finance Corporation;\16\ and
Fifth Third Bank,\17\ the Bureau found and the DOJ alleged that
indirect auto lenders who allowed auto dealers to charge a
higher interest rate when they finalize the deal with the
consumer discriminated against loan applicants on the basis of
characteristics such as race and national origin.
---------------------------------------------------------------------------
\14\ See https://www.consumerfinance.gov/about-us/newsroom/cfpb-
and-doj-order-ally-to-pay-80-million-to-consumers-harmed-by-
discriminatory-auto-loan-pricing/.
\15\ See https://www.consumerfinance.gov/about-us/newsroom/cfpb-
and-doj-reach-resolution-with-toyota-motor-credit-to-address-loan-
pricing-policies-with-discriminatory-effects/.
\16\ See https://www.consumerfinance.gov/about-us/newsroom/cfpb-
and-doj-reach-resolution-with-honda-to-address-discriminatory-auto-
loan-pricing/.
\17\ See https://www.consumerfinance.gov/about-us/newsroom/cfpb-
takes-action-against-fifth-third-bank-for-auto-lending-discrimination-
and-illegal-credit-card-practices/.
Q.4.b. The CFPB's Examination Procedures instruct examiners to
``evaluate the underwriting practices of the entity, including
the average loan-to-value ratios, lengths of terms, and whether
the entity originates loans or leases with a high risk of
default (e.g., determine if there is evidence of false or
undocumented income.''\18\
---------------------------------------------------------------------------
\18\ Id.
Q.4.b.i. How does the Bureau determine whether an underwriting
practice presents a risk to the consumer? Are quantitative
---------------------------------------------------------------------------
thresholds used, and if so, can you describe?
A.4.b.i. During an auto finance examination, Bureau examiners
typically complete the Automobile Finance Examination
Procedures modules, as scoped and as applicable, enabling them
to develop a thorough understanding of a regulated entity's
practices and operations.\19\ In doing so, examiners obtain and
review each entity's loan and lease applications; loan and
lease underwriting guidelines; and loan and lease account
documentation, notes, disclosures, and all other contents of
underwriting.\20\ As part of the examination process, typically
examiners:
---------------------------------------------------------------------------
\19\ See https://files.consumerfinance.gov/f/documents/
201908_cfpb_automobile-finance-exam
ination-procedures.pdf.
\20\ Id.
LEvaluate the underwriting practices of the entity,
including the average loan-to-value ratios, lengths of
terms, and whether the entity originates loans or
leases with a high risk of default (e.g., determine if
---------------------------------------------------------------------------
there is evidence of false or undocumented income);
LEvaluate the entity's early payment default rate;
and
LEvaluate the loan agreement and identify potential
risks of consumer harm.\21\
---------------------------------------------------------------------------
\21\ See https://files.consumerfinance.gov/f/documents/
201908_cfpb_automobile-finance-exam
ination-procedures.pdf.
After its review, the examination staff, in consultation
with Headquarters, will determine whether the entity's
underwriting practices comply with Federal consumer financial
---------------------------------------------------------------------------
laws and regulations.
Q.4.b.ii. Does the Bureau maintain a database with information,
such as the average Loan-to-Value ratios, length of the loan
term, and the default rate, for each lender? If so, how does
the Bureau use this database?
A.4.b.ii. The Bureau has purchased an off-the-shelf product,
Experian AutoCount, to produce reports including, but not
limited to, the following: (1) market share analysis for auto
lenders based on loan originations; (2) average credit tier
characteristics by a specific auto lender or a specific lender
type; (3) comparison analysis of average loan attributes (for
example, loan term, interest rates, or loan-to-value ratios)
across the credit spectrum; and (4) market trends based on a
geographic region. One way in which the Bureau uses this
database is to inform its risk-based prioritization process for
determining the institutions, product lines, and scopes of
examinations being scheduled.
Rulemaking
Q.5. Earlier this month, the CFPB issued a supplemental
proposal on the collection of time-barred debt.\22\
---------------------------------------------------------------------------
\22\ Consumer Financial Protection Bureau, ``Debt Collection
Practices (Regulation F),'' 85 Fed. Reg. 12672 (March 3, 2020), https:/
/www.consumerfinance.gov/policy-compliance/rulemaking/rules-under-
development/debt-collection-practices-regulation-f-supplemental-
proposal-time-barred-debt/.
