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The CFPB Turns 10: Evaluating America’s Youngest Federal Financial Regulator

Virtual Conference

July 19, 2021

On July 19, 2021, the Federalist Society hoste a virtual conference moderated by Mr. Brian Johnson, Partner at Alston & Bird LLP and former Deputy Director of the CFPB and Chief Financial Institutions Counsel of the House Financial Services Committee. 

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12:00 p.m. - 12:50 p.m.
Hon. Kathy Kraninger Keynote Address

The CFPB Turns 10: Evaluating America’s Youngest Federal Financial Regulator

Topics: Administrative Law & Regulation • Financial Services • Financial Services & E-Commerce
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On July 19, 2021, the Federalist Society's Financial Services and E-Regulation Practice Group sponsored an online conference titled "The CFPB Turns 10: Evaluating America's Youngest Federal Financial Regulator." Former Consumer Financial Protection Bureau (CFPB) Director Kathy Kraninger offered the keynote address, reflecting on her tenure at the CFPB.

Featuring:

  • Hon. Kathy Kraninger, Former Director, Consumer Financial Protection Bureau
  • Moderator: Brian Johnson, Partner, Alston & Bird

* * * * * 

As always, the Federalist Society takes no position on particular legal or public policy issues; all expressions of opinion are those of the speaker.

Speakers

Event Transcript

[Music]

 

Dean Reuter:  Good afternoon. Welcome to The Federalist Society’s conference on all things CFPB. I am Dean Reuter, Senior Vice President, General Counsel, and Director of Practice Groups at The Federalist Society. I’m very pleased to welcome you here today and then to fade into the background.

 

      My sole responsibility is to introduce Brian Johnson. He is a partner at Alston & Bird’s Financial Services and Products Group and the Consumer Financial Services team. More importantly, I think, for our purposes today, Brian served as Deputy Director of the CFPB—the Consumer Financial Protection Bureau—where he was responsible for policy development, strategic planning, and execution of the CFPB’s statutory supervision, examination, enforcement, rulemaking, and research activities.

 

He conceived and led the creation of high-profile agency initiatives, including the Office of Innovation, the Task Force on Federal Consumer Financial Law, and the Call for Evidence RFI series, Policy Symposia series, and Start Small, Save Up Emergency Savings program. He had a lot on his plate in the short period of time there.

 

Brian held various positions before that on Capitol Hill, including oversight of the activities of the CFPB, but also FSOC and the FDIC, the Office of Financial Research, the OCC, the Federal Reserve System, and the NCUA, which is the National Credit Union Administration. He’s earned his BA in Economics and his JD both from the University of Virginia. And very importantly, he’s the primary organizer of today’s program. He’s going to act as our MC and moderator of everything we see today.

 

So with that, Brian, welcome.

 

Brian Johnson:  Thank you, Dean. Welcome, and thank you everyone for tuning in to today’s event. Wednesday of this week marks the ten-year anniversary of the Consumer Financial Protection Bureau first opening its doors. This young agency was created by the Dodd-Frank Act. It was born out of the crucible of the financial crisis, was the brainchild of then professor and now U.S. Senator Elizabeth Warren.

 

      Congress granted the CFPB broad and novel administrative authorities over bank and non-bank financial institutions and designed it to be highly independent from the political branches of government. Early leaders of the agency dubbed it “the cop on the beat” and sought to quickly establish it as a financial watchdog to be reckoned with.

 

      At the same time, the agency has been the subject of—or affected by—landmark legal disputes involving constitutional separation of powers questions, like the scope of the president’s recess appointment power and removal power and the legislative power of the purse, as well as other foundational jurisprudential concepts of federalism, fair notice, and due process of law.

 

      These issues and the CFPB’s activities during three different presidencies have often been politically polarizing. Indeed, strong and enduring differences of opinion exists regarding the agency’s policy decisions and the underlying philosophical considerations of the proper scope of American consumer financial regulation.

 

      Today, we aspire to rise above the partisan fray and use the CFPB’s tenth birthday as an appropriate opportunity to objectively evaluate the CFPB’s legacy and future. We have assembled panels of former policymakers, leading academics, and distinguished legal practitioners with diverse viewpoints, who have thought about, written about, worked within, and interacted with the CFPB throughout its history. They know the real CFPB inside and out, and we are fortunate that they will be sharing their experiences and insights with us today.

 

      Let us now turn to our keynote speaker, Kathy Kraninger. Kathy became director of the CFPB in December 2018. From her early days as a Peace Corps volunteer, to a role establishing the Department of Homeland Security, to her policy work at the Office of Management and Budget to the CFPB, Kathy has dedicated her career to public service.

 

      She came to the CFPB from the Office of Management and Budget, where she was Policy Associate Director. She oversaw the budgets for executive branch agencies, including the Departments of Commerce, Justice, Homeland Security, HUD, Transportation, and Treasury—in addition to 30 other government agencies. Previously, she worked in the U.S. Senate, where she was clerk for the Senate Appropriation subcommittee on Homeland Security.

 

On Capitol Hill, she also worked for the House Appropriations Subcommittee of Homeland Security, as well as the Senate Homeland Security, and Government Affairs Committee. She served in the executive branch post with the Department of Transportation there after the terrorist attacks on September 11, 2001. She volunteered to join the leadership team and set up the newly created DHS. Her work at DHS led to awards, including the Secretary of Homeland Security’s Award of Exceptional Service, the International Police and Public Safety’s 9/11 Medal, the Meritorious Service Public Service Award from the United States Coast Guard.

 

She graduated magna cum laude from Marquette University and earned a law degree from Georgetown University Law Center. She also served as a U.S. Peace Corps volunteer in Ukraine.

 

Kathy, welcome, and thank you so much for joining us today.

 

Hon. Kathy Kraninger:  Fantastic to be with you always. Also, good to see you, Brian. So thank you, and thank you to The Federalist Society for hosting this forum.

 

Brian Johnson:  Well, if I slip and call you “boss,” please forgive me for that. So I will note that, at the outset today -- it’s not a keynote address, but rather a fireside chat. And since we’re doing this remotely, we don’t have a fire aside which to sit.

 

But I was quite interested in hearing about your background—maybe to start this conversation—prior to the CFPB. I read your bio, of course, which can’t do that experience justice. But it undoubtedly shaped your view of good government. You were in and around different departments and agencies from a management perspective, inside DHS as a startup, which is similar in some ways to the startup of CFPB—the youngest financial regulator.

 

What is it about your background in government service that you thought best prepared you for walking into the CFPB director seat?

 

Hon. Kathy Kraninger:  Yeah. Well, it really is certainly that DHS experience and that startup dynamic in government. There, frankly in history, are not that many opportunities to be involved at the beginning stages of an agency and really helping it form its mission. And I do feel pretty fortunate that I have been in those seminal places in history and been able to really be engaged. I think that’s what makes public service most rewarding to me is really knowing that you are adding value and making a huge difference and helping the country and helping the American people and doing what is so important in these public service jobs.

 

      So certainly, 9/11 was a very catalyzing event, recognizing that we needed to do something fundamentally different in the standup of TSA, the standup of DHS. And I was also involved in standing up an office called the Screening Coordination Office at DHS. And so that history of everyone coming together, the mission being core—having just great leaders that want to be involved and help.

 

All of the stories that I talked to folks who were involved at the very early stages of the CFPB—from that small team at Treasury to those that decided to come over from other agencies -- certainly experts in consumer finance from the outside—that same experience and, really, that passion for the mission is something that I can truly identify with and have felt and enjoyed.

 

I think the other thing, though, is definitely the way that you work in government. For good or for bad, you’ve got congressional committees that fight over jurisdiction. They create new agencies or new offices, and they’re often tentacles to those other either prior legacy agencies that might have had that responsibility before or shared jurisdiction. The DHS had that.

 

Early on, we had tons and tons of interagency meetings. I was at the White House regularly on behalf of DOT and then DHS—but meeting with Justice and meeting with Transportation also—and trying to figure out how those lines should be drawn and how the responsibility should work.

 

The CFPB, I think, in some cases didn’t really do that when it started off. And there was a continued effort that needed to happen when I came in to try to, again, continue to make sure that it was part of the fabric of the Financial Regulatory System. And so I was well versed in how that interagency world operates, how other agencies think about this.

 

And the last thing I will say about just public service generally is the leaders—who I have had the true fortune of working under—who were truly motivated by doing what was right. Certainly, there’s a philosophical perspective that we all bring and our own values. But really making sure that doing right by the mission—having the law as the  guiding document, seminal document—and what is it that Congress told us to do, and how do we most effectively go about doing it, and manage people in a way that is consistent with those values.

 

I can speak certainly very affectionately about Secretary Norman Mineta, who was the Democrat in Bush’s cabinet, who chaired -- who was Secretary of Transportation, and was really the first key leader I worked under. Just cared about people—showed that. You could not rush that man out of a meeting. It was really like, “We’ll take the time we need to take, and I want to get to know you,” and all of those things about how you best treat people and how that, in the long run, that actually helps you get things done.

 

And as I said, I’ve been very, very fortunate to work around and with some pretty fantastic people who showed that. And just the way that he led transportation, and I saw it in many other places that I worked in. Certainly, many politicians are good people-people as well, which is a good trait to have. But it really does matter on how you motivate and empower people and get them excited. So I’ve had a lot of experience in watching that and doing that, and I think it served me well coming over to the CFPB. And it’s what makes it enjoyable and fun too.

 

And last thing I’ll say is I had a colleague who was a very serious Coast Guardsman. Went over to the civilian side, but whenever I said I had fun in the job, he’d kind of look at me funny and say, “No, this is a duty. This is a responsibility.” I’m like, “If it wasn’t fun, I wouldn’t do it.” So that’s also part of the dynamic of finding that fun and finding good people to work with.

 

Brian Johnson:  Well, speaking of fun of the job, one important aspect of becoming director is, of course, going through the nomination and confirmation process. And I think you’d be maybe the first I’ve heard discuss that confirmation hearing as fun. They tend to be—I think, in this day and age—quite contentious.

 

Walk us back to that point in time you were sitting at OMB. At some point, it became clear you were going to be the nominee. For folks who haven’t been through that process—other than myself on the outside looking in—it looks like a pretty painful process to take a beating from senators who are usually sending larger messages than maybe evaluating qualifications. What is that process like? What was your experience there? What were your takeaways from that process?

 

Hon. Kathy Kraninger:   I’m lucky I grew up with a pretty thick skin with three brothers, so I am able to take that incoming flack and continue to plow forward because it is an incredibly challenging process. There’s no doubt about it. Some for certainly good reason. And then when you’re in a truly politicized position, like Director of CFPB—which, unfortunately, I really did want to take that political temperature down around that job, but I don’t think that’s going to happen in the long run—it was certainly worth a try. You and I have talked a lot about that.

 

      But being in that truly politicized role was definitely challenging. But again, it makes -- if it’s not hard, it’s probably also not worth undertaking. And so this was something that when I was approached about it, I really had to think long and hard about it. Again, what do you want to put your family through?

 

      There was a postcard campaign, which had shocked the heck out of me. I’ve spent my career working across the aisle in every job I’ve ever had. I never care, frankly, where someone is. If they want to actually find a solution and move forward, that’s what I love about policy making. And so regardless of who you worked for, that was what I sought out. And to have myself painted as someone who was extreme or somehow irresponsible, that is obviously something that you really do find it a little hard sometimes to move forward with and take with that grain of salt.

 

      So I feel really lucky to have great support—harder to watch my parents. And many people told me about watching their faces behind me during the hearing. But my family really is incredibly supportive of everything I’ve done. And look, I worked on the Hill. I worked in the administration. I have helped numerous nominees go through the process. I’ve helped senators prepare for nominees and done all of the process from the committee side on how nominees are managed. So this was something I knew well, was comfortable with. I knew what was happening on the other side of it—even when you’re going through it yourself—that, at least, is helpful.

 

And I’d say too, like many other people, talking about yourself is probably one of the most uncomfortable things that you have to do. Put subject matter in front of me. We can have debate and dialogue. But when you realize yourself—you yourself—are actually the source of this conversation and controversy, that part becomes also difficult to respond to.

 

But look. The senators, as you said, they had a job to do, and they’ve took the tact they decided to take publicly. I continued to maintain a lot of relationships on both sides of the aisle. I did not take any of that personally in terms of internalizing it and seeking to take future action as a result of how I was treated and still continue to try and treat people the way I would like to be treated—and perhaps not exactly the way they’re taking me on. So it’s a challenging process.

 

I’m hoping that people watching my hearing aren’t discouraged by it. I think that’s the only concern I have about this. The nastier it gets, the less likely good people are to want to take this on, want to take the reputational risk otherwise that comes with it. Public service remains something that I really value and I found rewarding. And so I don’t regret it at all, but it is a brutal process.

 

Brian Johnson:  So let’s fast forward. You navigated those waters successfully, earned a confirmation vote. You joined the Bureau in December 2018 in the midst of the first major leadership transition in the agency’s young history, came in on -- after the service of Acting Director Mulvaney, who had been an acting director for about the course of a year.

 

      Coming into the Bureau in that context, what were your first impressions of the agency when you walked in the door and started meeting the staff? Early on, you went on a listening tour to visit each of the regional offices for the agency and hear from staff, among other folks. If you think back to the early part of your tenure, what was your first impression of the Bureau?

 

Hon. Kathy Kraninger:  That mission focus was absolutely the first. I know I talked a second about that. But that was very much -- it came through. People cared about the mission. Also, the ability to create an agency from whole cloth also means you get in a bunch of talented people, frankly, and talented people that are really focused on that mission. So that was definitely the first impression I had, but also then those parallels in the startup dynamic.

     

Where are the touchpoints, connections, deep relationships with peer agencies? How do we operate? I’m someone that loves to get into—and that’s why the listening tour was so important—but get into the observation of how have things been done? How do you think about them? Having those conversations one-on-one, in small groups, meeting the staff, meeting all of the partners that we worked with. And that was a great way to really dive in. So certainly they care about the mission.

