President Trump formally nominated Kathy Kraninger to become the new head of the Consumer Financial Protection Bureau (the “Bureau”) on June 18, 2018. While this nomination was a surprise to many due to Kraninger’s apparent lack of financial or consumer regulatory experience, the timing of the nomination and associated tactical considerations are less surprising. The nomination allows Acting Director Mick Mulvaney to remain head of the Bureau in the near term – and may signal that the Bureau will continue its current policy trajectory.
The Nominee’s Background
Kraninger is currently an associate director of the White House Office of Management and Budget (OMB) whose background and expertise concerns security issues, including current oversight of the budget for the Department of Homeland Security (DHS). Kraninger has little known experience in consumer protection or in financial services regulation.
As Acting Director of the Bureau, Mulvaney would have been required to step away as interim head of the Bureau after 210 days under the Federal Vacancies Reform Act of 1998 (FVRA), 5 U.S.C. §§ 3345-3349d, unless a nomination was made. Mulvaney became acting head of the Bureau on November 25, 2017, meaning that his last day under the FVRA would have been June 22, 2018. Kraninger’s nomination restarts the clock for however long the nomination is pending in the Senate under 5 U.S.C. § 3346. If Kraninger’s nomination is withdrawn or rejected, then the clock starts yet again for a new 210 days. A second nomination would restart the 210 day clock yet again.
Accordingly, Kraninger’s nomination could be viewed as a tactical move to keep Mulvaney entrenched at the Bureau. However, with Mulvaney’s additional role as current head of OMB (which dual role was viewed skeptically by the D.C. Circuit in English v. CFPB, and his name being floated as a possible replacement for White House Chief of Staff once John Kelly steps down later this year, the Trump administration is more likely to be serious about finding a permanent replacement at the Bureau.
A Tough Confirmation Looming?
Kraninger’s nomination process may be prolonged and difficult. Senator Elizabeth Warren, one of several Democrats on the Senate Banking Committee voicing concern over the nomination, has stated that she will attempt to hold Kraninger’s confirmation until Kraninger turns over all documents regarding her oversight over DHS and immigrant families being separated at the border. Senator Sherrod Brown wrote Kraninger a letter with Warren asking for the same.
Beyond broader political considerations, Kraninger will likely face scrutiny from both sides of the aisle for her lack of experience. Democrats may cite lack of experience at hearings as reason Kraninger will be ineffective. On the other hand, Kraninger’s lack of policy record limits critics’ ammunition. Republicans may also express concerns (though perhaps privately), because the lack of experience may slow efforts to dismantle Bureau activities considered to be more onerous, where Mulvaney has been productive.
However, the nomination puts Democrats in a double-bind – a delay on Kraninger’s nomination allows Mulvaney to remain in control. If Democrats risk allowing a floor vote on Kraninger and she is confirmed, then she has a five year appointment regardless of what occurs with midterm elections this year or the presidential vote in 2020.
A confirmation may also lead to other undesirable outcomes for Senate Democrats. Considering Kraninger’s relative lack of experience with the Bureau’s activities, the White House may intend her role may be as a titular head, while a second-in-command with substantial policy experience – appointed by her and not subject to the Senate confirmation process – may be responsible for policy and operational considerations at the Bureau. This would enable Republicans to advance their policy goals without subjecting a policy expert to Senate scrutiny. In any event, Kraninger’s nomination lengthens the amount of time Mulvaney may remain as Acting Director.
A Growing List of Issues for the New Director
If confirmed, Kraninger may be required to defend the legitimacy of the Bureau itself. U.S. District Judge Loretta Preska of the Southern District of New York ruled that the Bureau is unconstitutionally structured and therefore cannot bring claims under the Consumer Financial Protection Act. Alternatively, the Bureau could decide not to appeal the District Court decision. Judge Preska’s decision in CFPB et al. v. RD Legal Funding, LLC applies pressure to the current structure of the Bureau and creates a split with the U.S. Court of Appeals for the D.C. Circuit which had held that the Bureau’s structure was constitutional in its decision in PHH Corp. v. Consumer Financial Protection Bureau.
A new Director will also need to handle an increasing list of administrative and strategic decisions, stemming in part from a wave of requests for information (RFI) issued by the Bureau under Mulvaney. The Bureau will be sorting through responses to RFIs on topics ranging from its rulemaking process to consumer complaint intake and the publishing of consumer complaints on the Bureau database.
Concurrently with these issues, the Bureau is working to determine how to implement reporting requirements for business credit to women-owned, minority-owned, and small businesses as required under Section 1071 of the Dodd-Frank Act, 15 U.S.C. 1691c-2(a). After the comment window closed for the RFI on September 14, 2017, the requirements that the Bureau plans to implement under the section are still unclear.
Likewise, either the new Director, or Mulvaney as Interim Director, will need to determine how to the Bureau will move forward with its reconsideration of the Payday, Vehicle Title, and Certain High-Cost Installment Loans rule, along with the other items indicated on the Bureau’s 2018 rulemaking agenda.
If Kraninger is confirmed as the new Director of the Bureau, the learning curve will be steep and the “to do” list will be long. Given the large number of open regulatory efforts in the Bureau’s agenda, combined with what is sure to be a long an arduous confirmation process, we are relatively confident that the Bureau will continue its current policy trajectories over the near-to-medium timeframe.