5 issues that could make sparks fly in Mulvaney testimony

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WASHINGTON — Mick Mulvaney, acting director of the Consumer Financial Protection Bureau, is headed back to Congress this week, only this time he'll be the one under fire.

The former congressman, who also serves as director of President Trump's Office of Management and Budget, will testify on his stewardship of the bureau since taking over in January. He will testify before the House Financial Services Committee on Wednesday and the Senate Banking Committee on Thursday.

Much as the bureau has long divided lawmakers down party lines, Mulvaney's appearance before Congress is likely to have a similar effect.

"We’d expect Mulvaney to be warmly received by Republicans but treated icily by Democrats," said Charles Gabriel, president of the policy research firm Capital Alpha Partners.

Below are five key issues to watch Wednesday and Thursday during Mulvaney's back-to-back appearances.

Questions about the CFPB's long-term structure are sure to come up

In the CFPB's semiannual report released earlier this month, Mulvaney proposed a series of sweeping changes designed to stamp out the agency’s “tyranny.”

The changes include a proposal that Congress approve all major rules advanced by the agency before they can go into effect. The acting director also calls for the bureau to be subject to congressional appropriations and have a dedicated inspector general and for its director to be more accountable to the president. Currently, the CFPB director can only be fired for cause.

While some observers have raised strong objections to the report, it’s unclear how Congress will react, given that several of the proposals would give lawmakers more director control over how the bureau operates.

Many Republican lawmakers may welcome the changes, as some have backed previous efforts to put the bureau under congressional funding. But there is also likely to be serious pushback from Democrats who see Capitol Hill approval of agency regulations as a way to prevent any rulemaking from actually happening.

“This is a tired, well-worn disguise for what we think is the true ambition, which is demolishing the agency altogether,” said Bartlett Naylor, a financial policy advocate for the consumer group Public Citizen.

A face-to-face meeting between Mulvaney and Elizabeth Warren

Since taking the helm, the CFPB’s acting director has been engaged in a war of words with Sen. Elizabeth Warren, D-Mass., the agency's original architect and its most vocal backer. The two have traded barbs over Mulvaney’s actions on data collection, payday lending, regulatory enforcement, fair lending and other issues.

But that exchange, largely played out through publicly released letters between the two, is likely to intensify Thursday when Mulvaney testifies before the Senate Banking Committee for the first time as head of the CFPB. (He has testified to Congress since his CFPB appointment, but that was as head of the OMB.)

In his dealings with Warren and criticism of former Director Richard Cordray, Mulvaney has suggested that the CFPB director legally has too much authority. In his latest letter to Warren, sent last week, Mulvaney said the agency’s structure grants him so much power that he can essentially ignore congressional inquiries, like those raised by the Massachusetts Democrat.

He said on Monday at a conference hosted by the Independent Community Bankers of America that “the role of the director really is, it’s too powerful.”

Mulvaney added that his letter to Warren cited similar concerns: “Maybe the problem was not Mr. Cordray and not me, but the statute that Sen. Warren had a great deal of input" on.

Naylor said that he expects “a fairly muscular session on both days” as Mulvaney makes his congressional debut speaking for the agency.

“I assume that the fireworks will last for two days,” he said. “Warren is certainly a skillful interrogator and there’s no doubt she will attract a good deal of attention, but there are champions [of the agency] throughout the Senate and the House.”

But in Mulvaney's corner will likely be GOP backers who hold the majority in both chambers of Congress.

"These hearings should prove to be a study in political contrast as the right will treat Mr. Mulvaney as a noble hero doing yeoman’s work and the left will treat him as a villain methodically unwinding the consumer protection regulatory regime," Isaac Boltansky, an analyst with Compass Point Research & Trading, wrote in a note this week.

And whereas a Senate-confirmed director of the agency might be expected to show lawmakers some deference, Mulvaney has little to lose in taking on his congressional critics.