 

      And then just all of the trust dynamics, which are unfortunate, but certainly stem from the history of the agency and its creation: having come from, as you noted, the financial crisis, having the debate as to whether Republicans even thought this agency should exist.

 

      And I can tell you that—I think I have said this publicly before—but there are many agencies, to my mind, that probably confused the effective operation of government and the effective carrying out of the mission because there are just so many agencies. We’re terrible in government. We create new things but that we never actually downsize or stop doing things that don’t work anymore and discontinue those things. So defunding something is pretty hard.

 

      So I don’t have the CFPB at the top of my list of agencies that should not exist. I approached it as Congress decided they should. It’s a mission that’s important, and we’re going to carry it out. But that trust dynamic when I came in was certainly a question mark there. What is this director trying to do, and is it going to make sense? I think people were really looking for those signals from me, and I played it straight. I certainly hope they took it that way.

 

      But I do feel like there were trust dynamics—particularly with some of the folks who have been at the agency from the beginning—and really were wondering how that was going to look. So I was conscious of that, and I think I approached things pretty openly. But we also had to work through a lot of those issues, as you well know, and certainly appreciate your role in all of this at the same time too. A lot of things to move forward with and address during those early times. And then, just when we get our feet under us, we have the pandemic hit. So that was a whole other thing.

 

Brian Johnson:  Yeah. So, well, thank you for that, Kathy. First, I guess, a slightly different question or put a different way. So you said that a sense of mission among the staff struck you as the strongest first impression. What were the surprises? So as you dug deeper, as you got to know the place—either for better or worse—what were some of the biggest surprises you had?

 

Hon. Kathy Kraninger:  Yeah. I think one is just the cultural dimensions of the agency—having that startup beginning, but also not having taken the time to think through structure and kind of effective ways to operate as you mature as an organization. Some of that is natural. Frankly, it just takes time. And there was a leadership transition, so a good opportunity to think about that. That’s also part of why I was put forward as the nominee was to really bring about that maturity to the agency.

 

      But a lot of individual having the opportunity to revisit things or not sure what decision was made, the documenting of decisions -- all of those kinds of things that really do help people continue to move forward, continue to build on what’s done before and have a reason for those decisions.

 

I think that was one thing I truly found as a challenge and that accountability and empowering people. It’s a lot of hesitation, a lot of individuals who were just trying to figure out what their role was vis-à-vis others and what their opportunity was to influence decisions. We saw a lot of those things early on.

 

And so that was a big priority for me was really making sure, one, that I was accessible as a leader, two, that we set up the systems that would empower people to do the job they’ve been hired to do. That definitely was something. I mean, you know this—and others said it—how decisions were made. In the past, there was a big group meeting where everybody was in the room. But when you get a certain number of people in the room, it doesn’t become an effective then decision-making mode. It’s a debate and then the opportunity to revisit later.

 

So really having that a little more maturity, a little more structure to things I thought was important. And that will take us to just another thing I know we want to talk a little bit about. But just this philosophy around how an agency should operate and kind of the -- what drives what risks it sees and how it approaches risk management.

 

So the Bureau knew. We had an enterprise risk officer who we hired not too long before—I happened to actually know her in the past—and a strategy office that had risk as a -- as something that was important. But we really didn’t have a structure at the Bureau for thinking about these things and certainly market dynamics.

 

And so the question that I was asked—and I’m hoping you’ll weigh in with your experience on this too—but basically was the -- “What is the market problem that you want to fix? What is the area of the market that you just want to reshape?”

 

And so, again, it takes you to this -- coming in as a leader and coming in with the way I had been involved in my public service career, that’s not generally what I’m expecting to get as a question from career staff. I’m expecting to get, “Hey, this is the framework we have in place for identifying risks in the marketplace that are within our purview, and here are the solution sets that we could approach that.”

 

So that identification of risks, that thinking about what response can we have. And also, what’s the lightest touch response we can have that’s going to make sure that regulated entities are compliant but yet still obviously have their own control there in terms of how they execute their business because that is their right consistent with the law—consistent with the regulations. There are options for how market participants decide to comply.

 

So that dynamic of “Is there a framework? Are there -- is there staff that has actually thought about this?” has put some rigor to it. Or is it a “I just get to wave my magic wand and say, ‘I don’t like this particular product, and that’s what we’re going to do. We’re going to go after this particular product or this particular segment of the market.’” It was, again, what is the basis for those kinds of decisions, and how should we put some more rigor and thought behind that.

 

Brian Johnson:  So would you say that was unique in your experience coming from other agencies in terms of a focus or approach—the extent to which an individual director’s preferences or preconceived notions play into the strategic process or integrated into the risk management process of the agency?

 

Hon. Kathy Kraninger:  I would say it is definitely something that you have the capability to do. But the challenge, I think, at other agencies -- but the challenge of the CFPB is just the level of independence that the director really does have.

 

With other agencies, you have the appropriations committees that can limit funding for different things. You’ve got a lot more touch points with the number of confirmed leadership in that agency—so a lot of back and forth with the Senate around what priorities are and how you’re going to approach things because you want to get your staff in, so you have to work with the Senate. So all of those kinds of backs and forths with the Office of Management and Budget, with your peer agencies, in interagency policy making, really, none of that is a factor of influence on the director.

 

And then on this—the rigor of risk management—it is true. In government, some agencies are really good at it. Some agencies are just not and don’t have as much rigor there. But in an agency with this much independence, I do think that this conveying to the marketplace the way that we thought about these issues, enabling, frankly, those entities—the vast majority of which want to comply—help them understand the way that the agency is approaching and thinking about these things is actually better for consumers. I mean, that’s fundamentally what this is about because it’s about protecting consumers in the marketplace.

 

And so that opportunity to share that risk management framework and thought process and help entities understand, help partners understand, so that we’re not across purposes with the FTC or with the FDIC or the OCC or others—that we are actually building up a system that’s going to be better across the board for consumers. That’s the part that really should be a lot more transparent—a lot more rigorous.

 

Brian Johnson: So you’ve spoken a lot about you viewed your task, in many ways, as trying to mature the agency through internal processes, through helping shape the culture that was formed as a new government startup. I always heard the foundational war: building a plane while flying it being the kind of organizing credo of the agency early on.

 

      Where would you say in terms of the agency’s life cycle from pure startup to mature mainline steady state agency ten years on? It’s interesting to think -- I think it’s no longer purely a startup, of course, but maybe not all the way towards a mature agency. What’s your sense of how close the agency is in that maturation process?

 

Hon. Kathy Kraninger:  Well, that’s a hard question to answer, as you all know, I think, for two reasons. One is the pandemic really did set back a lot of the things that we would’ve liked to have done with culture. I had just gotten the entire—at least—Washington staff into one headquarters.

 

So we were going to do a lot more to try to bring about much greater connectivity there amongst folks—not just based on who liked working with each other, but again, a little more structure around which responsibility areas really people should be working together and aligned. So creating those touchpoints was a huge part of it—certainly physically. You can do some of that virtually, but it helps when people have actually met, interacted, can see each other. So that’s one aspect.

 

      And the other is then this transition. Absolutely, because there is a bit of churn happening—some of which is totally natural. The timing of assuming that the nominee actually gets through to be the new director, there’s going to be some timing dynamics there. So I think those two things make it hard to answer.

 

      I hope -- and I certainly think we did everything we could to put the agency on a better path with maturation. But people don’t like uncertainty. They don’t like a vacuum. And so there is definitely a time period right now where many of the gains are sliding back a little bit just because people are uncertain and unclear.

 

And therefore, all these capabilities to try to bring people together, people tend to recede a little bit and just wait to be told what to do, which I think is—at least from basic, fundamental things of keeping an agency going and doing the good business that it should do—that’s problematic for sure with that backslide.

 

I think it’s certainly on a path, and the basics are there. But it really does take that care and feeding on an ongoing basis from management to really engage staff to get them to come out of their shells, to get them to raise issues that they’re seeing from all the interactions they’re having, and to have that kind of dialogue going. So I have hope, I suppose, but I fear it’s not moving as much on that maturation as you would expect. And just leadership vacuums at different levels also make that hard.

 

Brian Johnson:  Well, speaking to that for a second, I guess I’d be remiss if I didn’t note the recent Gov Exec article discussing some of the personnel issues. You had the opportunity during your tenure to bring in senior executives of the agency. I guess the allegation is that some folks, unfortunately, in career services roles are being asked to leave or incentivized to leave to make room for new people.

 

      From your perspective, what does that do for an organization’s culture, or how does that -- does that increase the uncertainty? Does it increase the partisanship or at least the perceptions of partisanship within an agency as you came in and looked to hire folks for the long term? I’m just curious on your thoughts on what the implications of that might be.

 

Hon. Kathy Kraninger:  Yeah. I certainly saw the article. I know some of the folks who have made the decision to leave and for various reasons. Look, some of it is completely natural, as I just said earlier. When I came in, you had preceded me by a little while. But it was kind of that natural time period. People had been at the agency seven years. I had outgoing exit conversations with executives who decided to leave.

 

      And largely it was they had been there a long time. They’re looking for a change. So some of it is certainly natural. But people need to see that there is a path to refilling that, that you don’t have actings upon actings for too long and so that there is that direction, or really good communication, again, from the leadership of the agency and throughout the agency to make clear what that path is and why, again, it’s completely natural—also while you don’t have a confirmed director to be pausing on some of these things.

 

But again, is there a conscious effort to explain that to people, to have that conversation and that communication? I think those things are important, and I will -- I don’t know what’s happening right now on that front. So I have no insight which with to bring, or I’m not bringing accusations. I’m mostly just talking from my own experience about how important I think that communication is and the expectation setting for those who are acting in terms of keeping things moving, keeping people motivated and exchanged.

 

And that’s something that accountability—clarity—around what specifically the expectations are, I think, is helpful all the way down the line so you don’t lose that connection between the director and those who are on the frontlines carrying out the mission. I think that’s something that I would certainly suggest is important that they should make due with. And then hopefully there is a plan.

 

We spent a lot of time on the hiring process, on succession planning, on gaps in skill sets that are important and necessary, trying to recruit a much more diverse pool of people on all aspects. Frankly, I fundamentally believe that the civil service is best -- it is strongest and best when you’re bringing in, again, all of those vantage points. And so that, I think, is important. So hopefully the maintaining those lines of communications and maintaining that diversity in all of its forms is something that continues to be important to the leadership at the CFPB.

 

Brian Johnson:  I think that’s an interesting observation because, undoubtedly, a lot of your time was spent on those internal matters, on the processes, procedures, internal maturation, and the hiring process, which isn’t really externally understood, I think, the extent to which agency leaders have to engage in that. It’s easy to see consent orders. It’s easy to see rules issued or press releases or due guidance. But some of the intangible work that builds an agency for the long term isn’t necessarily known on the outside. So glad we had a chance to discuss that.

 

      I did want to turn a little bit to successes, missed opportunities. You’ve now had six months—almost to the day—to reflect about your time there. Maybe you wished there had been some more time. But we can discuss Seila and other implications later.

 

      But have you had enough time now to think about what your game plan was, how you executed it, what you thought were the biggest successes, and maybe what you wish you had more time to accomplish?

 

Hon. Kathy Kraninger:  I’ve definitely had a lot of time to reflect on those things—certainly. But I think in terms of successes, it really starts with the approach to managing the agency. And we’ve talked quite a bit about that, so I can set that aside. But I think that that mattered a lot to me.

 

      In terms of substantive actions, our innovation agenda is something that I was incredibly proud of that I think really set the tone for the way that we wanted to approach things too because it’s recognizing that the only way that we can truly bring financial inclusion forward, and it’s supporting the best characteristics of the market. And the market truly is driven by innovators. It’s driven by entrepreneurs. It’s driven by people thinking about new and different ways to do things. And regulation, in some ways inherently, just holds that back.

 

      So how do you think about ensuring compliance, ensuring protection as those things continue to change? And for anyone who has tried to draft laws, you know it’s impossible to do at that level. As you try to draft regulations, it’s easier than writing a law to accommodate those kinds of things. But thinking of everything through that process is really challenging—so recognizing there needs to be some flexibility.

 

      I think our innovation policies are at the top of the list, and I really hope that this gets a serious look from the new leadership when they come into the agency and that they can continue those innovation policies. We really were incredibly thoughtful about the way we went about it. We were incredibly transparent about the way we went about it and I think opened up a lot of opportunities for companies to really be able to move forward—to show investors they’re moving forward in a responsible way, and to encourage people to come forward and work with regulators.

 

      I mean, that is not something that is foremost on probably many entrepreneurs' minds. They’re thinking about how to build a company and build a very cool thing that’s gonna help consumers and help their customers. And so this working with the government and the concerns that would come from sticking your head up too high and saying, “Oh, yes. I’m doing something different.” How do I go about this in a smart way?

 

      There are so many historical examples of them getting smacked back being just like, “No, you can’t do that.” So how we interacted, I think, it’s incredibly important for government to continue to evolve and regulators to continue to evolve. And we’ve got some great things there.

 

      The second thing I would say is just the issues where they were not clear—political lines in the sand—it was incredibly rewarding to get the QM Rule out, to really have the conversations around that to start the 1033 process, too, and recognizing that 1071 is also a very challenging area. But it is a congressional mandate—getting that started in earnest substantively and really starting the roadmap there.

     

      So those were things that were on my agenda and plate. We didn’t get to finish them admittedly. In that two-year span, I knew we weren’t going to finish them—if that was the only time we had. But really setting a tone for that direction and bringing that transparency to all of the processes as the default way the CFPB would operate is actually that communication with advocates, with industry, with anyone who wants to talk to us. This is how we’re approaching things. This is how we’re thinking about things. What do you have to add to that? What are we missing?

 

      I think that, again, that humility, transparency, engagement is something I’m very proud of. And we’ve covered in there a little bit of things that were unfinished, but that’s the nature of time.