Q.5.a. Time-barred debts are debts for which the statute of
limitations has expired. Why did the Bureau not ban time-barred
---------------------------------------------------------------------------
debt from being collected at all?
A.5.a. The Bureau has carefully considered the consumer
protection concerns surrounding the collection of time-barred
debt. Consumers unfamiliar with statutes of limitations may
take away from a debt collector's attempt to collect a time-
barred debt the misleading impression that the debt is legally
enforceable--even if the debt collector does not explicitly
threaten litigation. A consumer with the mis-impression that a
time-barred debt is enforceable in court may pay or prioritize
that debt over another debt or expense, in the mistaken belief
that doing so is necessary to avoid litigation.
The Bureau tested time-barred debt disclosures on
approximately 8,000 consumers. The Bureau's quantitative
testing results suggest that disclosures can be effective in
preventing the deception associated with the collection of
time-barred debts and that, therefore, prohibiting the
collection of time-barred debt and banning revival may not be
necessary to prevent deception. So, the Bureau's
proposed disclosure would address the consumer protection
problem or potential deception in the collection of time-barred
debt. In addition, banning the collection of time-barred may
not be necessary and could have unintended consequences for
consumers, such as increased litigation before expiration of
the statute of limitations. The Bureau published research
reports on the testing method and results with the supplemental
NPRM and welcomes public comment.
Q.5.b. Who will be responsible for disclosing to the consumer
that the consumer can no longer be sued for old debt?
A.5.b. The Bureau's February 2020 supplemental notice of
proposed rulemaking (February 2020 SNPRM) proposes to require a
debt collector to provide certain disclosures to a consumer
when collecting a debt the debt collector knows or should know
is time barred. Specifically, the February 2020 SNPRM proposes
to require such a debt collector to provide, in the debt
collector's initial communication with the consumer and on any
required validation notice provided to the consumer: (1) a
time-barred debt disclosure; and (2) if applicable law permits
revival of the debt collector's right to sue, a revival
disclosure. The time-barred debt disclosure would inform the
consumer that the law limits how long the consumer can be sued
for a debt and that, because of the age of the debt, the debt
collector will not sue the consumer to collect it. The revival
disclosure, if applicable, would inform the consumer that the
debt collector's right to bring a legal action against the
consumer can be revived and the circumstances in which revival
can occur. The February 2020 SNPRM also includes model
disclosures, developed by the Bureau after consumer testing,
that debt collectors can use to comply with the proposed rule.
Q.5.c. What tools does the Bureau have to verify that debt
collectors are complying with these new disclosure
requirements? How will be Bureau enforce violations?
A.5.c. The Bureau leverages all the tools granted by Congress
to protect consumers in the debt collection context. The
Bureau's toolkit includes supervision and enforcement
authority. The Bureau will utilize these tools to verify that
debt collectors are complying with new disclosure requirements
if they are finalized and put into effect. The Bureau has
enforced debt collection violations by applying the law to
particular facts and circumstances of its debt collection
investigations and examinations. In 2019, the Bureau's debt
collection enforcement actions resulted in judgments for nearly
$50 million in consumer redress and $11.2 million in civil
money penalties. The Bureau also banned eight individuals who
engaged in serious and repeated violations of law from ever
working in debt collection again. The Bureau will continue
vigorous enforcement of violations arising out of any new debt
collection requirements.
Q.5.c.i. Will the Bureau reserve the right to pursue collectors
that do not make these disclosures under its authority to go
after Unfair, Deceptive, and Abusive Acts of Practices (UDAAP),
even if the collector does not violate the new rule?
A.5.c.i. Rigorous enforcement is part of the Bureau's mission.
When the Bureau discovers violations of Federal consumer
financial law, enforcement is essential to hold wrongdoers to
account, make things right for consumers, and deter future
violations. The Bureau is committed to enforcing debt
collection violations and seeking all appropriate relief for
consumers as may be appropriate in each case on the facts
presented and considering all applicable law.
Q.5.d. Which political appointees assisted with developing this
proposal? For each individual, please include exactly what part
of the proposal they worked on, including their specific input
in the process.
