Tensions flew high yesterday when Director Kathleen Kraninger appeared before the House Financial Services Committee for its semi-annual review of the Consumer Financial Protection Bureau (CFPB). Aside from an extended squabble about whether or not a committee member called Director Kraninger “completely worthless,” the 3.5-hour hearing contained the usual partisan talking points.
However, there were three main topics discussed at the hearing that should be of interest to those in the ARM industry.
Constitutionality of the CFPB’s Structure
A hot topic covered at the hearing was the issue of whether the single-director structure of the CFPB and its removal for cause element are constitutional. The timing was serendipitous—the Seila petition for writ of certiorari on this very issue is scheduled to be reviewed by the U.S. Supreme Court tomorrow. Director Kraninger came under attack by left-leaning committee members and received support from the right-leaning members for the position she and the CFPB took in their brief in the Seila case. The brief argued that the CFPB’s structure is unconstitutional.
In her opening statement, the Committee’s Chairwoman Maxine Waters (D-CA) stated that Kraninger forced the CFPB to abandon the long-standing defense of its structure. Rep. Carolyn Maloney (D-NY) brought up the fact that just months prior to the Seila brief, the CFPB defended its structure in a different court case, and yet now the CPFB flipped its position. Rep. Maloney then criticized Kraninger for second-guessing Congress, which specifically created the CFPB as an independent agency.
Kraninger responded to this criticism by stating she reviewed the issue at-length and had many discussions about it with the Department of Justice and internally at the CFPB. Ultimately, she found that the removal for cause provision needed review and that the ultimate decision will be and should be up to the U.S. Supreme Court.
Kraninger’s position was not without support. Rep. Patrick McHenry (R-NC) discussed in his opening statement how the CFPB needs structural changes that would put the interests of consumers first rather than whatever political party is in charge. Rep. McHenry equated the director position as it currently stands to an “unaccountable dictatorship.” Rep. Andy Barr (R-KY) referenced that the entire Fifth Circuit, which reviewed a similar issue en banc, agreed with Kraninger's position.
Rep. Bill Huizenga (R-MI) reminded his colleagues on the other side of the fence that they were warned when they first created the CFPB that at some point the political tide will turn and they would not be happy with the structure created.
Settlements and Consumer Restitution
Another hot topic at the hearing had to do with what the left-leaning committee members categorized as a lack of redress for consumers in the CFPB’s settlements. The focus was primarily on the CFPB’s settlement with Enova International, Inc. In the Enova settlement, the company was to pay a $3.5M civil penalty but no restitution to consumers.
Just minutes before the start of the hearing, Chairwoman Waters released a report of an investigation the majority staff of the Committee ran on the CFPB’s settlements. Due to the timing of the report’s release, it appeared that Kraninger did not have an opportunity to review it prior to questioning.
Chairwoman Waters referenced that 3 of the first 5 settlements under Kraninger’s leadership did not provide for restitution to consumers. Waters likewise brought up the report, which she stated found that political appointees at the Bureau—specifically, Eric Blankenstein—overruled the recommendations of career non-partisan staff employees on restitution in settlements.
Kraninger’s position was that every case is reviewed on its facts and specific circumstances, including the Enova matter. The settlements were the result of negotiations, which CFPB staff are engaged in. The settlements also take into account a consumer cost-benefit analysis, including the cost and time requirements to bring the case to trial. Kraninger stated that reasonable people don’t always agree, so it is reasonable to assume that not everyone would agree with the negotiations.
Kraninger also referenced that of the 19 settlements reached since her tenure started, many contained restitution for consumers. If a company did not have the ability to redress consumer harm, the CFPB would levy a $1 civil penalty so that it can seek redress to harmed consumers through its funding structure, such as in the Corbett matter.
Specifically related to Enova, Kraninger mentioned that the concept of disgorgement went into play—the consumers effected did actually owe the debts in question, so the funds taken by the company were owed by the consumer.
Electronic Communications in Debt Collection
As expected, the CFPB’s Notice of Proposed Rulemaking for debt collection came up. A common complaint from the left-leaning Committee members was the issue of allegedly “unlimited” text messages and emails that the proposed rule permits.
Rep. Alayna Pressley (D-MA) questioned Kraninger about the specific issue of consent. Rep. Pressley asked whether debt collectors would need to receive consent from consumers before sending text messages, which the consumer would have to pay for.
Kraninger responded that under the proposal, debt collectors can send text messages to consumers who previously used text messages as a form of communication with the creditor in relation to the same account. In other words, the consumer needed to have consented to and actually used text messages with the creditor in order for the debt collector to begin texting.
Editor's Note: This likely means in a situation where the debt collector did not directly receive consent from the consumer, which the NPRM would allow as an alternate consent method.
When Rep. Pressley brought up the cost of text messages for consumers without unlimited plans, Kraninger stated that consumers without unlimited plans or the ability to pay for the text messages would likely not give permission to creditors to contact them via text message, making the issue moot.
Of note, none of the Committee members nor Kraninger brought up the fact that “unlimited” is a misnomer in this context—the FDCPA itself contains a natural limit to the number of communications of any medium that a debt collector may engage in through the prohibition against the intent to harass or annoy the consumer.
In short, nothing groundbreaking occurred at this hearing on the substantial issues. There was some jabbing and bickering between the Committee members that was interesting.
At one point, Rep. Maloney (D-NY) seemingly referred to Kraninger or the Bureau as “completely worthless,” which led to a lot of back-and-forth about the intent of the statement, which the representative eventually clarified, saying it was not directed personally to Kraninger.
There was also some back-and-forth about the forthcomingness of Kraninger and the CFPB’s first director, Richard Cordray, at these hearings. Some Committee members accused Kraninger of evading answers; others—like Rep. Huizenga—noted that when Cordray sat for these hearings, he stonewalled answered as well.