 

Brian Johnson:  Yeah. Nature of time. We’ll get to Seila in a second. But obviously, your tenure has ended in January. If hypothetically you could go back and brief yourself circa 2018—lessons learned, time—what would you tell yourself? If there was something you had done differently or had advanced knowledge of, would that have changed in any way the way you approached being director or the timetable, recognizing that five years isn’t always five years in this day and age? Lessons learned? What do you think you would tell your younger self?

 

Hon. Kathy Kraninger:  I’m a huge believer in the Serenity Prayer. I think there are many things in life that we wish we could control that we cannot control. And clearly, the beauty of that—and coming to zen with it—it’s actually knowing the difference when it’s in front of you: can I control this, or can I not control this? I think that’s just a perpetual challenge in general.

 

      So I think, look, this position being CFPB director and the amount of autonomy that you had, the amount of, really, the ability to just execute and go on things, it is a tremendous power. And I approached it, though, with the recognition that, if anything is going to last beyond my term, that these are not things that I can take likely and ramrod through.

 

      So it really was a concerted effort to engage and try to bring staff in on things. Again, no question is a question I won’t answer. How do we continue to keep moving forward and understanding each other? So those are the things that certainly guided the way I approached it. So I’d say I certainly wished I could have created more time for some things to get done. But I do feel good about the approach that I took.

 

And there was a drive. But amongst the things you cannot control is, again, people and what happens in their own lives and what decisions they make about what they need to be doing. And so it’s people who make the decision to depart who you really were counting on to take a leadership role in something. When you’re an agency head, at this point, with 1,500 staff, I can’t dive in and literally just go work every single problem myself.

 

So I think that whole personnel dimension of people coming and going and making the right call, I spent a lot of time on that, so I -- and recognizing, frankly, that that was the only way also to span the agency’s responsibilities and carry that out. So that’s also something that just was hard. And somebody decides to go, and you’re like, “Great. Now that thing that I was really counting on is challenging. How are we going to adjust, and who do we need to bring in?” And all of that just takes so much longer.

 

So I would say probably some remaining frustration around some of the personnel processes that still don’t work as well as they should have. And I made a huge commitment to the management side of things recognizing this. CFPB has a lot of flexibility in how it decides to budget, how it decides to hire could be a true guinea pig for more innovation in those government management processes because it’s the right size, because it has the right authorities. And so we did some of that.

 

We did a lot in different areas, but there’s still more to be done there. Heck, if someone had done it for me, my job would have been a lot easier too, but it’s just the nature of where the agency was in its maturation. So, hopefully, that does benefit the agency in the future.

 

 Brian Johnson:  So I’ve foreshadowed Seila. Let’s walk back to that decision. It fell upon you to decide which position the agency would take: join DOJ or not to join the position of the administration regarding fairly consequential separation of powers issue. Can you walk us through your thoughts on the considerations there?

 

Obviously, the position you ultimately took was contrary to self interest in terms of what, I guess, most observers anticipated could have been one of the consequences, which is the decision of the portion of the statute that imposes conditions on the president’s ability to remove a director from office. Any thoughts on the decision you made and how it played out?

 

I’m actually curious also to learn about the end game there, which is a new incoming administration. The Biden administration made a decision under their authority post-Seila to make a change. I don’t know, frankly, how that works or how it happens in practice. And maybe it’s certainly unique in the CFPB’s history post-Seila. So any thoughts on the case itself, the process of reaching your decision, and then the aftermath, I’ll call it?

 

Hon. Kathy Kraninger:  Yeah. Well, it was certainly one of the big, looming issues when I was considering even the nomination for the position. I have tended to move through different government positions and feel like I had -- once I had kind of conquered an area, I wanted to move on and see something from a different angle. So committing to a five-year term was probably one of the larger things about this job that I had to consider as part of the process.

 

      At the same time, with this decision looming, it was also very clear that it may not actually be a full term that I would serve, depending on election outcomes. So it was something that was very much on my mind through the confirmation process. I had many people ask me about it. I said, “Look, I know it’s going to be a big decision before me, but I’m not making that call right now.” I certainly needed to benefit from talking with the agency’s attorneys once I got in and really examining the merits of the case as it actually made its way to a point where I needed to make that decision.

 

      And so, as you know well, we came to that point in the summer of 2019, having to make the call about what -- I guess maybe it was a little later. I forget exactly when frankly now. COVID makes time just kind of all muddled together. But the timeline of having to really consider that and think about it came as the DOJ was taking its position facing the potential that the Supreme Court would take up the case. So that was really the timing.

 

      The agency does not have the ability to appear before the Supreme Court on its own and represent itself without DOJ’s allowance of that. And so were we going to seek a different position? Were we going to concede to or agree to the DOJ’s position? How is this going to work? So I did have the opportunity to think about that a lot. And the independence of the position was certainly something that I then had a decent amount of experience with.

 

      And fundamentally for me, I think that the independent agencies -- there really is a lot that we should be thinking about in terms of how that truly fits in a constitutional structure with three branches and separation of powers and the checks and balances that happen amongst those three branches. And then you have these independent agencies. Where do they fall in? What power does the president have to execute the agenda that he was elected on given what can happen in these other agencies? And it was interesting.

 

      I started a conversation earlier about my interagency experience, and all of that comes to a head with the decision from the president. And here, I’m not part of this whole structure off to the side that does not actually go in that direction. And on top of that, you’ve got the role of Congress that I had to appear four times a year. But other than that, there were no controls specifically over my activity.

 

      So those things certainly influenced my thinking on this case. And I felt strongly that, at least with the director of the CFPB, I will speak more broadly about independent agencies. The president should have the ability to remove without cause.

 

      I also thought through this presidential transition now that it was a reality. Without that ability by the president, what would that do to a system? I mean, we have a very politicized agency. Is that going to force them to bring cause somehow against someone who otherwise is truly a qualified and duly-appointed and confirmed director?

 

So a lot of dynamics around this that just led to just very perverted potential paths if you don’t just acknowledge that the president should be able to remove director recognizing that they don’t share the same philosophy or values or direction for the agency. So I felt like, from that standpoint, it was an easy decision: the communication to the workforce, how that might have cut across and trying to manage how they saw that decision.

 

And I very much separated that decision from what the agency’s mission was and where the agency needs to be. I think it was an important one and a discrete decision that could be made very clearly in line with the Constitution. And so the Supreme Court obviously made its ruling, and that led—as you noted—to obviously the president asking for my resignation right away upon his oath of office. So that was a fairly quick process.

 

How that came about, I’ll admit I was a little surprised by this. I was seeking some conversation in late December/early January just to say, “What are you thinking? I am responsible for this agency, its mission, its 1,500 staff, its succession, and continued ability to carry out its mission. During this time period, do we need to have any conversations about what direction you want to go, what direction you want me to go, and how this will work?”

 

And I think, again, politics probably played out a little bit—unfortunately as I think—because I’ve had so many people ask me, “Oh, how do you transition this? Did you  meet the person that was replacing you? Or how does this work?” And the answer is, “No, that didn’t happen at all.” In fact, again, the president’s right to name an acting of his choosing consistent with the Vacancy Act.

 

And I did ask the question, but I was told that that was not any of my concern as to who I was handing it off to. So, for a few hours, the succession plan of the agency that I had signed was in effect. And frankly, that wasn’t even conveyed to the staff of the agency. So leadership knew that that was what was going to happen. But again, dealing with the political sensitivities, I wasn’t going to go out and make some big proclamation about who my successor was and nor would I want that person to be then -- have their legs cut off for it being only a few hours of power.

 

So it’s just an odd dynamic, less transparent than you’d want it to be, very much based on personal relationships in terms of me reaching out and saying, “What plans do you have? And can I at least have some kind of heads up?” If I had not reached out, I have every expectation that the email I got at—I forget exactly what time—11:30 a.m. on the 20th would’ve been my first indication.

 

And so I think there are better ways to do these things, but I’m also sensitive to the challenges that the other side was facing there too.

 

Brian Johnson:  Well, Kathy, thank you. I see we’re bumping up on the end of the hour. One quick rapid-fire question. Do you care to share anything about your future plans?

 

Hon. Kathy Kraninger:  Yes. I, unfortunately, cannot name the company, but I can tell there’s an announcement coming this week. And I am in this -- I’m joining the startup world here, which is something I’m really excited to be joining the private sector in. It is a crypto-native company that is looking to make digital asset markets more transparent to identify fraud and market manipulation in digital asset markets and really help enable mainstream institutions and others to join this marketplace. So fantastic to be part of this world, and more coming on that.

 

Brian Johnson:  Well, congratulations. Best of luck, and thank you so much for joining this discussion. I had a great time. And thank everybody for joining this first hour. We’ll move now to a short break for next session, which is “What is the CFPB’s Legacy?” It becomes promptly at 1:00 p.m. Eastern in 2 minutes.

 

Please note that to join our next session, you’ll need to use the registration link that is specific to the next session. If you haven’t registered yet, check the event page on The Federalist Society’s website where you can register. We’ll see you all again soon in a matter of moments. And until then, we are adjourned. Thank you, Kathy.

 

Hon. Kathy Kraninger:  Thank you.

 

 

[Music]

1:00 p.m. - 1:50 p.m.
Panel 1: What is the CFPB's Legacy?

The CFPB Turns 10: Evaluating America’s Youngest Federal Financial Regulator

Topics: Administrative Law & Regulation • Financial Services • Financial Services & E-Commerce
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On July 19, 2021, the Federalist Society's Financial Services and E-Commerce Practice Group sponsored an online conference titled "The CFPB Turns 10: Evaluating America’s Youngest Federal Financial Regulator." The first panel of the conference asked "What is the CFPB's Legacy?".

Ten years after first opening its doors, the Consumer Financial Protection Bureau remains one of the most controversial agencies in the federal government. What is it about the agency that continues to inspire partisan passions, and how can the CFPB’s legacy be objectively assessed? This panel will examine the CFPB’s successes and failures over the past decade and evaluate the effect it has had on consumers, industry, and financial markets.  The panelists include two former Deputy Directors, each of whom served under both former Director Cordray and former Director Kraninger.

Featuring:

  • Tom Pahl, Former Deputy Director, Consumer Financial Protection Bureau
  • David Silberman, Former Acting Deputy Director and Associate Director for Research, Markets, and Rulemaking, Consumer Financial Protection Bureau
  • Moderator: Brian Johnson, Partner, Alston & Bird LLP

* * * * * 

As always, the Federalist Society takes no position on particular legal or public policy issues; all expressions of opinion are those of the speaker.

Speakers

Event Transcript

[Music]

 

Evelyn Hildebrand:  Welcome back, everyone, to the second panel and today’s event The CFPB Turns 10: Evaluating America’s Youngest Federal Financial Regulator. We just heard from Kathy Kraninger, the former director of the CFPB, and now we have the second event of the day, and the first panel, titled What is the CFPB’s Legacy?

 

Mr. Brian Johnson will introduce our two panelists, and we’re very pleased they will be able to join us this afternoon. Brian Johnson organized this event today, and he’s also a member of The Federalist Society’s Financial Services and E-regulation Practice Group. And much more can be said by way of introduction, but I will cut it short so that we can hear from our panelists, and with without any further ado, I’ll hand the floor over to Brian Johnson.

 

Brian Johnson:  Thank you, Evelyn. Welcome back everybody. As Evelyn mentioned, we just heard from former director, Kathy Kraninger, reflecting on her tenure at the bureau. This panel is another opportunity to look backwards and evaluate the CFPB’s legacy over the first 10 years of its operations after opening its doors in July of 2011. After opening its doors, it remains a controversial agency, in many respects, and indeed one of the most controversial in the federal government.

 

What is it about the agency that continues to inspire partisan passions, and how can its legacy be objectively assessed? This panel examined the CFPB’s successes and failures over the past decade and evaluate the effect it has had on consumers, industry, and financial markets. I’m delighted to introduce our panelists, both of whom I will note served as Deputy Director of the CFPB and each of whom served at the Bureau under the tenures of both Director Cordray and Director Kraninger.

 

I can think of no two people better qualified to tackle today’s subject. Tom Pahl is a retired deputy director of the CFPB, where he served from July 2020 through January 2021. Before that, Tom served as Policy Associate Director for Research, Markets, and Regulations, beginning in April 2018. Previously, he was the acting director of the Bureau of Consumer Protection at the Federal Trade Commission.

 

From 2013 to 2016, Tom served as managing counsel, the Office of Regulations at the CFPB. He has also held previous roles at the FTC, focused on enforcement, rulemaking, and policy on financial services matters, including Assistant Director of the Division of Financial Practices. Tom received his BA from the College of St. Thomas and his JD from Northwestern University School of Law.

 

      David Silberman is a lecturer on law at Harvard Law School. He’s been involved in consumer finance issues, from a wide range of perspectives, over three decades. As President and CEO of Union Privilege, an affiliate of the AFL-CIO, he led the development and oversaw the delivery of a range of consumer financial products and services to union members. After leaving Union Privilege, he served as General Counsel and Executive Vice President of Kessler Financial Services, a privately held company providing marketing and advisory services to financial institutions and their affinity-group partners.

 

Following passage of the Dodd-Frank Act in 2010, David joined the implementation team for the CFPB and in 2011 was named Associate Director for the Division of Research, Markets, and Regulations. In 2016 to 2017, he also served as Acting Deputy Director for the CFPB. He retired in 2020 and now serves as Senior Fellow of the Center for Responsible Lending, Senior Advisor to the Financial Health Network, and an Adjunct Professor at the McCourt School of Public Policy at Georgetown University.

 

He also serves on the Advisory Board of the Alliance for Innovative Regulation and as a member of the Advisory Committee of FinRegLab. David is a graduate of Brandeis University and of the Harvard Law School. He began his legal career as a law clerk to Chief Judge David Bazelon of the U.S. Court of Appeals for the District of Columbia Circuit and Supreme Court Justice Thurgood Marshall. Tom, David, thank you very much for joining us today, and welcome to the discussion.

 

Thomas Pahl:  Thank you. Thank you.