A.5.d. As has been true throughout the Bureau's history, the
Director authorizes the publication of proposed rules developed
by appropriate Bureau staff at the Director's direction and
after considering recommendations from appropriate Bureau
staff.
Operations
Q.6. Please provide a list of political appointees currently
employed, including as detailees from other agencies, at the
CFPB, their titles, the date they were hired, and their
salaries.
A.6. Please see table below.
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
Q.7. Does the CFPB have plans to hire additional political
appointees? If so, please provide position descriptions and
salary ranges for their jobs.
A.7. The Bureau does not currently have any pending requests
with OPM for additional Schedule C appointments.
Q.8. The Partnership for Public Service produces an annual
ranking of the best place to work using data from the Office of
Personnel Management's Annual Employee Survey about job
satisfaction. From 2017 to 2019, CFPB's ranking dropped 20
points, from 79.9 to 58.4, putting it in the lower quartile of
all Midsize Agencies.
Q.8.a. One manifestation of employees' dissatisfaction is
attrition. Please provide quarterly staffing levels for the
Bureau, broken up by Division and if possible, by office from
2017Q1 to present.
A.8.a. Please see the table of quarterly staffing levels at the
Bureau broken up by Division and Office from FY 2017 Q1 to
present. Note the transition of several offices from one
division to another in the course of this time period.
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
Q.8.b. What is CFPB's plan to improve morale among staff?
A.8.b. The staff of the Bureau are highly committed to the
Bureau's mission and care deeply about the organization. I
respect them, I take their views and opinions seriously, and
their input is integral to my decisionmaking. Further, I am
committed to leading a diverse, productive, effective
workforce.
I engage regularly with employees through Bureau-wide all-
hands sessions; regular meetings with Division and Office
teams; visits to Bureau regional staff; and weekly ``office
hours'' to provide updates on Bureau priorities, recognize
individual and team efforts and achievements, and continue to
gather staff feedback. The Annual Employee Survey (AES) is an
important source of that feedback.
The Bureau's overall engagement composite score from the
2019 AES increased by 6.7 points over 2018. This increase led
the Partnership for Public Service to designate the Bureau as
the most improved agency among mid-sized agencies for 2019.
This progress is noteworthy, but fostering an engaged workforce
is an ongoing responsibility.
Below are several steps I am taking to build and maintain
an engaged workforce:
LI established a Workforce Effectiveness Committee
(WEC) shortly after I became Director to ensure that
the Bureau takes a holistic, consistent approach to
considering workforce-related issues. Since then, I
have charged the WEC to focus on engagement as its
highest priority. Issues and programs that the WEC has
advised on include: the use of Employee Resources
Groups and the Bureau's Mentoring for Success Program;
review and consultation on the Bureau's Barrier
Analysis results and compensation review; and the
implementation of IdeaBox for capturing staff ideas and
providing feedback.
LI created a Customer Experience Office to focus on
improving our internal staff experience through
enhanced operational services enabling the workforce to
be more effective and efficient in meeting the Bureau's
mission.
LI have continued to strongly promote diversity and
inclusion by refreshing the Bureau's Diversity and
Inclusion Strategic Plan, enhancing the focus on strong
engagement with employees, and utilizing an integrated
approach to education, training, and engagement
programs that incorporate diversity and inclusion
concepts into the learning curriculum and work
environment. Employee Resource Groups, which are
networks of Bureau employees with similar interests,
backgrounds, or experiences, cultural education
programs, and diversity and inclusion training are key
components of this effort.
LI presented the Director's Mission Achievement
Award to recognize staff leadership and team
contributions toward the Bureau's mission. The award is
the Bureau's highest honor. In accordance with my
priorities, this year I recognized both leadership
excellence and outstanding team contributions. Twenty
leaders and over 200 team members across 29 teams were
nominated by a joint committee of representatives from
the union and Bureau management.
LI approved a succession planning process that will
aid Bureau leaders to: optimize our current workforce;
invest in workforce development to meet long-term
needs; build a healthy management pipeline; and attract
and retain a diverse and inclusive workforce responsive
to the needs of our varied stakeholders.
