Digital Transactions Authoritative, insightful and timely information for payments professionals
With all the changes coming to Washington D.C., the payments industry’s focus will largely be on one appointment: the new director of the Consumer Financial Protection Bureau.
The current director, Kathy Kraninger, was appointed by President Donald Trump and confirmed by the Senate in December 2018 to serve a five-year term. The Supreme Court ruled in June in the Seila Law vs. CFPB case that the president could replace the director of the Bureau but said the Bureau itself was Constitutional.
So, President-elect Biden will be free to remove Kraninger and replace her with a new director, though that person must be approved by the Senate.
Despite not being the most-discussed appointment, the future director of the Bureau is on the mind of Maxine Waters, the chairwoman of the House Financial Services Committee. In a letter to President-elect Biden on Dec. 4, she recommended that his first action in regard to the agency be to fire Kraninger.
As of mid-December, there were no names put forward as a potential replacement—though that choice could well prove crucial to the payments industry.
Whoever the director is, one of the first things he or she will face is PayPal’s lawsuit challenging the CFPB’s prepaid rule. If PayPal were to prevail, that outcome likely would lead to the deregulation of a broad swath of the payments industry, including prepaid cards and accounts. The bureau would confront a lot of work in writing new rules for prepaid accounts, digital wallets, and other fintechs. So defending this suit will be high on the list of the agency’s priorities.
Regardless of what happens with the PayPal case, the current upward trend of enforcement actions is likely to continue. In Richard Cordray’s last year as the CFPB’s first director, the Bureau filed 38 enforcement actions. In 2018, when the Bureau was being run by Mick Mulvaney, new enforcement actions dropped to 11. Since then, they have climbed to 43 as of November. Total relief provided to consumers has also soared, from $356 million in 2017 to $669 million as of November.
Chairwoman Waters recommended that Biden direct the CFPB “to aggressively protect consumers by enforcing the law, including protections provided under the CARES Act, as well as other consumer financial protection laws, such as the prohibition on unfair, deceptive, or abusive acts or practices (UDAAP).” Kraninger faced a number of heated meetings in front of the Financial Services Committee, and the scrutiny will no doubt continue as the committee expects a new direction at the bureau.
The bureau probably will expand its enforcement focus from technical violations to include more violations related to UDAAP, as provided for under the Dodd Frank Act. It will look to show its effectiveness in protecting consumers, especially as more people face pressures as a result of the Covid-19 pandemic.
Between now and the new director’s appointment, there may also be a rush to resolve any outstanding issues by companies fearful of a more stringent bureau imposing harsher penalties in the future.
As it steps up its enforcement, one thing that might slow the bureau’s efforts is staffing. Over the past four years, a number of people have left, creating a need to fill the vacancies.
Once new investigations are started under a new director, it might be a year or more until we see them publicly. So it will take some time before we know the full effects of the change in directors. But we can be sure that the payments industry will be supervised much more closely than in the past four years.
—Ben Jackson, bjackson@ipa.org