 

Brian Johnson:  So let’s just jump into these. I have a series of questions that I had thought might prompt some discussion here, and some of them I think are specific to the two of you, but many of them, it would be interesting to ask of both of you. So big picture question, looking back over the first decade of the agency’s existence, there’s been 10 years of different directors; there’s been back-and-forth on policy development; there’s been maturation of the agency itself as its grown in size and capabilities.

 

That’s a lot to process, and since our task here today is to evaluate the agency’s legacy, such as it may be in the first decade of its existence, I will open this with maybe the broadest possible question prompt, which is, for each of you, what do you see as the CFPB’s biggest successes and failures, or maybe, if not, you don’t want to speak to failures, missed opportunities during the first 10 years?

 

And with that incredibly broad prompt, I think I’ll start, David, with you. I would love to hear your experience and objective view, having been at the agency, substantially from its creation until just last year. What do you see as the agency’s successes? We’ll start with that and then maybe missed opportunities or failures from your perspective.

 

David Silberman:  Thanks, Brian, and thanks for having me. I’m not sure I can pretend to offer an objective view. I don’t think anybody’s ever accused me of doing that, actually. But let me offer you my perspective, at least. Yes, when I think about successes, I think back to the first strategic plan that the Bureau put together in 2011. And we organized things into two big buckets. One was the things we needed to do to build a great institution, and the second was things we needed to do to deliver tangible value to consumers—so an internal and external focus.

 

So on the internal side, in some sense, I would say that the biggest success was actually standing up an agency in 12 months’ time. It’s not easy to overestimate the difficulty, particularly, in a government setting, of going from a startup to, in 12 months, having to take over the responsibility from multiple other agencies responsible for an industry enforcing a wide range of laws. So we started with no people, no building, no systems, no processes, none of that, and all of that had to be created in a 12-month period of time.

 

So the fact that we went to bed on July 20th with no authority, no power, no responsibility, and woke up on July 21st with this massive amount of authority, and that we were more or less ready for that, I would say, in and of itself, is a particular accomplishment that I’d be proud of.

 

And then I would say that if you think about, again from the internal perspective, some of the specialized capabilities that we built out, not necessarily in the first year but over time, that didn’t really exist elsewhere in government, at least, to that extent: a consumer response function, which has handled millions of complaints from individual consumers, a supervisory program to supervise non-depository institutions, so there was a tradition of supervising banks.

 

But to be able to supervise credit reporting agencies, and debt collectors, and finance companies, and audit servicers, and all of that, that was a new capability of the market monitoring function we built, trying to bring people in from industry, who had subject matter expertise, if they actually knew how these markets worked and could help understand what was going on and advise us to the implications of what was going on.

 

We created the first Office of Innovation, what we call Project Catalyst, and then built a regulatory implementation function, which I think also was unique and try to help industry, work side by side with industry to implement rules that we were promulgating.

 

So in the second bucket, in terms of what we accomplished for consumers, I suppose the first thing I’d point to is the work we did in implementing the Dodd-Frank Act and particularly the mortgage provisions of the Dodd-Frank Act. There was a whole title of Dodd-Frank, which not surprisingly, given the crisis that it preceded its enactment, adopted a whole myriad of new rules governing mortgage lenders and servicers.

 

Those rules were, by the terms of the act, all self-executing. They would take effect in January of 2013 with or without any regulations, but the Bureau was authorized to postpone their effective date for 12 months if we issued regulations. So we issued seven or eight mortgage rules, which enabled us to both defer the effective date and provide for a much smoother landing than otherwise would have taken place, which I think succeeded and, on the one hand, preserving access to credit, avoiding disruptions, and at the same time, putting in a set of guardrails for the industry so that it’s a more transparent, safer marketplace than it was before the Bureau got started.

 

I can point to other things, I guess. I think perhaps the other thing I point to in this is we—through the research function—defined a set of problems and advanced the understanding of a number of issues: who has access to the credit system, who is credit invisible, and who’s left out, how people gain access to the credit system, what are the outcomes for people using small dollar credit, what are the outcomes for people using overdraft?

 

Some of those we moved the needle from regulation; although, I guess, none of them in a permanent way, so far, if anything’s permanent in this area. But, at least, I think we changed the public dialogue of understanding of these problems. So let me stop there and pass it over to Tom.

 

Brian Johnson:  Yeah. Well, we can start with successes. Tom, what are your thoughts looking back over the last 10 years?

 

Thomas Pahl:  Sure. Thank you very much, and thanks for having me here today. Think I will agree with David, and I think agree with many of David’s comments, but emphasize two or three things that I think really stand out from the perspective of having been at a consumer protection agency that was trying to deal with some of the problems during the financial crisis in some of the things that we either couldn't do or couldn't do particularly well, and I think the Bureau has done well.

 

I think one is—to emphasize the point that David made about non-bank supervision that was something that was very difficult pre-the-standup-of-the-CFPB—very few agencies, if any, at the federal level, really were engaged in supervision and examination of nonbank entities, like debt collectors, credit bureaus. That deprived us of a lot of information that’d be very helpful in policymaking in the financial services area, and I think the Bureau, doing nonbank supervision, has been helpful.

 

I think also, given more technical, more minor violations, I think this supervisory function has been very helpful for agencies that, in the past, would've looked at some of these entities as being either bring a law enforcement action or not, having the option of dealing with some problems, and nonbank entities, the supervision I think is a positive thing.

 

Of course, like anything, there are costs associated with nonbank supervision, and I think that you can have an argument about how the benefits from nonbank supervision stack up against those costs, but I do have to say from the perspective of trying to do consumer protection work at a federal agency, without some of the information that’s available through nonbank supervision, it was much, much more difficult to do.

 

The second thing that I would flag is something that David pointed out, is the creation of the markets’ offices in research markets and regulations. This is bringing into the government, for inhouse assistance, people with recent experience and expertise in particular business markets and using information from them to try to identify problems and to evaluate solutions.

 

And from the perspective of someone who has tried to use tools, law enforcement, rulemaking, other kind of policy development where you didn’t have that kind of inhouse input, I think it really has been very valuable for the Bureau to have established that capability inhouse and to have used it.

 

There’s nothing better than in a rulemaking to be able to go down a hall, knock on someone’s door who has been in, let’s say, a debt collection agency for years and say, “We’re hearing this is hard. We’re hearing this is easy. From your perspective of actually working in this kind of a business, who’s got the better of the argument? And I think that bringing that to bear on issues at the Bureau has been extremely helpful. The last issue I think I—

 

Brian Johnson:  Let me jump in there. So do you think having the markets team within CFPB materially improved the policy development process and thereby the rules or other policies issued by the bureau in as much as it helped better shape those activities, based off of a better understanding of the market?

 

David Silberman:  I think I would say the answer is “yes” because the markets’ offices are always bringing to the attention of decisionmakers both potential problems and views on the merits of decisions. They probably have had less influence in some circumstance and some issues than I would have preferred because I think I am very amenable to many of the kind of arguments that they’d like to make on policy issues.

 

But that being said, I think it’s incredibly valuable for the agency to have had that perspective shared with the heads of the agencies so that they can decide what they want to do when they make a choice. And so I think that really is an innovation that the Bureau has developed and that I think it actually has been valuable to government decision-making.

 

Brian Johnson:  So turning back to part B of the first question, which is failure, setbacks, missed opportunities, what’s your thinking there, David?

 

David Silberman:  And so a couple of thoughts, Brian. One, we did not succeed in depoliticizing the agencies. Whether that was possible or not, I don’t know. There’s always going to be legitimate, bona fide, philosophical disagreements as to what role government should play in regulating markets, and those are real and legitimate, and there’s no way you’re going to get past those, but whether we could have, had we approached things differently, taken some of the heat around that so that there could've been reasoned discussions without it being as contentious and as adversarial as it was. I don't know. But certainly, look back and say that’s the potential missed opportunity.

Thomas Pahl:  I would agree wholeheartedly with that. That was the largest challenge that I could identify, as well, is that after a decade of existence, taking all of the actions and all the money the Bureau has spent, there is just not the broad-based, bipartisan support and trust for the agency that I think would be extremely helpful in dealing with these issues.

 

David, I think we could probably have – we could probably debate all day who’s responsible and whether it can be remedied, but I think the fact is, is that 10 years into its existence, the CFPB still just does not have that kind of general support that would be so useful for its credibility and its effectiveness in dealing with the public.

 

David Silberman:  And I would say I think that the debate has probably shifted a little bit. It is not so much, should the CFPB exist? In 2011, one could have envisioned a world in which the statute would be repealed, and the agency would have been replaced, and authorities pushed back to the agencies that had them. I think we’re passed that point. I think the Bureau is established to that extent, but I agree with Tom, that there’s still widespread skepticism and that it’s something that would have liked to have seen done better.

 

Brian Johnson:  So one aspect of that is of course culture, and in the prior hour, I spoke with Kathy Kraninger a little bit about culture, and she had said, in essence, that one of her missed opportunities was not having enough time to focus internally on culture because of COVID, and some of the plans had been put on hold that might have otherwise taken place with a consolidated office within Washington D.C.

 

So let me pick up on that a little bit. I don’t know the extent to which the agency’s culture is linked with the external perception of the politicization of the Bureau or not, but what strikes you when you think about the Bureau’s unique culture, what – Tom, for instance, what do you think distinguishes the Bureau’s culture from, say, FTC or other government agencies, and has that changed over time, from the beginning days through the leadership transition process?

 

Thomas Pahl:  Well, I can get us started. Obviously, it’s a bit of a challenge to speak to culture of an organization with 1,500 individuals. That being said, if someone asked me to come up with adjectives that I thought described the values that are usually part of the CFPB culture, I think the CFPB values intelligence, hard work, inclusiveness, data, and process. Those are the ideas that come to mind, for me, when I think of the CFPB culture.

 

A couple of things I would emphasize. One is I think it does vary a lot by organization. Take, for example, the idea of how the culture in various shops approaches legal risk. I think you have a continuum on which you could put each of the shops that have lawyers. I think they have a different role, a different function, and that feeds into a culture as to how much they are risk averse or how much risk they prefer, and I think you see that coming out of some of people’s expertise, some of their backgrounds, some of the roles of organizations. And so I think the different parts of the CFPB have different cultures as well.

Let me address head-on the one question you asked about the CFPB culture being too ideological or partisan. In my experience, there certainly have been some CFPB folks who I think have thought that their job was to bring to fruition progressive view for the agency, especially, when it comes to issues on which they feel passionately about, things like payday loans, or fair lending, or overdraft fees.

 

But that being said, I think that most of the people who have that kind of a perspective are the exception not the rule, at the agency, and I also think that a lot of that has decreased over time, especially, during the tenure of Director Kraninger.

 

I’d offer two caveats as to my thoughts about that. One is most of my experience at the CFPB has been in research markets and regulations, and I don’t know whether their views are representative of everybody throughout the Bureau. The other is if people are interested in where the CFPB is today on those issues. I’ve been gone from the CFPB since January, and so I don’t know whether the culture has been modified since my departure, but that’s my general take on where the CFPB is as a matter of its culture.

 

Brian Johnson:  Fair enough. David, anything to add there?

 

David Silberman:  I like Tom’s list of adjectives a lot. I guess I would add one, and this may prove conclusively that my lack of objectivity, Brian. But from my perspective, there was an open mind in this, and a willingness to admit error, and to change our minds. So when we issued the mortgage rules I talked about, for example, we knew that in the period of time we had available, we hadn’t gotten everything right, and went through a series of rulemakings over the next year to try and listen to feedback, find out what were problems that weren’t going to work, and make adjustments and tweaks in the rules to try and make them work better.

 

We can talk about this later maybe: we took the comment process very seriously and learned from the comments and adjusted what we had proposed based on that. And there were times when we issued – even to point, we issued a study, and somebody came in and said, “You got that wrong. You misunderstood the data,” and we said, “You’re right.” And we corrected the data.

 

And towards the final part of my tenure, when we were called upon to do five-year assessments of the effectiveness of the rules, we took that very seriously as an opportunity not to whitewash and say, “Yeah, everything’s great in the best of all possible worlds,” but to say, “Here’s where the work rules achieved what they were intended to achieve, and here’s things where we think we actually did create some access to credit issues, for example, so I would put that as part of the culture as well.

 

Brian Johnson:  Well, I guess that’s a good jumping off point. You both have mentioned the rulemaking process. Obviously, that was your substantive area of responsibility, among some other responsibilities as deputy or acting deputy. But let’s focus on the rulemaking process a lot.

 

So both of you helped shaped the rulemaking process, internally; had the responsibilities for gaming out which rules take the priority; over time, how you’re going to staff those. Can you share a little bit, pulling back the curtain, so to speak, on the rulemaking process, and just in an executive role managing that process, what are the considerations in place? Because the public on the outside usually sees just whatever the proposed rule in the final are.

 

And so you can think about “Okay, that’s another 850-page rule from the CFPB, and it took three years, or seven years, or still ongoing, rulemaking processes from the beginning.” So it’s hard to understand that process, understand the considerations that going into it when all you see is the end product and the amount of time it took, and then have to work through all of the sub-costs in upgrading compliance management systems or hiring folks on the outside to translate for you what that means from an institutional perspective, from a consumers’ perspective, understanding how transactions are affected and what, maybe, new opportunities there may be. A lot goes into that.

 

It seems to be a shadowy world as regulators on the inside working through that process. Do you have any thoughts or perspective on that process and what would you share with the public about the challenges and, maybe, areas for improvement in the process? Tom, you want to go first?

 

Thomas Pahl:  Sure. I’ll give it a shot. I don’t think the public really appreciates how iterative, deliberative, and inclusive the CFPB rulemaking process really is. Whether you’re talking about an ANPR, a NPR, a SBREFA outline, a final rule, for each of them, there are policy decisions that have to be made, and what happens is essentially they come from the grassroots at the agency and work their way up.