LI approved the launch of Mentoring for Success, a
three-part program that includes: 1) leadership speaker
series; 2) small group discussions, and 3) mentor/
protege pairs. The program is open to all Bureau
employees.
LThe Bureau completed the consolidation of all
Washington, DC-based staff from two office buildings
into one to increase the effectiveness of the
organization and to significantly improve collaboration
across all teams and divisions.
LI have directed our Office of Human Capital and
Office of Equal Opportunity and Fairness to develop new
and better tools to assist managers in exercising their
workforce responsibilities. Recent examples include:
LAn Organization Improvement Action Guide which
offers practical tips and tools for gathering,
assessing, and responding to employee feedback,
including linkages to AES categories and items and an
action planning template and sample.
LA three-part series for managers on how to manage
employees remotely as the Bureau contends with COVID-
19,
including how to promote self-care for themselves and
employees, and tips on how to effectively work
virtually.
------
RESPONSES TO WRITTEN QUESTIONS OF SENATOR CORTEZ MASTO FROM
KATHLEEN L. KRANINGER
Q.1. In the wake of devastating events, we have seen mortgage
servicers and banks stepped up to provide assistance such as
payment deferrals and mortgage modifications to help those who
were impacted. As health officials work to get the novel
coronavirus contained, we cannot stress enough that people
prioritize their health and quarantine themselves if they have
been exposed. In some cases, they can't go to work.
Q.1.a. Has the Consumer Financial Protection Bureau provided
guidance to financial firms on how to serve customers who might
miss a payday because they could not go to work because they
were sick?
A.1.a. The Bureau, along with other regulators, released
guidance\1\ publicly over the past few weeks to financial
institutions, lenders, and creditors encouraging them to work
constructively with borrowers and customers affected by COVID-
19. This guidance emphasizes that prudent efforts to modify the
terms on existing loans for affected customers will not be
subject to examiner criticism. For example, when appropriate, a
financial institution may restructure a borrower's debt
obligations due to temporary hardships resulting from COVID-19
related issues. Such cooperative efforts can ease cash-flow
pressures on affected borrowers, improve their capacity to
service debt, and facilitate the financial institution's
ability to
collect on its loans. The Bureau's guidance also provides
temporary and targeted flexibility for financial institutions
to apply their resources to consumers' most urgent needs by
deferring less urgent regulatory obligations. The Bureau
continues to consider what guidance it can issue to regulated
entities that will help consumers through this time and has
issued guidance on myriad topics, including compliance with the
assistance provided under the CARES Act.
---------------------------------------------------------------------------
\1\ See https://www.consumerfinance.gov/about-us/newsroom/agencies-
provide-additional-information-encourage-financial-institutions-work-
borrowers-affected-covid-19/, https://www.con-
sumer-finance.gov/about-us/newsroom/cfpb-provides-flexibility-during-
covid-19-pandemic/, and https://www.consumerfinance.gov/about-us/
newsroom/federal-agencies-encourage-banks-savings-associations-credit-
unions-to-offer-responsible-small-dollar-loans-consumers-small-
businesses-affected-covid-19/.
---------------------------------------------------------------------------
At the same time, the Bureau has focused its efforts on
being a resource to consumers with accurate, timely information
regarding their rights and expectations in the consumer
financial marketplace during this challenging time. We have
made resources available in multiple formats and languages,
including emphasizing the continued availability of the
complaint portal for consumers who encounter issues. The Bureau
also continues to employ its supervision and enforcement tools
to reinforce compliance.
Q.1.b. What steps does the Consumer Financial Protection Bureau
recommend financial firms do to serve customers who had to stay
home to take care of their children because their school or
childcare provider closed?
A.1.b. Please see response to question 1.a.
Q.1.c. What specifically can credit card companies do to help
families who have a temporary financial setback because of the
pandemic?
A.1.c. Please see the response to question 1.a.
Q.1.d. What can student loan companies do to help people who
have a temporary financial setback because of the pandemic?
A.1.d. Please see the response to question 1.a. In addition,
specific to student loans, the activities outlined in question
1.a. are being utilized, as applicable, to ensure awareness and
compliance with the CARES Act.
Q.1.e. What can lenders do to help people who might not be able
to pay a car note, mortgage or small business loan because of a
temporary financial setback due to the outbreak?
