Attorneys Weigh In on Kraninger Appointment, Impact on Auto Lenders

Though newly appointed Consumer Financial Protection Bureau Director Kathy Kraninger will likely continue Mick Mulvaney’s efforts to dismantle the agency, chances are high that she will face tougher oversight than her predecessor, as Democrats take control of the House next year, several attorneys told Auto Finance News.

Kraninger, President Donald Trump’s nominee for the CFPB post, was approved by the Senate in a 50-49 vote last Thursday.

Kraninger will succeed Mulvaney, White House budget chief, who was an outspoken critic of the agency. His agenda to weaken the agency’s enforcement and rulemaking has been widely denounced by Democrats and consumer advocates. While at the helm of the bureau, Mulvaney reversed the CFPB’s crackdown on short-term, high-interest loans, slashed the bureau’s spending, and laid the groundwork to massively reduce the agency’s reach and authority.

Repossessions, add-on products, and the “Larger Participant” rule will likely be at the top of Kraninger’s auto finance list, lawyers said.

For one, Hudson Cook LLP partner Eric Johnson, the firm’s authority on auto finance and fintech practices, suspects Kraninger will place a continued emphasis on add-on products, wrongful repossessions, and other practices often deemed deceptive.

Also, Kraninger’s views on the larger participant rule, which allowed the CFPB to regulate nonbanks that originated at least 10,000 loans or leases annually, will be worth monitoring, according to Troutman Sanders LLP lawyers Chad Fuller and Virginia Flynn. “The amount of oversight we were seeing with Cordray was a huge burden and expense, especially when state laws and AGs were already overseeing a lot of what auto lenders were doing anyway,” Flynn, an associate of consumer financial services, said in an email. “We are hopeful that the CFPB under Kraninger will rethink the definition of larger participant and increase the annual originations to a much larger number or remove it all together.”

On the whole, though, Johnson is not holding out for many new rules and regulations to be written. “It’s highly unlikely that Mulvaney, Kraninger, or the current Justice Department would choose to greenlight a disparate impact investigation in the auto finance world,” he said, adding that the expectation shouldn’t erase all concern about what she and the bureau might do if, and when, they reevaluate their positions.

Kraninger’s road to CFPB director was a controversial one. She was largely criticized by Democrats for having no finance or consumer protection background. Republicans retorted, affirming her OMB background puts her in a good position to curb CFPB spending.

Kraninger will serve a five-year term as CFPB director, which may provide some impetus for Democrats and Republicans to truly consider a commission structure, John Redding of Buckley Sandler LLP told AFN. Earlier this year, the CFPB fell under the scrutiny of Judge Loretta Preska of the Southern District of New York who ruled that it was unconstitutional of the CFPB to be structured as an independent agency that exercises substantial executive power and is headed by a single director. “It will be interesting to see how the Democrats approach the bureau’s single director mode, particularly if they believe they can take the White House in the next election,” Redding said, “since Director Kraninger’s term will last approximately three years into the next president’s term.”

However, given the likelihood of Maxine Waters’ (D-Calif.) appointment as chair of House Financial Services Committee, Kraninger is likely going to experience heightened scrutiny from the incoming Democratic House.

“She’s going to have to justify what she’s doing and not doing consumer protection-wise with the House,” said Johnson of Hudson Cook. “She will likely face a tremendous amount of pressure by representatives from the House and certain senators to protect consumers.”

Redding affirmed that pressure on Director Kraninger from Cong.Waters is likely, and “could result in distractions from the bureau’s core mission of protecting consumers.”

The CFPB declined to comment on how the agency’s auto-related initiatives may be affected with Kraninger as director.