 

So they start, and it really is a vigorous debate among lawyers, economists, and the like, in business folks, in RMR as to what’s the right policy result, and then they start working it up the chain of command to go towards the director. And so every time you go up and the director makes a decision, then you go back, and you start drafting the documents to implement it. Sometimes, the director changes his or her mind. Sometimes, the team decides that a decision that was made needs to be rethought, and you go all the way back up the chain again to the director.

 

And so there is this incredible iteration of policy issues, and drafting, and input that goes on that takes a long, long time, especially, when you have rulemakings that involve a host of issues. It’s also incredibly deliberative. I think one of the things that people don’t appreciate, and you alluded to this, Brian, is that a lot of times, the public sees what pops out at the end of the day, and what they don’t realize is that, internal to the agency, there may have been three, or four, or six different positions on an issue that have been debated back and forth among people at the Bureau, and ultimately, the head of the agency makes a cut.

 

But there really is an internal deliberation that goes on that can be quite spirited. People have different views, and, yes, everyone calluses around what the agency’s position is, once the agency director makes a decision, but there’s a lot of deliberation, discussion, and debate that goes on before you get there.

 

And the last one is inclusive. One of the things I don’t know that everyone appreciates is that while a research markets and regulations really germinates and develops rulemaking proposals, rulemaking ideas, every single one of these rulemakings, that goes through all of the other shops at the agency, have an opportunity to share their views about the merits of what’s in these rulemakings with the team, with the director, etc.

 

And so when something comes out at the end of the day, a lot of times I get questions from people like, “Did your enforcement shop actually see this?” And the answer is “Yes, everybody at the bureau sees it. It’s very inclusive as you go through the process.” So, to me, the rulemaking process is long, complicated, and I think trying to capture the iterative, deliberative, and inclusive features of it are things that I don’t think the public a lot of times really appreciates.

 

Brian Johnson:  David, anything to add there?

 

David Silberman:  I’ll talk to another part of your question, Brian. I think Tom’s done a good job of explaining the process and perhaps answering the question of why it takes the time it takes. You also asked about why are these so long, basically, and that’s certainly something you hear a lot. But I think if you peel it back – so take the payday rule, for example, which was 500 pages in the federal register, probably—so 1,500-1,600 pages of printed text. One of the largest, biggest in terms of volume of pieces of paper.

 

Of those 500 pages, 13 pages were actually the rule, the regulatory text, which said, “Here’s what though shall not do.” There were another 30 pages, which were what are often collectively referred to as commentary or official interpretations in an attempt to elaborate to provide examples and illustrations and elaborate so that there will be less question about what the regulatory text says.

 

And the other 450 pages were a little bit of background and a lot of a section-by-section analysis explaining “And here’s what we proposed, here’s the comments we received, here’s the changes we’ve made, here’s why we haven’t made changes, here’s why we agree with the things we heard, here’s why we disagree with the things we’ve heard,” followed by a cost-benefit analysis in order to do that transparently and thoroughly. And I think there are ways to streamline it. I don’t think that the products need to be as big as they are or the process as long as it takes, but the answers to why they’re so long is because the Bureau has attempted to provide this very thorough explanation of where they were, where they’ve landed, why they landed there, and how that relates to the comments they received.

 

Thomas Pahl:  I’d like to add one additional consideration that I think drives the length and the timing of the rulemaking process. It’s how big a scope does the Bureau decide to undertake when it takes rulemakings. You can precede very narrowly and incrementally; you can go big and try to deal with a lot of issues, and tie them up, and handle them all at once.

 

I think David and I probably both know from having been part of the rulemaking process, obviously, the more issues they add, the more complexity you add; the longer the rulemaking documents get, the longer they take. And so you can have a debate as to whether what you want is rulemakings that are quicker and rules that are shorter. Perhaps having the scope of the rules you start with narrower may help with those issues too.

 

Brian Johnson:  Well, point taken. I wish we were in a world where you could just read the rule itself and go from there. But from a compliance perspective, I think there’s necessary insight from considering the interpretative rules or staff interpretations that are associated with it—also, understanding the agency’s thinking—and you can learn as much from why the agency elected not to pursue an alternate path, I think, sometimes. So all interesting.

 

Maybe, folks on the outside could just assume and ignore the cost-benefit analysis once the rule is finalized, but it seems that mostly all of the material is somehow insightful, or useful, or should be reviewed. Interesting point.

 

So going to Tom. I did have a question for you. You were basically the top of the consumer protection function at FTC and then also sat as deputy and a co-division head at the Bureau. Aside from the obvious structural and funding differences between the agencies, and to some extent, the FTC’s antitrust function, but thinking just about the consumer protection approach, are there any significant distinctions or differences you would draw between how the two agencies go about their consumer protection missions?

 

Thomas Pahl:  Sure. I think one of the things to recognize is that the FTC, over the past roughly 40 years, has really transformed itself from being a regulatory agency to being primarily a law enforcement agency. So probably, the best apples-to-apples comparison between the CFPB and the FTC is to look at what their enforcement divisions does at the CFPB as compared to the Bureau of Consumer Protection Division of Financial Practices and, to some extent, the Division of Privacy and Identity Protection.

 

And I think that there are really three main things that I think address how a staff attorney or a manager in one of those shops would look at consumer protection problems. The first difference is that, at the FTC, there’s the Bureau of economics that weighs in with a separate and independent analysis assessment of every single case that an FTC staff attorney or first line manager wants to take up to the commissioners.

And so you always have people who are offering a separate view as to the economic consequences of what your case is, what the economic incentives are, what the effects and competition may be. So certainly by the time it gets to an agency decisionmaker, the lawyers in the Bureau of Consumer Protection at the FTC have to be mindful that there’s going to be this economic assessment of what their case is, in a way that really doesn’t happen at the Bureau.

 

The second thing that I think I would note is that it’s a little different in that the CFPB divides up its staff by function. You enforce cases. You write rules. Whereas, at the FTC, all of those functions are within the same group of attorneys, so if you have a question that comes up through protection problem, and an enforcement attorney at the CFPB sees it, the primary function of the CFPB attorney is to try to figure out whether a case should be brought or not.

 

The FTC attorney who’s looking at it, they’re far more likely to say, “Hey, it’s my job to think of that. Should we do a case, should we do a conference, should we start a rulemaking?” So the lawyers who work on individual consumer protection matters at the FTC, I think, are more attuned to the idea that there are more possible tool choices than a lot of the lawyers in the enforcement shop at the CFPB would have.

 

And I think the last one, I think, it goes to something you mentioned is that I think the structure of the agency affects how people who are putting together potential cases view things. At the CFPB, you’ve got an audience of one: the director ultimately is the person you have to persuade, and you know what the director’s point of view is.

 

If you’re at the FTC, you take a look at it, and you have five commissioners, no more than three, which could be from one political party, so you look at it, and, sure, you could probably try to get your case voted out 3-2 or something. But most of the time, what FTC staff attorneys are doing is trying to find a way of articulating a rationale for their case that’s going to appeal to a conservative or republican, as well as a liberal democrat, and the case may be the same as it would have been otherwise.

 

But one of the things it really forces FTC staff to do, in a way that I don’t think CFPB staff does, is try to figure out the different perspective audiences that may be confronted with an enforcement action and what would be persuasive to them as a reason to proceed. So there are some differences between the two agencies, how they do their enforcement function, and how their lawyers evaluate issues.

 

Brian Johnson:  Thanks for that, Tom. David, a separate question for you. So you’ve been at the agency. You were at the agency, experienced changes in leadership, both interparty and then interparty from the early days of Senator Warren standing the agency up from the Bureau, opening its doors up, interim leadership until Director Cordray was confirmed. Now, we’ve had two confirmed directors. Maybe soon, hopefully, we’ll have a third confirmed director, plus two acting directors in the interim.

Within an agency that is experiencing that kind of leadership turnover and changeover, I imagine there are lessons learned from that transition process, and looking back over the 10 years, I imagine some of the transitions have been rougher and some have been smoother. And maybe, my perspective is it’s probably a learned skill for an agency to go through that from a leadership perspective, but I’m curious to know your thoughts on that changeover in leadership process at the top within a young agency, experience it maybe for the first time, but then experiencing it multiple times, and what are the lessons learned there, and what would you say is the way to get the process right so it’s a smoother transition in the future going forward?

 

David Silberman:  So I guess, Brian, I think the first thing I’d say – I think you’re right. Transitions are hard, and they’re probably particularly hard for an agency which has not undergone them before, so that was not standard operating procedure, not something that part – there was no muscle memory, no institutional memory.

 

One of my colleagues, who was a career servant, civil servant, had been through transition at other agencies; one of his first piece of advice was to understand that political leadership do not come with an owner’s manual, and it’s up to staff to understand what it is the political leaders want, not just substantively in terms of what are their priorities and their philosophy, but also how do they like to work? Do they want long memos or short memos, footnotes or no footnotes, big meetings or small meetings, all those sorts of things just to learn how to work effectively with your new leadership? And there’s not a formula. The formula is to try and understand everybody is different, and then you need to understand what they bring into the table and what their expectations are.

 

I guess the second lesson, for me, is building trust, which is what I think is critical to a successful transition, is hard work, and it’s hard work on both sides. It means the career staff have to accept and convey that they accept the legitimacy of the political leadership and their right, and responsibility, and duty to make decisions based on their perspective on, in our case, what best serves consumers and the interests of consumers, and that that’s going to differ from leader to leader, administration to administration so that they are aligned with – they don’t have to agree with but have to accept that their obligation apt is to give their best advice with the evidence they see and then to accept decisions and implement them.

 

And it requires, I think—and I wasn’t on this side of the table—but some leap of faith by political leadership or maybe even suspension disbelief and to be willing to believe that the career staff, who yesterday were working for somebody with whom you may disagree quite profoundly on philosophical issues and who are doing the best they could to implement Rich Cordray’s agenda, if you will, that they have accepted the fact that they have a new leader, and that their responsibility is to implement your agenda, and to trust them to do that, I think that’s key, and that’s really hard, and I don’t know any easy formula that makes that easier.

 

Brian Johnson:  That’s interesting. Speaking of no easy formula, turning for a second, I think one of the central considerations facing any director, or by extension a senior leadership team, and certainly will be a consideration for the Bureau in the future, is this question of resource allocation. Now, maybe, it’s a special case in the standup of an agency where the Bureau has a statutory maximum of funds they can draw in any given fiscal year, and so the question is maybe different at the outset, which is how do you stand up an agency?

 

But as the agency reaches some level of maturity or is on a steady state operating base, at some point, you bump up to resource allocation questions. And there, the question is which of the agency’s fundamental tools you use, and undoubtedly different directors will have different views of how to balance that. But you have supervision; you have enforcement; you have educating consumers through consumer education or financial literacy programming; you have the rulemaking function, which you all understand inside and out.

 

Do you have any generalized thoughts or maybe advice on approaching that central question? It strikes me that, at some point, there’s right or wrong answer because it’s, in essence, a balancing test, but looking back on the agency, maybe a different way to think about it is, had the agency allocated resources in a different way, are there ways in which it could've improved outcomes for consumers or the policy-development process?

 

So again, generally thinking, how do you think about tool choice and the balancing of the agency’s substantial powers and authorities? In your experience there, were there takeaways or lessons learned, or looking back, retrospectively, do think anything could've been differently?

 

 Thomas Pahl:  Maybe, I can start it. I guess I would start at the beginning. There are certain things that Congress mandates the agency must do, and from my opinion, those should go to the top of the pile above anything that’s discretionary. And Congress has spoken as to what rulemaking should be done or other actions the agency should take. Those should come first.

 

You get beyond that, from my perspective, I look at it primarily from the perspective of what’s the most efficient way of preventing consumer harm. You look at whatever proof you’ve got of consumer harm in marketplaces, that’s coming from bad actors, or from rules, or standards that are unclear, lack of information out there for consumers or businesses, and you try to figure out what’s the best tool, the most efficient tool to deal with the consumer protection issues that are causing the largest harm.

 

To me, where I see this is as being a difference across administrations of time, it’s really what you do when the law is not clear. I think there’s pretty broad agreement if the law is clear, and you’ve got conduct that is unlawful; it’s harming consumers. I don’t think any of the people who have run the Bureau would've hesitated to say, that’s when SEFL’s tool should be used, whether it’s supervision or enforcement.

 

I think the question comes up when the law is less clear, how do you approach that? And from my perspective, absent some need to bring a case to stop ongoing harmful conduct or to get financial recourse that’s helpful for deterrents or consumers, I think the general standards to deal where the law is unclear and there are consumer protection problems, in the first instance is something that should be addressed, primarily, to the rulemaking guidance process and RMR, rather than through law enforcement or supervision.

 

I think you may see some differences of opinion over time, based upon who is the director, as to how interested they are in trying to solve consumer protection problems through rulemaking and guidance, as opposed to law enforcement. But I think that’s probably the point where I think there is some difference. When there really is a clear law violation that’s causing harm, I think that there is bipartisan consensus, and it’s been uniform across directors that that’s something the agency should put a stop to as quickly as it can.

 

David Silberman:  And I think the devil always is in the question of how clear is clear enough for – I think as Tom was saying, on the one hand, there’s an extreme that “Look, you can point to this statute, at this rule, and this is – within the four corners of the statute of the rule, what you’re doing violates it.” No question that that’s a matter for enforcement or supervision. The choice is -- [inaudible 46:26] his choice among others.

 

At the other extreme, where nobody would have understood that this conduct is unlawful, that to simply to bring enforcement action would be essentially inconsistent with any kind of notions of fair notice, and the grey areas, where you have generalized norms, you shall not do something that takes unreasonable advantage of consumer’s lack of understanding or inability, whatever. You have conduct, and you don’t have something you can point to, which specifically says, “Yeah, that sentence says this conduct is unlawful.”

 

So you take a case like the Wells Fargo case involved where the bank employees opened up accounts for people, without their consent, in order to make incentives and stuff like that. There was certainly nothing you could point to that said, squarely, “This is an unfair practice. This is abusive practice. You had to reason from general principles.”