A.1.e. Please see the response to question 1.a.
Q.1.f. How can financial institutions offer affordable small-
dollar loans to help families survive through the outbreak?
A.1.f. Please see the response to question 1.a. The Bureau,
along with other regulators, released a joint statement on
March 26, 2020, encouraging responsible small-dollar lending in
response to COVID-19.\2\
---------------------------------------------------------------------------
\2\ See https://www.consumerfinance.gov/about-us/newsroom/federal-
agencies-encourage-banks
-savings-associations-credit-unions-to-offer-responsible-small-dollar-
loans-consumers-small-businesses-affected-covid-19/.
Q.2. I am very worried that predatory online lenders will
target families struggling with coronavirus with expensive
loans. For example, workers quarantined at home, those laid
off, or working reduced hours could take out high-cost loans
over the internet that will leave them in a dangerous debt
---------------------------------------------------------------------------
trap.
Q.2.a. Will you commit the supervision and enforcement staff of
the Consumer Financial Protection Bureau to the prevention of
abusive loans using schemes that target those impacted by the
coronavirus?
A.2.a. The Bureau continues to employ its tools of education,
regulation (including guidance), supervision, and enforcement
aggressively to address the impacts of the pandemic on
consumers in the consumer finance marketplace. As U.S.
consumers confront the spread of the COVID-19 pandemic, many
are struggling with its economic impact. The virus, and the
necessary actions to combat it, have affected the U.S. economy,
and therefore U.S. consumers, profoundly. Using market
monitoring, stakeholder engagement, law enforcement
partnerships, our complaint system, and our aforementioned
tools, we are seeking to prevent consumer harm and acting on
issues of concern as they arise, including any instances of
predatory lending or fraud and scams. As your question
specifically seeks assurance regarding supervision and
enforcement, the Bureau continues to conduct examinations
across markets consistent with our risk prioritization process
and our statutory mandate, which includes persons who offer or
provide payday loans, and to investigate violations of consumer
financial law within our purview. Generally, the Bureau does
not comment on nonpublic supervisory or enforcement matters.
Q.2.b. If your supervision staff learns of abusive loans using
schemes that target those impacted by the coronavirus, will you
prioritize full restitution for harmed consumers in any consent
order or judgment?
A.2.b. Yes, restitution for affected consumers has always been
and remains a Bureau priority in any examination, consent
order, or judgment. In cases where a civil money penalty is
imposed, the Bureau may also rely on the Civil Penalty Fund to
compensate victims.
Q.3. Last year, the CFPB announced a consent order with Enova
International, an online payday lender. Enova illegally
withdrew funds from consumers' accounts without their
authorization.
Why wasn't Enova required to repay the funds they had
unlawfully withdrawn from consumers' bank accounts?
A.3. The Bureau is committed to seeking all appropriate relief
for consumers, and considers whether redress or restitution may
be appropriate in each case on the facts presented and in light
of applicable law. In the Enova matter, the Bureau determined
that the appropriate resolution in light of the company's
conduct included imposition of a $3.2 million civil money
penalty and injunctive relief to benefit consumers.
Q.4. Last year, the CFPB announced a stipulated final judgment
with NDG Financial Corporation and other defendants for running
a payday lending enterprise that engaged in unfair, deceptive,
and abusive acts or practices in violation of the law.
Q.4.a. Why was restitution not required for victimized
consumers?
A.4.a. The Bureau is committed to seeking all appropriate
relief for consumers and considers whether redress or
restitution may be appropriate in each case on the facts
presented and in light of applicable law. In the NDG matter,
the Bureau engaged in a protracted legal battle with the
company and individual defendants, some of whom were ultimately
sanctioned by the district court for refusal to comply with a
court order requiring them to cooperate with the Bureau's
discovery requests. At the Defendants' request, the matter was
referred to a magistrate judge in October 2018 to facilitate a
settlement. The Bureau encountered substantial hurdles in
trying to enforce its discovery demands, in part because the
Defendants' companies and individuals are based overseas, and
Defendants refused to cooperate with Bureau discovery requests.
