Kraninger’s ‘open mind’ on payday lending proposal meets Democrats’ closed ranks of ire in Senate hearing

Bureau's inactions on MLA supervision also closely scrutinized

Despite saying she has an “open mind” about a proposed rule on payday lending, the director of the federal consumer financial protection agency faced a flurry of questions from Democratic senators in a hearing Tuesday about the proposal – with many expressing disappointment over the agency’s actions.

“We want consumers to be empowered to make the decisions that best suit their financial needs, and we want to make sure that our evidence is sufficiently robust and rigorous,” Consumer Financial Protection Bureau (CFPB) Director Kathleen (“Kathy”) Kraninger told the Senate Banking Committee about proposed changes to the bureau’s rule on payday and small dollar loans.

“I have an open mind on this matter and I look forward to reviewing the comments and evidence submitted in response to our proposals,” she said. The CFPB director was appearing before the committee for the semiannual review of the bureau’s activities.

Last month, the bureau proposed removing mandatory underwriting provisions of its regulations aimed at protecting consumers from abusive payday lending practices; and to change the effective date of those provisions in the rule from this year to next. The proposals would revise the “Payday, Vehicle Title, and Certain High-Cost Installment Loans” regulation that was finalized in 2017. Those provisions had been scheduled to go into effect in August, but a federal court has issued a stay until the agency finalized a “reconsideration” of the rule (as proposed last month).

But Democrats on the Banking Committee let Kraninger know of their disappointment about the proposal in any event. Ranking Member Sherrod Brown (D-Ohio) displayed a chart which he said had been produced by a payday lender for staff training purposes. “Can you show me in this cycle where the family actually pays back its loans,” Brown repeatedly asked Kraninger, asserting that the circular pattern of the chart showed no such payback option – just a recurring payment of the loan.

Kraninger avoided responding directly, saying only that the bureau wanted to ensure “a broad panoply of products” available for ensuring short-term credit.

The bureau director later told Sen. Chris Van Hollen (D-Md.) that the reason for the reconsideration of the payday proposal is the underlying legal and factual basis around the bureau’s determination of fairness and abusiveness without the underwriting rules. “That’s the issue at hand,” she said.

But Van Hollen pressed her, asking “but you are rescinding a rule that is designed to protect consumers, right?” he asked. Kraninger ultimately agreed. Van Hollen then turned to statistics, in the bureau’s own documents, that he said indicated payday lenders would save between $7.3 billion to $7.7 billion (annualized) that “they would not otherwise have” under the existing rule. “Does it conclude that, by rescinding the rule, on an annualized basis, payday lenders will be able to pocket $7.3 billion to $7.7 billion more? Isn’t that what it says,” Van Holen pressed, holding up the document.

“Yes senator, it does,” Kraninger responded. But, she added, the bureau “has a responsibility to look at the full record” of the rule, and a court stayed the rule’s implementation after the bureau pledged a “reconsideration of its process” in developing the regulation.

(In the video, Sen. Chris Van Hollen (D-Md.) quertions CFPB Director Kathleen Kraninger about the impact of the changes her agency is proposing to its regulation of payday lenders.)

In other lines of questioning, committee members pressed Kraninger on the bureau’s decision not to supervise for compliance with the Military Lending Act (MLA). Last year, under the authority of then-Acting Bureau Director John (“Mick”) Mulvaney, the bureau said the bureau would cease conducting MLA supervisory exams of lenders because it lacked specific authority to do so.

In January, Kraninger wrote to House Speaker Nancy Pelosi (D-Calif.) and Vice President Mike Pence (and key House and Senate committees) draft legislation that she said would give her agency clear authority to supervise for compliance.

But Democrats on the committee asserted that Kraninger already has the authority to do so. “I am frankly appalled that you have decided that MLA is not in your supervisory authority,” Sen. Jack Reed (D-R.I.) said. “Were comments sought?”

Kraninger told Reed that “the determination is mine.”

That did not sit well with Reed, who told her bluntly, “I think you are wrong; so does your legal counsel.”

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