 

But I don’t think anybody actually – any of the regulators thought that “Gee, we should wait and write a rule that says you’re not allowed to open accounts for people unless they ask you to open accounts, and indeed, if you had said to us prior to the Wells Fargo case, of the various questions raised in the law, what questions do you think you need to pin down by rule.

 

I don’t think anybody would've come up with that hypothetical as something that we needed to actually adopt a rule on. But it felt like that was the right choice, and I suspect that’s a choice that would've been made consistently across administrations on that question. But at the margins, there will be different calls made by different administrations as to how clear is clear enough and how much the people who have reason to expect that this is unlawful.

 

It’s known that the Bureau did not – if you looked at the body of the Bureau, the corpus of the Bureau is about supervisory enforcement work during the Cordray years. There’s virtually no cases involving payday lending because a judgment was made that, really, we needed to have a rule, that it was not clear enough what the norms were, and so that was – there were no cases involving overdraft because, again, it felt like other than rule cases enforcing the existing opt-in rule that the Fed had issued.

 

There were cases in the debt collection area where there was rulemaking going on. There were some cases in the mortgage servicing area where there’s rulemaking going on. So there was different judgments in different areas, and, as I say, different people would come out different places.

 

Thomas Pahl:  I fundamentally agree with that, that there is an area where the law is uncertain and that there are circumstances where in the space of that uncertainty, it’s necessary to bring a case, as opposed to doing things through promulgating general standards. When those circumstances are not met, however, I think there is value to trying to find a way of coming up with general standards so that you don’t get the surprise “gotcha” component of actions that are taking.

 

And particularly, for an agency that has a UDAAP authority, UDAAP by its nature is something that’s relatively elastic, and you’re going to have to develop it one way or the other through rules or through cases so you will always be trying to figure out ways of dealing with new fact patterns that don’t necessarily track the last fact pattern. And it’s really a judgment call as to when you need to bring a case to establish that some conduct is unlawful, as opposed to taking a broader perspective and doing it through rulemaking.

 

Brian Johnson:  Well, I think Wells is an interesting case there because I think the Bureau could have elected to—if my recollection is correct—investigate whether there was a FCRA violation, or truth and savings, or truth and lending, or other associated violations in connection with unauthorized opening of an account, I think, with UDAAP as the primary theory of the case, but undoubtedly there are questions and resource issues that are inherent in any sort of those judgment calls that are made.

 

I see we are unfortunately bumping up at the top of the hour. I will turn, I guess, to one final question here, which is, you all have lived and breathed CFPB in one shape, way, or another over the – have been close observers over the past decade. We may soon have a newly confirmed director, but undoubtedly, we’ll have additional directors in the future. If you got a phone call and were asked for advice about the agency, in view of the first decade, what would be the advice you’d give to a future director?

 

David Silberman:  Okay. So I guess two thoughts here. One, going back to this language we set aside at the beginning, I think the supervisory process is a critical tool that needs to be carefully husbanded and protected. It’s important there’s a balance that gets struck between establishing supervisory relationships, which allow for free flow of information and confidential communications, without it becoming coopted in some way, without the regulator becoming an arm of the institution and trying to preserve supervision in that authority, and its credibility and its effectiveness, I think is a key priority—should be a key priority of any director.

 

The other thing I would say, again going back to something we talked about, when it comes to rulemaking, time is not infinite. Time is not the friend of any director. More focused rulemakings probably makes sense, not to allow the perfect to be the ending of the good, and to try and establish timelines and meet those timelines so that these processes don’t take as long and lead to this cycle of rules getting promulgated on the 23rd on the half hour, and then getting considered on the 25th hour, or whatever. I guess those would be my two pieces of advice.

 

Brian Johnson:  Thank you, David.

 

Thomas Pahl:  Yeah. I’d like to offer some advice that I’m pretty sure is unlikely to be heated by anyone, but I’ll throw it out there anyway. My advice to future directors would be to try to focus the Bureau’s efforts on real demonstrated consumer protection problems and proceed very carefully and incrementally in dealing with them. I think that the clarity of some of these problems and the prudence reflected in proceeding in a measured way would really enhance public trust in the Bureau’s work. And I realize that that kind of deliberate “go slow, be specific” approach is not all that appealing to many new directors.

 

But I really think that kind of pragmatic focused-problem-solving kind of approach is a key part that the Bureau needs to engage in if it really wants to build public trust, not just public trust to people who share your ideology or share your partisan point of view but have everyone think that the CFPB is a valuable agency that serves the American public well. You need to get that trust component fixed, and I think that focusing on real problems and real focus-directed solutions is the way to try to achieve some of that trust that is still lacking.

 

Brian Johnson:  Well, this will wrap up our panel. Gentleman, thank you so much for the opportunity to speak with you today. This was a great discussion. We’ll move now to a short break before next session. Next session is titled “What Does the CFPB’s Future Hold? It begins in four minutes at 2:00 PM Eastern.

 

Please note that to join our next session, you will need to use the registration link that is specific to the next session. If you haven’t registered yet, you can check the event page on The Federalist Society website where you can register. We’ll see you again in three minutes now. Until then, we’re adjourned. David and Tom, thank you so much again. I really appreciate it.

 

David Silberman:  My pleasure. Thanks.

 

Thomas Pahl:  Thank you. Glad to do it.

 

[Music]

2:00 p.m. - 2:50 p.m.
Panel 2: What Does the CFPB's Future Hold?

The CFPB Turns 10: Evaluating America’s Youngest Federal Financial Regulator

Topics: Administrative Law & Regulation • Financial Services • Financial Services & E-Commerce
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On July 19, 2021, the Federalist Society's Financial Services and E-Commerce Practice Group sponsored an online conference titled "The CFPB Turns 10: Evaluating America’s Youngest Federal Financial Regulator." The conference concluded with a panel titled "What Does the CFPB's Future Hold?".

The U.S. Supreme Court’s decision in Seila Law last year struck down statutory conditions on the removal of the CFPB Director from office as a violation of the Constitution’s separation of powers. The Biden Administration used this decision to abruptly change the leadership of the CFPB six months ago. This panel will discuss the priorities and actions of the CFPB under this new leadership, and the expected priorities of the agency under its next confirmed Director. The panel will also discuss what should be the future direction of federal consumer financial law and CFPB policy going forward. Specifically, how should the CFPB or consumer law and policy be reformed to improve consumer welfare and the efficient functioning of consumer finance markets? The panelists include a leading national consumer financial services lawyer and two law professors, both of whom also worked for the CFPB.

Featuring: 

  • Todd Zywicki, Foundation Professor of Law, Antonin Scalia Law School, George Mason University; Center for Monetary and Financial Alternatives, Cato Institute
  • Chris Peterson, John J. Flynn Endowed Professor of Law, University of Utah's S.J. Quinney College of Law
  • Nanci Weissgold, Partner, Alston & Bird LLP
  • Moderator: Brian Johnson, Partner, Alston & Bird LLP

* * * * * 

As always, the Federalist Society takes no position on particular legal or public policy issues; all expressions of opinion are those of the speaker.

 

Speakers

Event Transcript

[Music]

 

Evelyn Hildebrand:  Welcome, everyone, to the final panel of today's conference on the CFPB entitled CFPB Turns 10: Evaluating America's Youngest Federal Financial Regulator. We've had two events already today, an address from Kathy Kraninger, and a panel discussing “What is the CFPB's Legacy?”

 

Our final panel, entitled “What Does the CFPB's Future Hold,” will take place right now with our panelists, whom Brian Johnson will announce in just a moment. Brian Johnson is a member of The Federalist Society's Financial Services and E-Regulation Practice Group. And much more could be said, but I will just hand the floor over to him so that he can introduce our panelists, and we've very pleased to welcome such a great group this afternoon. So without further ado, Brian, the floor is yours.

 

Brian Johnson:  Thank you, Evelyn. Welcome back, everybody, to the conference. This panel is entitled, as Evelyn mentioned, “What Does the CFPB's Future Hold?” The U.S. Supreme Court’s decision in Seila Law last year struck down statutory conditions on the removal of the CFPB director from office as a violation of the Constitution’s separation of powers. The Biden administration used this decision to change the leadership of the CFPB six months ago.

 

This panel will discuss the priorities and actions of the CFPB under new leadership and the expected priorities of the agency under its next confirmed Director. The panel will also discuss what should be the future direction of federal consumer financial law and CFPB policy going forward; specifically, how should the CFPB or consumer law and policy be reformed to improve consumer welfare and the efficient functioning of consumer finance markets?

 

I am very pleased to introduce our panelists, all of whom I know. Nanci Weissgold, my colleague, is co-leader of the Alston & Bird's Financial Services & Products Group and the firm's Consumer Financial Services team. She maintains a national practice focused on matters relating to consumer financial products and service and represents clients, including mortgage servicers, well banks, non-bank consumer lenders, technology providers for the consumer financial services industry, AMCs, and investors in federal and state regulatory, supervisory, and enforcement matters. She acts as regulatory counsel in connection with investments or acquisitions, performs compliance due diligence. Nanci is frequently called upon to provide litigation support and assist in the development of compliance management systems.

 

Professor Todd Zywicki is George Mason University Foundation Professor of Law at George Mason University Antonin Scalia School of Law. He's also the Senior Fellow at the Cato Institute. He's the former Executive Director of George Mason's Law and Economics Center. In 2020 to 2021, he served as the Chair of the Consumer Financial Protection Bureau Task Force on Federal Consumer Financial Law and, in a prior life, served as the Director of the Office of Policy Planning at the Federal Trade Commission.

 

Professor Christopher Peterson is the John J. Flynn Endowed Professor of Law at the University of Utah's S.J. Quinney College of Law, where he teaches contracts, commercial law, and consumer protection courses. He was on leave from 2012 to 2016, serving as a Special Advisor in the Office of the Director at the CFPB in the Office of Legal Policy for Personnel and Readiness at the Department of Defense and as Senior Counsel for Enforcement Policy and Strategy in the CFPB's Office of Enforcement. He also works as a consumer rights attorney for -- also worked as a consumer rights attorney for U.S. PIRG in D.C. and clerked for the Honorable Wade Brorby—Sorry, I'm going to butcher that name—on the U.S. Court of Appeals for the Tenth Circuit.

 

It is an honor to speak with you all. Thanks very much to each of you for joining our discussion for the third hour of this conference. Welcome, everyone. So the first prompt here -- I think the best way, perhaps, to spend our time thinking about the future of the CFPB is maybe to bifurcate the discussion and talk about, first, what do we know about the CFPB's new leadership, and what should we expect from a policy and activities perspective?

 

And then, maybe take a step back after exploring that area and think about the more normative question, which is, okay, we understand, during this conference, the actions that Director Kraninger took and the actions that the Bureau took in the first 10 years. We have a good understanding, maybe, of where the Bureau will be going in ensuing months, but stepping above that fray a little bit, what should be the future direction of the Bureau? Where should its enforcement and supervisory or rulemaking priorities lie? What should shape the policy development for the agency going forward?

 

And each of you are experts in your field, right? Think about this practice in these areas. And so, think about it from different perspectives, and I really anticipate that this will be a very interesting discussion going forward. So, with that game plan in mind, let's tackle this first question here, which is, what should [inaudible 05:53] expect from the CFPB's new leadership? And maybe the best way to start is to take new leaderships at their word in terms of what they're saying their priorities are and what they intend to do moving forward. And there's been no shortage of that type of communication over the last six months.

 

So, Nanci, why don't I turn this over to you first, and would love your thoughts on what the Bureau's priorities are now, what you are hearing from leadership in the direction of rulemaking or enforcement in policy development from the agency going forward.

 

Nanci Weissgold:  No, absolutely. Thank you, Brian, and thank you to The Federalist Society for inviting me. Delighted to be here today. So, at the Bureau, as we know, we have acting director. We don't have a confirmed director yet. Acting Director Uejio has written quite extensively about his priorities. So he's articulated two main priorities. The first one is the relief for consumers facing hardship due to COVID-19 and the related economic crisis, and the second one is addressing racial equality.

 

You know, with six months under our belt, the acting director has written fairly extensively—I'd say extensively—about these priorities, and I also have observations with working with several companies in front of the CFPB and how they translate. So let me share some of those thoughts, and as Brian said, I'm going to focus on supervision and enforcement, consumer education and outreach, and rulemaking initiatives.

 

Starting with COVID-19, we're already seeing a shift to more aggressive use of supervision and enforcement tools and overseeing companies responsible for COVID relief. As Brian said, I represent a lot of mortgage servicers, but I also engage in student loan services, and my partner's in auto loan services. We also work with banks that are taking PPP applications. And in all those areas, what we see is that the acting director has directed supervision, enforcement, and fair lending to always determine the full scope of issues found in exams, systematically remediate all of those who have been harmed, and require companies to change policies, procedures, and practices to root causes of those harms.

 

We are seeing that today in the form of MRAs, which are matters requiring attention that are sometimes issued with regards to examinations. Second, in May 2020, the CFPB Supervision Program conducted priority assessments in response to the COVID-19 pandemic, and priority assessments were slightly different than examinations in that they were designed to receive information from a broader group of supervised entities and kind of look at bigger-picture issues.

 

Now what we're seeing is the initiation of more targeted follow-up exams of issues identified in those prioritized assessments. So we're seeing lots of companies getting information request for examinations. They've also called for -- The director's called for the expedited enforcement of investigations relating to COVID, and in this regard -- And I'll say, I don't see this is necessarily COVID related, but with regards to investigations, generally, we're seeing the increased use of investigative hearings, which is basically a deposition, to basically speed up the enforcement actions.

 

The last two things I'll note quickly on supervision and enforcement is, the acting director has indicated that he is directing to reverse policies of the last administration that supposedly weakened enforcement and supervision as well as to supervise lenders with regard to the Military Lending Act, presumably, I would say, under the UDAP authority to do so.

 

With regard to consumer education, I routinely advise my clients to mine consumer complaints to identify consumer weaknesses and systemic risks. I also tell my clients that the Bureau loves to turn complainants into witnesses, and that is so true today. The acting director has advised the Consumer Education and External Affairs to—and I'm quoting here—"redouble its efforts to ensure the Bureau engages all consumers who are economically suffering, ensure that consumers who submit complaints to the Bureau get the response they deserve."