The Defendants withheld consumer-level information required to
establish the identities of consumers harmed by the alleged
violations, as well as the full amount of that harm. Without
these critical facts, the Bureau was not able to determine the
amount of redress that might be owed to consumers, or the
consumers to whom that redress could be paid. In addition,
because the foreign Defendants did not have assets in the
United States, the Bureau anticipated potential challenges in
collecting on any penalties or remediation.
Q.4.b. Whose decision was it to withhold restitution?
A.4.b. Please see response to question 4.a.
Q.5. The CFPB should not require an affirmative complaint from
someone to provide restitution to victims. Some of the most
vulnerable victims may not know what it does or its role.
Others may not know how to submit a complaint to the CFPB. Last
year, the CFPB took action against Asset Recovery Associates
(ARA). ARA was a debt collection firm that illegally threatened
and lied to people for years. Yet, the CFPB only provided
restitution to consumers who complained about the false
threats. By limiting restitution to only people who complained
to the Bureau or State regulators, ARA was able to keep all but
$36,800 it illegally collected from consumers over a 4-year
period.
Will you make sure your enforcement staff does not require
affirmative complaints for future cases of abusive and
deceptive practices by financial firms?
A.5. The Bureau is committed to seeking all appropriate relief
for consumers and considers whether redress or restitution may
be appropriate in each case on the facts presented and in light
of applicable law. The Consumer Financial Protection Act
authorizes the Bureau to seek redress for consumers in
appropriate cases as a matter of discretion. While the Bureau
is committed to seeking all appropriate relief for consumers,
not every case lends itself to restitution for all potentially
affected consumers, particularly in the context of a negotiated
settlement. Particularly in the context of a negotiated
settlement, the Bureau may choose to pursue the relief it
determines best serves the public interest. Settlements allow
the Bureau to avoid expending significant resources proving
claims in court, mitigate trial risk, achieve speedier results
for consumers, and provide certainty for companies.
Q.6. When President Obama appointed Richard Cordray to run the
Consumer Financial Protection Bureau, he was the only political
staff member.
Q.6.a. How many political appointments are at the Bureau?
A.6.a. Section 1013 of the Dodd-Frank Act states, ``The
Director may fix the number of, and appoint and direct, all
employees of the Bureau in accordance with the applicable
provisions of title 5, United States Code.'' This authority
includes the appointment of employees under Schedule C hiring
authority.
As of March 26, 2020, the Bureau had 11 political
appointees, including the Director.
Q.6.b. What is the role of your political appointees?
A.6.b. Schedule C appointees are commonly used throughout the
Federal Government, including at other financial regulatory
agencies. The decision to classify a job as a Schedule C
position is made by the U.S. Office of Personnel Management
(OPM) at the request of an agency head. For all Schedule C
positions at the Bureau, we followed the process established by
OPM, which reviewed and approved all of the Bureau's Schedule C
hires.
The Bureau's political appointees serve in one of the
following capacities:
LPolicy determining position by acting for the
Director and Deputy Director in executing on policy
priorities, resolving major program issues, and in the
integration of the various programs in their area.
LConfidential administrative support position to
either the Director or high-level Schedule C appointee.
Q.6.c. What do you say in response to the House Financial
Services Committee report that reported that Eric Blankenstein
obstructed and weakened enforcement actions against banks and
financial institutions that engaged in unfair and deceptive
practices and break the law?
A.6.c. I take full responsibility for the Bureau's actions
under my leadership and again reaffirm my commitment to
carrying out the Bureau's mission, including enforcement of
consumer financial law. In FY 2019, the Bureau announced 22
public enforcement actions and settled six previous lawsuits.
The final orders and judgments obtained by the Bureau during
this period required a total of more than $750 million in total
consumer relief (more than $600 million in consumer redress and
more than $150 million in other relief) and over $150 million
in civil money penalties, before adjusting for suspended
amounts.
Q.6.d. What are the CFPB political appointees roles in
determining penalties?
A.6.d. The Director authorizes Enforcement staff to take public
enforcement actions, including authorizing settlement
parameters and determining appropriate penalties, based on
recommendations from Bureau staff. A number of internal
stakeholders, including the Deputy Director and heads of
Divisions, review and weigh in on recommendations seeking
authority to take public enforcement actions before those
recommendations are submitted to the Director.