"He will certainly be less constrained than would a permanent director," Gabriel said. "That’s been one of our central themes — that he can swing away in throttling the bureau, knowing that he doesn’t have to withstand the scrutiny he would have to face in defending permanent changes in the law."

Mulvaney may try to defend his approach to enforcement actions

Mulvaney will likely face harsh criticism from Democrats that the CFPB has lost its enforcement teeth. The bureau has issued no public enforcement actions since Mulvaney was appointed, and reports have swirled about the agency dropping investigations into payday lenders — an industry that had contributed to Mulvaney when he was a political candidate.

Mulvaney has been clear he wants the agency to stall overreach on enforcement matters, but he may seek to make the case that the agency will still be tough on enforcement when it is justified.

“People say all the time, ‘Oh, you’re not going to sue anybody anymore.’ No, that’s actually not the case. We’re going to go after the bad guys,” Mulvaney said at the ICBA conference on Monday. “We’re going to do what the statute says, but we’re not going to do more than that.”

Media reports earlier this year claimed the agency was pulling back from investigating the Equifax data breach, but the credit bureau has since reported in a securities filing that the CFPB was among several agencies conducting an “ongoing investigation.”

And media reports Monday said the CFPB is seeking up to $1 billion in fines against Wells Fargo related to auto insurance and mortgage lending.

The agency's potential pursuit of a Wells Fargo order "is likely to be the [dominant] issue when Acting CFPB Director Mick Mulvaney testifies in the coming days before the House Financial Services Committee and Senate Banking Committee," said Jaret Seiberg, an analyst at Cowen Washington Research Group, in a note Monday.

The CFPB chief could lobby lawmakers directly to overturn the agency's embattled payday lending rule

Mulvaney has done little to hide his disregard for the CFPB's payday lending rule, which was issued before him under Cordray. The hearings will offer him an opportunity to make a direct appeal to Congress to block the rule through the Congressional Review Act.

Republicans and the industry have long argued that the rule could harm small-dollar consumer lending.

Sen. Lindsey Graham, R–S.C., last month introduced a resolution to block it under the Congressional Review Act, which gives Congress 60 session days to stop a rule from being implemented, needing only a simple majority. The House introduced a similar measure late last year.

Lawmakers have until early May to overturn the rule through the CRA procedure. The rule took effect in January, but lenders don’t have to comply with most of the provisions until August.

Mulvaney said Monday that using the CRA procedure would be the best approach to stopping the rule since the CFPB must now “follow the law” that was finalized under Cordray.

“When I got there [to the CFPB[ I said, ‘Can we stop it?’ And they said ‘No, we’re in the process, you can’t stop it,' " Mulvaney said. “When it comes to any type of fix, regardless of what side you’re on . . . the CRA is always, always, always to be preferred.”

An update on the CFPB's small-business data collection rule

Lawmakers will likely ask Mulvaney for a status update on a rule that would require lenders to begin reporting data on small-business loan applicants, something Congress mandated in Section 1071 of the Dodd-Frank Act.

The rule was meant to shed light on industry trends and hold banks responsible for lending to small businesses. But the process to collect and report this data from scratch could be cumbersome for lenders and it poses privacy threats, bankers say.

Mulvaney, in responding to bankers at the ICBA conference Monday, said he and former CFPB Director Richard Cordray shared the same concerns, which is why the agency has not yet proposed a rule.

“All I can tell you is it’s going to be hard” because a small-business loan “doesn’t fit neatly into a box. It’s not like a credit card. It’s not like a mortgage,” Mulvaney said. “We recognize that and Mr. Cordray’s leadership team recognized that.”

Mulvaney added that he did not have a time frame for when the CFPB will propose a rule on small-business data reporting.

“We have to do this. It’s a statutory mandate,” he said. “All I can tell you is that we’re taking the concerns that you have raised extraordinarily seriously. I think that’s why you’re seeing it take so long.”

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Regulatory relief Dodd-Frank Enforcement Payday lending Small business lending Mick Mulvaney Elizabeth Warren CFPB