 

So I think complaints are going to continue to be very important to watch. In addition to preventing another foreclosure crisis, the Bureau is laser focused on tenant evictions. The acting director advised the Consumer Education and External Affairs to target Bureau resources to reach and help consumers in delinquency or at risk of foreclosure as well as renters at risk of eviction to know their rights, also to ramp up coordination efforts with other agencies to help provide information to at-risk homeowners and renters as well as making sure that homeowners and renters can utilize HUD-approved housing counseling organizations to kind of manage those risks.

 

And last, with regard to rulemaking, we've already seen a focus on mortgage servicing. The rulemaking was recently finalized on June 28 with an effective date of August 31. Among other initiatives in the rule, it includes temporary special COVID-19 loss mitigation procedural safeguards that are in place before a servicer can initiate first legal action for either judicial or nonjudicial foreclosures, with certain exceptions. And the Bureau is also exploring options preserving the status quo with regard to the debt collection rule. Final rule, Reg F, was promulgated last year, but its effective date has been delayed, and we'll see if it does take effect.

 

Next, turning to addressing racial equality, the acting director has indicated taking bold and swift action. So he indicated to elevate and expand existing investigations and examinations and address new ones—to add new ones, I should say—to address inequality. We are already seeing broad information requests and fair lending examinations. And personally, in my practice, I've seen several with regard to mortgage originators, mortgage servicers, as well as student loan originators and servicers.

 

Fair lending enforcement is a top priority, and we are already assessing companies with regard to fair lending enforcement actions. I think the first one literally came out within days after President Biden was sworn in. And then, the CFPB has indicated that they're even taking a broader look beyond fair lending to identify, root out unlawful conduct that disproportionately impacts communities of color and other vulnerable populations. And I'll get back to that one in a minute because I think that one's very interesting.

 

With regard to consumer education, they are redoubling their efforts to ensure that the Bureau engages all consumers who are maybe economically suffering and ensuring that consumers who receive complaints get the responses they deserve. So again, focus on complaints. Secondly, in order to—as they put it—"reorient work squarely on consumers," the acting director directed Consumer Education and External Affairs to lead a refresh of the CFPB's website to focus on consumer rights and expand social media presence to signal that the CFPB is on the consumer side; aggressively rebuild and repair CFPB relationships with consumers, civil rights, racial justice, and tribal and indigenous rights groups; as well as to collaborate with coalitions of stakeholders, including consumer advocates, civil rights groups, grassroots community-based organizations, and individual consumers to get messages out to homeowners in the language and terminology they understand, which is looking at limited English proficiency issues.

 

And last on consumer education, the CFPB noted that consumer advocates have found disparities in companies' responses to black, brown, and indigenous communities, and the acting director has asked the Consumer Response to prepare a report highlighting companies with a poor track record on this issue. And this analysis will be published, so more to come on that one. I don't have a sense of when that will be published.

 

And then, last with respect to rulemaking efforts, there's a few here worth highlighting. I think I got three or four, all of which are mandates under the Dodd-Frank Act. So the first one -- And we talked a little bit a second ago about looking at fair lending more broadly to determine, root out unlawful conduct, and I think this one at least goes to that area.

 

So Section 1473 of the Dodd-Frank Act requires the CFPB, along with the Board of Governors of the Federal Reserve, Office of Comptroller of the Currency, FDIC, NCUA, and FHFA, to develop regulations to implement the amendments of Section 1225 of FIRREA concerning appraisals. And specific, this one is the FIRREA require implementing regulations on AVM, automated valuation models.

 

We have seen a lot in the press recently with regards to homeowners complaining discrimination in the appraisal process and that borrowers in historically black neighborhoods, properties are undervalued. And one of the things in the appraisal community that we see is that there could be appraiser bias, and one way to counteract that are looking at these hybrid appraisals, which would basically be an inspection of the property plus an AVM. So I think this AVM rule is important. Clearly, it hasn't been a focus for the last 10 years, even though there's a mandate in the Dodd-Frank Act for it, and I think that we're going to see renewed attention on that one.

 

Also important are two ones that Director Kraninger highlighted when she spoke with Brian earlier today, implementing 1071 of the Dodd-Frank Act, which amended the Equal Credit Opportunity Act, ECOA, to require financial institutions to collect and report certain information concerning credit applications made by women-owned, minority-owned, and small businesses. So the next action there is a notice of proposed rulemaking.

 

Third, Section 1033 of the Dodd-Frank Act, known as the open banking rule, provides that, subject to rules by the CFPB, covered persons shall make available to consumers upon request transaction data and other information concerning a consumer financial product or service that the consumer obtains from that financial institution.

 

Just, I think it was last week, President Biden issued an executive order, and in that order, it encouraged the CFPB to consider promulgating rules to facilitate the portability of consumer financial transaction data so consumers can more easily switch to financial institutions and use new, innovative financial products. I believe the Bureau issued a proposal with regard to 1033 in 2020, and I believe that the next action on this is in April of next year—but Brian, keep me honest on that one—and I think this is one that's going to get significant attention.

 

The last one that I want to highlight, which is not yet a CFPB initiative—I didn't see it in their rulemaking, but I think it should be on folks' radar to watch—is, the Housing and Urban Development announced on June 25 proposed rulemaking entitled HUD's Discriminatory Effects Standard; basically a proposal to rescind the department's 2020 disparate impact rule and restore to the 2013 discriminatory effects rule, as HUD believes that it's more consistent with the decades of case law, including the inclusive communities case.

 

So this may be instructive of how the Bureau may consider amending Regulation B to ECOA, which only minimally addresses disparate impact. As we have more -- going to have a focus on fair lending, you would think that would be something that they may be taking a closer look at. So that's a lot, so I'm going to pause right there and turn it back to Brian.

 

Brian Johnson:  Thank you, Nanci, for that rundown. I think it's fair to say the Bureau has been busy over the last six months under interim leadership, which is somewhat unique. If you're expecting a caretaker, Dave Uejio is not that and, I think, has proven that.

 

Let me turn it over to the professors and maybe ask the same question a different way, which is, other than maybe the mandatory rulemakings which undoubtedly will remain part of the agency's agenda, if Rohit Chopra is confirmed as the next director of the Bureau, do you think that those two main priorities articulated by Acting Director Uejio will remain the same, or do you expect that they will change? I'd hazard a guess myself, but I will confine myself to being a moderator of this discussion.

 

But, Professor Peterson, why don't I turn it over to you? You know Mr. Chopra. You've worked with him, I think, on two occasions. What do you expect his priorities to be? You know, is it going to be a continuation of the course that Acting Director Uejio has laid out with maybe an overlay, or do you think there will be a wholesale change?

 

Chris Peterson:  Well, thanks, Brian. It's good to be here, first off, and thank you for the invitation and to The Federalist Society for putting together this conference. Also happy to be here with Nanci and Professor Todd.

 

Yeah, I do know Rohit. I don't want to overstate that. I mean, we're not besties, but we worked together at the CFPB back during the Cordray years, and we also both worked at the Consumer Federation of America, me on a part-time basis while I was teaching. And I think, after he was appointed to the Federal Trade Commission, they were looking for his replacement, and I guess that was me.

 

Some things about Rohit: First off, he is very smart. He is a very smart guy, and he has a sky-high EQ. He's very intuitive and understands what's going on in the room. I've never played poker with him, but I anticipate he'd be a very good poker player if he gave it some effort. And he's also very compelling in meetings. You know, some people -- I struggle with meetings because I get impatient in them. Rohit is very effective at working a room in a meeting.

 

He also, in my view, has sky-high integrity and is very sincere, and his commitment is just utterly genuine to try to make the country a better place and to use government to be a positive force in the daily lives of working people. It's not for him. I do not believe that it's about careerism. It's about making a difference for working people.

 

I also want to mention that, unlike -- Rohit is not a lawyer. Rohit is a finance guy. He worked at McKinsey as a consultant for two years, but he's just as sharp as any lawyer on rules if he puts his mind to it. And he's very energetic. I think that he's going to do a lot of stuff, and it's going to be thoughtful and tactical with a broader strategic vision.

 

What specifically will he work on? Well, I don't want to say that I know because I'm teaching now. I don't know what Rohit's talking about doing. So with the asterisk this is all speculation on my part—so take it for what it's worth, which is probably not too much—I think that, off the top of the list, I think one change will be that, in the Enforcement Office, there will be a renewed focus on ensuring that the cases provide remediation back to consumers.

 

And, Brian, we can talk about this if you want, but I tracked the enforcement cases fairly carefully, and there were still quite a few cases that were coming along, but the overall amount of redress, restitution, or disgorgement—however you want to characterize it—being returned to the pockets of consumers declined, I think, pretty steeply in the last administration. I would anticipate that Rohit will insist that the cases provide remediation before he agrees to settle them and will probably pursue pretty aggressively, ensuring that customers get their money back.

 

So second, while some things that Nanci's run down of what's going on at the Bureau right now, in many ways, overlaps what I anticipate will probably continue to happen if Rohit is confirmed, I agree that there'll be a continuing focus on racial justice and systemic inequality, one of the great issues of our time. And what that means -- I think that -- I would anticipate that Rohit will be searching and creative in trying to find different tools to address that, both, obviously, Equal Credit Opportunity Act cases in supervision, but I also would think that there will be a focus on non-English-language content and disclosures and an outreach to consumers. And I also agree with Nanci that automated valuation and appraisals is an interesting area where he might be able to provide some greater wealthy by just recharacterizing how we're talking about the value of homes in minority zip codes. So those all seem to me like likely avenues for advance.

 

I also think that -- This might be too obvious, but Rohit was the first student lending ombudsman at the CFPB and manned the student lending office. And he has a very high level of knowledge about student loan servicing, and I think that we can expect that there will be a renewed focus on that. There are still -- From the perspective of people like me who spent their careers focusing on consumer advocacy, we view the student loan servicing market to be quite dysfunctional, things like the failure to provide public service student loan debt forgiveness, adequate transition into income-driven repayment plans for student loan borrowers that are struggling to repay their debts. These are existing legal programs that were adopted by the U.S. Congress and implemented into law but still did not appear to be delivered adequately to student loan borrowers across the country. I think that you can expect that Rohit will want to see some action on that and will attempt to use the Bureau's tools to deliver concrete results in that marketplace.

 

I should stop and turn it over to Todd, but maybe just a couple more things. I think he's going to continue to insist on high functioning in the student loan servicing market when they're transitioned between servicers dealing with the COVID-related servicing challenges. Folks that are running mortgage servicing markets need to stay on their game and make sure that customer are being taken care of.

 

And then, last thing I'll mention and I'll stop—but Nanci also talked about it—but a real wild card is what happens with COVID. If it continues of the decline, we may be transitioning away from it and may not see too much, but there's also been resurgence with the various variants and whether or not there are major breakthroughs in the vaccines or if we continue to see large populations of America not accepting the science on vaccines, we could see a lot of consumer harm from that disease, and that's going to creep into their consumer financial arrangements with their banks, their credit unions, and whatnot. And a lot to talk about that. I wrote a paper about it with Director Cordray and Diane Thompson, who is still at the Bureau. Lots of details on that, but I know I need to stop and turn it over to Todd.

 

Brian Johnson:  Yeah. Todd, let me jump in here, and I'll throw you a curveball. So it occurred to me, in the context of our discussion here, which, as Nanci laid out, the roadmap for what the agency has articulated as its policy direction, and Chris laid out his well-caveated guess about the direction of what Mr. Chopra might go if confirmed.

 

The question that came to my mind, which I think you're in a good position to answer is, does it really matter anymore? And what I mean by that is, post-Seila Law, where the director can be removed at will by the president, does it matter so much what the director's policy, preferences, and priorities are, or, over time, does the agency begin to act more like an executive agency, and does the agency kind of get subsumed within the meta-government infrastructure where rules are run through OIRA, where I know you worked at one point? And does the policy development process start being mandated through the White House, through any C and downstreamed in the Bureau?

 

And so, are the activities -- You know, if we're trying to read the tea leaves and understand where the agency is going to, I guess the other way of asking this question is, should we start thinking, "What are the administration's main priorities" and figure out where the Bureau fits into that agenda as opposed to what used to be, I think, supreme in the CFPB criminology, which is figuring out what makes an individual director tick, and what can we expect based off of their unique histories and background and interests?

 

So I'm riffing a little bit here, but what do you think happens with the agency post-Seila? Is it inevitable that they get pulled more into an executive agency posture, or are they going to hold tight and be treated as the independent agency that they were conceived to be? 

 

Todd Zywicki:  Wow, that's a marvelous question, Brian. It certainly is a curveball. Before I answer that, first, I want to say congratulations to you for this slate of panels today in The Federalist Society, which has been fascinating to your Director Kraninger, and then Tom Pahl and David Silberman and my colleagues on this panel. And I couldn't help but laugh when Chris said he gets impatient in meetings at his career choice to become a faculty member. Apparently, he didn't know about faculty meetings when he signed up for that career choice.

 

Chris Peterson:  I've had a lot of angst about that, Todd. Go ahead.

 

Todd Zywicki:  There you go. There's deception, cause of action for deceptive. That's a great question, Brian, and as you were asking the question, I was trying to recall whether there's any historical precedents for this, which as we know, during the '70s and into the '80s, some independent agencies were reformed. Some were abolished. The ICC was abolished, for example, Interstate Commerce Commission. I think many of its duties were merged into the Department of Transportation, as was the case with the Civil Aeronautics Board. Obviously, the FAA is the successor to that, but I'm not an expert on it.

 

But it's a great question. I think it raises a couple questions, which is, first, the agency -- it's an unusual agency in that it really is structured very much like an independent agency in its internal guts, right? I mean, the fact that it has this well-developed administrative procedure process, the fact that its budget is protected from Congress, which is sort of -- and technically the president, which is sort of a super independence-type thing. From the beginning, it's always been sort of a peculiar way to think about this as it becoming an independent executive agency, given so many of the features that structure like an independent agency like I'm saying.