Q.6.e. Has there been a conflict between career staff's
recommendations for penalties and political appointees'
recommendations?
A.6.e. I am not going to comment publicly on the Bureau's
internal deliberations regarding confidential law enforcement
matters. It is critical that internal deliberations be kept
confidential to protect the free flow of ideas and ensure
decisionmakers receive candid advice.
Q.6.f. How are penalties decided if there is a disparity
between career staff and appointees' recommendations?
A.6.f. Please see the response to question 6.d.
Q.6.g. In which cases has there been a difference between
recommendations, and which recommendation was chosen?
A.6.g. Please see the response to question 6.e.
Q.7. Have officials at the White House ever contacted you or a
member of the Consumer Financial Protection Bureau staff to
recommend an action related to supervision or enforcement?
A.7. I am not aware of any instance in which officials at the
White House have contacted myself or other Bureau staff to
recommend an action related to supervision or enforcement.
Q.8. In reviewing your response to my written questions, there
are a number of fines that were imposed but not collected. For
example, the Williamson Law Firm was assessed a fine of $40
million for an illegal debt collection scam but only $1 was
collected. The National Credit Union Adjusters was fined $6
million for unlawful debt collection acts and practices that
harmed consumers, including representing that consumers owed
more than they were legally required to pay, or threatening
consumers and their family members with lawsuits, visits from
process servers, and arrest. According to your response to my
written questions from last fall, only $250,000 was collected.
Q.8.a. Why isn't the Consumer Bureau collecting all the fines
assessed?
A.8.a. The Bureau is committed to seeking appropriate civil
money penalties in each case on the facts presented and in
light of applicable law. Among the mitigating factors that the
Consumer Financial Protection Act requires the Bureau and
courts to consider when determining the appropriate penalty
amount is the size of the institution's financial resources. 12
U.S.C. Sec. 5565(c)(3). Consistent with this statutory factor,
the Bureau has suspended the collection of the full civil money
penalties imposed based on the financial condition of the
entity. This was the case as to both the matters referenced.
Moreover, given the imposition of a civil money penalty, harmed
consumers may be eligible for additional relief from the
Bureau's Civil Penalty Fund. Furthermore, instances of a
difference between the fine imposed and the amount collected
have consistently occurred throughout the Bureau's history and
is not the result of any changed policy.
Q.8.b. Why isn't the Civil Penalty Fund being used to
compensate consumers?
A.8.b. The Civil Penalty Fund is being used to compensate
consumers. In FY 2019, $120 million was allocated to harmed
consumers in five cases. Also, during FY 2019, the Bureau had
seven active and ongoing Civil Penalty Fund case distributions.
Funds related to those cases were initially distributed in FY
2017 and FY 2018 and totaled approximately $350 million. During
FY 2019, the Bureau released funds in one new case totaling
approximately $1 million.
Q.8.c. Why weren't funds allocated from the Civil Penalty Fund
for financial education in 2019?
A.8.c. While the Bureau has the authority to allocate funds
(under certain circumstances) for consumer education and
financial literacy purposes, the Bureau considers the Civil
Penalty Fund to primarily serve as a victim fund. In FY 2019,
$120 million was allocated to harmed consumers in five cases.
Furthermore, financial education activity is robustly funded
through the Bureau's budget.
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RESPONSES TO WRITTEN QUESTIONS OF SENATOR SINEMA FROM KATHLEEN
L. KRANINGER
Q.1. If Americans are involuntarily quarantined due to
potential exposure to the coronavirus, it is possible this
could cause them to become delinquent on student loans,
mortgage payments, rent payments, and other forms of debt. What
assurances can the CFPB offer that will protect the credit and
financial well-being of Americans subject to involuntary
quarantine? What directives will the CFPB provide to lenders to
ensure Americans are not indebted or penalized due to a public
health outbreak largely beyond their control?
