How Waters will keep pressure on CFPB

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There is already intense focus on how the Democratic-run House Financial Services Committee may shine a spotlight on Trump administration-appointed regulators. But that light might shine brightest on one agency in particular: the Consumer Financial Protection Bureau.

Rep. Maxine Waters, D-Calif., the likely chairwoman of the committee when the new Congress convenes in 2019, is expected to waste no time aggressively scrutinizing the agency now run by acting Director Mick Mulvaney.

Observers expect her to use the committee's subpoena powers to investigate how decisions were made by Mulvaney, including an 80% drop in enforcement actions in 2018, to just nine, from 47 a year earlier. Yet it appears Mulvaney may avoid answering any of those questions, with Kathy Kraninger now on the verge of being confirmed as permanent director.

“As soon as she gets confirmed, Director Kraninger could have a real porcupine on her hands,” said Todd Zywicki, a law professor at George Mason University.

If confirmed, Kraninger, now an official at the Office of Management and Budget, may be put in the tough position of having to defend policies developed under Mulvaney's watch.

“By the time Kraninger gets in, I suspect subpoenas will have started coming,” said Allyson Baker, a partner at Venable and one of the first enforcement attorneys at the CFPB when it opened its doors 2011. “It’s not so much an inquiry into Kraninger’s work but about Mulvaney’s time at the bureau, and what the bureau has or has not done."

Waters would replace current committee Chair Jeb Hensarling, R-Texas. Several of Hensarling's staffers were named to senior positions at the CFPB earlier this year.

In a letter to Democratic colleagues after the midterm elections, Waters touted her efforts to defend the CFPB as the committee's ranking member. "I am committed to putting consumers first by engaging in robust oversight of Mulvaney's actions at the CFPB and righting the many wrongs he has committed," she wrote.

How aggressive the House committee will be depends in part on how much influence the Democrats' progressive wing — which includes some of the CFPB's staunchest defenders — has on House leadership.

The panel could see the addition of new members such as Katie Porter, D-Calif., a University of California, Irvine law professor who ran a populist campaign in Orange County. Porter is an ally of Sen. Elizabeth Warren, D- Mass., the original architect of the consumer bureau. Alexandria Ocasio-Cortez, an incoming congresswoman from New York who pulled off a stunning primary upset of longtime Democratic Rep. Joseph Crowley, has expressed interest in a seat on the committee.

Waters is considering adding a subcommittee that will focus solely on consumer protection and financial inclusion issues. Rep. Gregory Meeks, D-N.Y., has expressed interest in being its chair.

“Democrats are going to be aggressive — though I don’t think they have decided how they are going to do it yet,” said Ed Mills, a public policy analyst at Raymond James.

Observers said Waters is likely to question CFPB officials over the agency's moves to end examinations for compliance with the Military Lending Act, strip the bureau's fair-lending office of its enforcement and supervisory authority, and gut the student lending office.

Other topics of potential investigation are Mulvaney’s ties to the payday lending, his intention to rewrite the agency's payday rule, and a reduction in fines against financial firms targeted in enforcement actions.

A potential road map for how the Democrats plan to oversee the CFPB was offered by the minority staff on the Senate Banking Committee in a scathing report that focused on Mulvaney’s actions and his refusal to respond to congressional requests for information.

Yet an obvious obstacle for Waters and other Democrats in trying to drive CFPB policy is that the GOP will still control the Senate and the White House.

“One question that Chairman Waters will have to ask herself is, what is her goal?” Zywicki said. “She may spend a good portion of the next two years staking out a wish list of what the Democrats might do if there’s a unified government in two years.”

Some political analysts have suggested Waters might follow in the footsteps of former Rep. Henry Gonzalez, D-Texas, who was feared at first by banks but ultimately steered the then-House Banking Committee, in the late '80s and early '90s, with an even hand after the savings and loan crisis, tackling flood insurance and stronger laws to prevent financial crimes like money laundering.

In one of his first appearances before Congress early this year, Mulvaney was defiant in the face of criticism from Democratic lawmakers. He insisted that he was only required by statute to appear but did not have to answer any questions from lawmakers.

Another question mark is whether Eric Blankenstein, the CFPB’s policy director of supervision, enforcement and fair lending, will remain at the bureau under Kraninger or face scrutiny from Waters after a brouhaha over his incendiary writings 14 years ago.

“I don’t believe" Waters has legal authority to remove Blankenstein, said Yana Miles, senior legislative counsel at the Center for Responsible Lending. But Waters "can call Kathy Kraninger and Blankenstein to appear before the House and explain what he is going to do.”

Doug Ryan, a senior director of homeownership at Prosperity Now, a nonprofit consumer advocacy group, recalled the nearly 70 times that former CFPB Director Richard Cordray was called by Hensarling to testify.

House Republicans issued subpoenas to Cordray while criticizing the CFPB’s investigation into Wells Fargo's illegal sales practices, calling out the agency over its auto lending guidance and alleging that Cordray had violated the Hatch Act. (He was cleared of any wrongdoing.)

Leading the legal charge against Cordray at that time was Brian Johnson, then a senior counsel on the committee for Hensarling and now the CFPB’s deputy director under Mulvaney.

"We will have some really interesting oversight," Ryan said. "Kraninger will have to testify, and I think it should be very telling because a lot of people, us included, do not feel that she is the best choice for the bureau, and we also are very, very disappointed with how the acting director Mr. Mulvaney has performed, and clearly sided against consumers in many, many decisions."

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Regulatory reform Payday lending Maxine Waters Mick Mulvaney Kathy Kraninger CFPB