A.1. The Bureau, along with other regulators, released
guidance\1\ publicly over the past few weeks to financial
institutions, lenders, and creditors encouraging them to work
constructively with borrowers and customers affected by COVID-
19. This guidance emphasizes that prudent efforts to modify the
terms on existing loans for affected customers will not be
subject to examiner criticism. For example, when appropriate, a
financial institution may restructure a borrower's debt
obligations due to temporary hardships resulting from COVID-19
related issues. Such cooperative efforts can ease cash-flow
pressures on affected borrowers, improve their capacity to
service debt, and facilitate the financial institution's
ability to collect on its loans. The Bureau's guidance also
provides temporary and targeted flexibility for financial
institutions to apply their resources to consumers' most urgent
needs by deferring less urgent regulatory obligations. The
Bureau continues to consider what guidance it can issue to
regulated entities that will help consumers through this time
and has issued guidance on myriad topics, including compliance
with the assistance provided under the CARES Act.
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\1\ See https://www.consumerfinance.gov/about-us/newsroom/agencies-
provide-additional-information-encourage-financial-institutions-work-
borrowers-affected-covid-19/, https://www.con-
sumerfinance.gov/about-us/newsroom/cfpb-provides-flexibility-during-
covid-19-pandemic/, https://www.consumerfinance.gov/about-us/newsroom/
federal-agencies-encourage-banks-savings-associations-credit-unions-to-
offer-responsible-small-dollar-loans-consumers-small-businesses-
affected-covid-19/ and https://www.consumerfinance.gov/about-us/
newsroom/federal-agencies-encourage-mortgage-servicers-work-struggling-
homeowners-affected-covid-19/.
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At the same time, the Bureau has focused its efforts on
being a resource to consumers with accurate, timely information
regarding their rights and expectations in the consumer
financial marketplace during this challenging time. We have
made resources available in multiple formats and languages,
including emphasizing the continued availability of the
complaint database for consumers who encounter issues. The
Bureau also continues to employ its supervision and enforcement
tools to enforce compliance.
Q.2. According to the Department of Education, in January 2020
the Public Service Loan Forgiveness (PSLF) program had an
acceptance rate of just 1.6 percent of applications. What is
the reason for such a staggeringly high rate of rejection? How
can the CFPB educate student loan borrowers about the PSLF
application process to improve this acceptance rate?
A.2. The Public Service Loan Forgiveness (PSLF) Program is
complex. PSLF was established under the College Cost Reduction
and Access Act of 2007 and provides for loan forgiveness when
the program's requirements are met. The 4 requirements
borrowers must meet are as follows: (1) the loans must be
Direct Loans (starting in 2010, all Federal student loans are
direct loans); (2) there must be 120 qualifying monthly
payments; (3) the borrower must be making payments under a
qualifying repayment plan; and (4) the borrower must be working
full-time for a qualifying employer. In 2012, the Department of
Education introduced the voluntary Employment Certification
Form (ECF), which borrowers can submit to verify that their
employment qualifies for the PSLF Program and which, if
submitted annually or whenever borrowers change jobs, can help
track their progress. In the fall of 2017, borrowers began
submitting applications seeking loan forgiveness under PSLF.
As February 29, 2020, the Department of Education\2\ has
determined the most common reasons for ECF rejections are: (1)
missing information--77 percent, (2) no eligible loans--10
percent, and (3) employer not eligible--5 percent. The most
common reasons for rejections for loan forgiveness are: (1)
insufficient qualifying payments--59 percent, (2) missing
information--23 percent, and (3) no eligible loans--14 percent.
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\2\ https://studentaid.gov/data-center/student/loan-forgiveness/
pslf-data.
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Based on the foregoing, the Bureau believes that it can
engage in effective borrower education and empowerment focused
on encouraging borrowers to submit ECFs annually, encouraging
borrowers to complete the ECF, and ensuring that they
understand the type of loan they have and whether their
employer is eligible.
Also, this an opportunity for collaboration with the
Department of Education's office of Federal Student Aid (FSA)
to educate and empower borrowers. For example, FSA now provides
borrowers with a count of their qualifying payments when they
submit an ECF which addresses, in part, the top reason for
rejection of PSLF applications.\3\
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\3\ As of February 29, 2020, the Department of Education has
determined the most common reasons for rejecting PSLF applications are
as follows: (1) insufficient qualifying payments--59 percent, (2)
missing information--23 percent, and (3) no eligible loans--14 percent.
See, https://studentaid.gov/data-center/student/loan-forgiveness/pslf-
data.
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