 

It's also unusual -- I was very struck by an observation Director Kraninger made in her discussion with you, Brian, which is the way in which, not just the budget, but also the fact that the only political appointment, technically, in the agency is the director, influences the relationships between the director and the Hill in that she mentioned there's a lot of negotiation that goes on when you need to get your sub-cabinet appointments confirmed. Often, that's a time for back-and-forth between the Senate and a department.

 

So in that sense, Congress still, at the center, largely lacks that tool, still, for oversight. It's unclear how things are going to shake out on the budget. It's a very murky area at this point, which is what happens if -- Still, the statute provides that the budget is provided from the Federal Reserve. But what happens if the White House tells the director, "We want you to request X in your budget" and the director fails to do that? Obviously, they could be removed for that, but the Dodd-Frank legislation is kind of murky on what the technical authority is of the White House and the ONB over all that.

 

Obviously, the final thing is that this has been a very independent agency. They've tenaciously protected the independence of the agency, and the DNA is very much of an independent agency. The pattern of relationships between the agency and the Hill is kind of part of that legacy.

 

And so, I think seeing how that develops over time is going to be very interesting, the extent to which, as you suggested, you would expect it would come to act more like an executive agency over time, but given this sort of long run-up and this fierce assertion of independence that we've seen from this Bureau from the beginning against both, in theory, the president as well as the Hill, it may take longer to kind of digest this agency into the Executive Branch that might otherwise be the case.

 

And that's one of the things, I think, is going to be interesting to watch here is not just the development of relationships with the White House, but development of relationships with Congress. Obviously, Director Chopra is known to be very closely allied with Senator Warren, as was Director Cordray. And what will that influence be like with his views on the Hill?

 

I think another interesting thing that I'm going to be interested in watching is, what will be the relationship—and I think Nanci may have alluded to this—between the CFPB and the FTC? That's been a very unsettled relationship over time. The CFPB, during the Cordray term, was relatively expansionist and imperialistic, and I know from my discussions with people at the FTC that that ruffled some feathers. And in many ways, the Chair of the FTC at that time kind of went along with that. The CFPB was kind of the cool kid in town, and there wasn't a lot of political gain to be had to standing up to the FTC at this point.

 

And so, questions like extending the CFPB's jurisdiction indirectly over auto dealers, for example, I know is something that wrinkled a lot of feathers at the FTC, and it's kind of been paired back during Director Kraninger's term. I think this will be especially interesting to watch, given the sort of surprise appointment of Lina Khan as the Chairman of the FTC in that she has very little background in consumer protection. Obviously, she's known for her work in competition. She also has very little experience within sort of the—let's face it—knife-fighting of interagency relationships that goes on in the federal government. And so --

 

Brian Johnson:  Not to interrupt you, but if there's anybody who's maybe well positioned to bridge that gap between FTC and CFPB, I'd have to guess it's the sitting commissioner who's the presumed, soon-to-be-confirmed director for the Bureau. So I know there's been kind of attention in terms of how the agency holds hands behind the scene on joint kind of collective actions. My guess is that there's probably an established relationships there and maybe a smooth relationship.

 

So apologies for interrupting there. I do want to make sure that we have time to talk about the other major question that I have here about the future of the Bureau, which is -- We've explored, in some detail, where we think the agency is going to, at least in the near term. It's a wholly separate question on where should the agency go, and to some extent, beauty is in the eye of the beholder if public observation of past Bureau activities is any indication.

 

I'd strain to find a middle ground. You either hate it or you love it, depending on who's in control, and there seems to be not any kind of moderating middle right now. Maybe that's just a feature of the politics we're in, but I do think that there is important thinking that should take place 10 years out, evaluating where the agency is on its future.

 

Both Kathy and David and Tom all spoke to the idea of trying to de-politicize the agency and, in some way, get to regular order. And so, I think one way you do that is internal cultural change, but importantly, you should have a vision of what the, not end state is, but where the agency is going.

 

And I know Todd, in full disclosure, had a hand in the task force effort, but that culminated under your leadership and a series of recommendations for the future. Professor Peterson, I know you've written extensively about kind of hot-button consumer protection issues and have done a lot of deep thinking about where in the development of federal consumer financial law or consumer protection law and regulation generally, with the state-federal interplay, should go.

 

So I'd be remiss if I didn't try and tap into your expertise and thinking on what would be your vision for how things should shape up, say, in the next 10 years. So brand-new agency, went through the fits and starts of becoming a mature agency. Now that it has all of its resources, capabilities, faculties, has developed in-house expertise, where do you see it going, or where should you see it going? And, Chris, I'd love to kick this to you first and then maybe turn it over to Todd and Nanci for reaction or for additional thought.

 

Chris Peterson:  Well, first, I agree that, in Washington, there's still a lot of -- It's obviously a football in the partisan war, but one thing you didn't mention in my bio: I was the Democratic Party's candidate for governor of Utah in the last election cycle. And so, I spent a lot of time out in the hinterland going around a very conservative, very Republican state.

 

Obviously, I lost. I mean, it's Utah; I'm a Democrat. But I did get more votes than any Democratic candidate in the history of Utah, and what I found is that people really weren't too offended that I was a former CFPB guy. And when I started talking about consumer finance, the thing that Republicans agreed about—at least in my home state—was that we needed payday loan reform. A super majority of Utahans, of all people, support a traditional interest rate cap, and that's true all across America, which is far on the interventionist side from the most aggressive version of what the CFPB was proposing.

 

I think that payday loan reform is right in the wheelhouse of the kind of thing that the CFPB was supposed to do to protect consumers from financial products that are not probably in their best interest most of the time. And, obviously, there's going to be disagreement with that on the panel. This is a normative thing. I think we need aggressive reform of that industry. Second, I actually --

 

Brian Johnson:  Yeah. Sorry to interrupt. Do you see that more as a state level or at the CFPB specifically?

 

Chris Peterson:  Yeah. I mean, both. I think that either, some. I mean, in my state, it's not happening, even though a super majority of Republican primary voters wanted it. It doesn't seem to happen, and there are a lot of complicated reasons for that. I'd like to see it at the federal level and the state level or either. I'd be great if Congress would do something. I have a bill I drafted that's likely to be introduced, I think, by Senator Brown pretty soon, if it hasn't already.

 

But in any event, my second thing I'd like to say is consistent, I think, with what Todd was saying and what you mentioned Brian with the Supreme Court's decision in the AMG v. FTC case. The FTC is going to have real problems in providing consumer redress, but the CFPB still has very robust tools about that. I'm really hoping that Rohit—soon to be, I hope, Director Chopra—will work on collaborative CFPB/FTC enforcement to try to leverage those boots on the ground at the FTC to make sure that they can still deliver real benefits back to American consumers.

 

And, look, I realize this is going to take some collaboration, but I envision FTC litigation teams that are mated with CFPB litigation teams where the FTC is driving some of the investitive work and CFPB folks are kind of being brought in to make sure that the remediation is happening back to consumers.

 

Third thing I'll mention: Very worried about cybersecurity. I'm concerned that, in Russia, Ukraine, maybe some other places, there are quasi-state actors that are engaged in criminal activities, seizing computers in the United States. And if they manage to get into our financial institutions, that's going to run right up into the consumer protection laws that we have had for generations. And this is an area where we could have consensus.

 

You know, banks and credit unions, non-bank financial service providers, want to have secure systems, and if they don't have secure systems, if they're getting hijacked, then it's the customers who are going to be in real trouble. We need to be proactive in trying to address that, and that could mean collaborative relationships with the State Department. And we need to have a bold vision for how to secure our financial systems to protect consumers and industry.

 

Fourth thing I'll mention: I think that I am very concerned about where we're headed with respect to climate change and the nation's financial industry. You know, we have -- In our country, one of the great inventions of American society is the 30-year-fixed-interest-rate mortgage. It helped build our middle class after the new deal. And the basic deal is this: If you're about 30 years old, 35 years old, you've got enough money to make a down payment on the house, you can, over the course of your lifetime with a low-fixed-interest-rate loan, manage to acquire property and become part of the landed gentry, and leave that to your progeny by the end of your working life when you retire.

 

But the problem now is that the best scientists that focus on this believe that, in 30 years, 50 years, 60 years—nobody knows for sure—much of our seaboard is going to start to go underwater, and we're already starting to see that with the collapse of the tower in Miami on Miami Beach. So do we need disclosures on that? How are we going to -- How are we going to deal with 30-year-fixed-interest-rate mortgages, one of the greatest inventions we've ever had, still being made on property that is likely to be underwater in the foreseeable future, perhaps within the due date of the promissory note that the consumers are signing?

 

Last thing I'll say, then I got to stop and turn it over, I think that my normative point is that we need to move fast. Ordinary consumers do not understand why it takes so long for rules, for enforcement cases, for changes in policy to be enacted. Already, we're well into the two-year policymaking cycle, and the director's not even confirmed yet. And I know it feels like a lot of stuff's going on for people who are watching inside the beltway, but out in the provinces, people aren't really feeling a lot of this. They don't understand -- They don't see the changes in their daily lives are being made. Rohit needs to move fast to make concrete decisions to try to deliver value to the American public. I'll stop.

 

Brian Johnson:  Chris, I'll just note, before turning it over to Todd, I was really struck by your notion of the integrated FTC/CFPB activities. You might want to work on a paper with Todd because I think he spoke into the notion of combining the two agencies, so maybe there's some common ground.

 

Chris Peterson:  Todd and I, we get in a fight as soon as we start talking. I don't know if it's possible. It'd be an interesting paper if we could manage to sort it out.

 

Brian Johnson:  So, Todd, you obviously chaired the task force, which I think is—at least in recent years—the kind of definitive, kind of forward-looking statement about consumer financial law and policy. I know folks are reacting to that, agree, disagree, etc., but would love your take on where you think CFPB policy development should go, what you envision the next 10 years, say, of CFPB activities. Where should things be headed?

 

Todd Zywicki:  Sounds good. Well, I've got 101 ideas of recommendations, so I'll just mention a few. The first is one of the things we call for on the task force report is—and Tom Pahl touched on this, so I won't belabor it—sort of thinking coherently about tool usage. The CFPB is an unusual and, as far as I can tell, unique institution for consumer protection bureau in the world in that it has five tools: enforcement, supervision, regulation, consumer education, and research.

 

And as Tom Pahl touched on, it's not always been clear whether the CFPB has thought strategically about how to use all those tools in combination and, related to that, may be a consideration of internal reorganization, perhaps around markets rather than around tools—which is something that we suggest in the task force as well—which is thinking about a problem from the perspective of how consumers shop for a product and how markets work, and then thinking about what the right tool is to do that where, as Tom suggested, it seems like sometimes they'd pick a tool and then decide -- kind of work backward from there as to how the issue will be approached.

 

I think a second thing that Director Kraninger touched on that I want to endorse very much is, she pointed to the innovation agenda of the Bureau over the last few years, headed up by Paul Watkins in particular, which got started under Director Cordray. I think that is a hugely important thing in order to promote not just innovation, but innovation for the purpose of promoting financial inclusion and competition.

 

And related to that as well is, I strongly endorse the point in the White House EO about promoting competition in bank accounts, except that I might say, maybe it doesn't go far enough. I'm not sure that sort of just portability of account information is enough. I would like to see more, perhaps really thinking about how to create a more fluid banking system that makes it easier for people to change accounts, much like they can change credit cards and prepaid cards right now. And I think that would promote greater competition and perhaps make banks more responsive to consumers and create more innovation in that market.

 

We also talked, just generally, about competition and strengthening. The Dodd-Frank tells the Bureau to take account of the impact of their rules and practices on competition, and we have a number of our recommendations. I think that is something that should be elevated within the Bureau as competent, and hopefully Director Chopra, who comes from the FTC and is used to the idea of thinking about the interface between competition and consumer protection, may be able to think about how to effectuate that policy of competition.

 

A final thing that I think would be useful to think about and one of the points we called for is -- and this relates to the tools usage question, which is, we suggest a greater reliance on principles-based regulation as well as being more proactive in terms of crisis management, which is to say, in the past twenty years, we've had three major crises that have affected consumers: Y2K, the 2008 financial crisis, and now, of course, the pandemic. And I think the federal regulators did a great job using the tools at their disposal in sort of making things work through COVID, but I think it might be useful to have the regulators themselves kind of stress test their mechanisms and perhaps have Congress grant greater authority to the agencies to respond.

 

So, for example, a lot of states have a lot of special interest provisions that protect notaries and require in-person real estate closings and all this sort of stuff that were obviously a disaster during the pandemic, and the FTC managed to cut through that—Well, you were there, Brian, I believe—and did a great job with that. But it would be nice if there were greater provisions for that as well as principles, regulation. In terms of writing these long, detailed, prescriptive regulations, think about how to use regulation perhaps in a more integrated way with supervision and rulemaking -- supervision, research, and the like. And I'll turn it over to Nanci to bring us home.

 

Brian Johnson:  Yeah, Nancy, I'll give you the last word. I mean, you've obviously been a close observer of the Bureau and consumer finance topics generally, even before the Bureau. You know, what would you like to see come from the Bureau, be it from a client perspective or a business need perspective or a personal perspective?

 

Nanci Weissgold:  Yeah. No, thank you. I mean, I agree with a lot of what Chris and Todd have said. And from my perspective, look, I advise clients on these issues all the time, but I'm also a consumer. And I use my consumer hat, and it kind of instructs me on how I advise my clients and how I think about these issues. So I'll just highlight two.

 

I think this question, we probably can talk about for hours, if not days, but let me -- Two that are top of mind for me is, one, clear rules of the road. So companies really want to do the right thing, and a lot of times, they're just like, "Yeah, but we're not even sure." And I can give two very timely examples. One has to do with credit reporting for borrowers who exit forbearances who, for whatever reason, decide not to engage in some sort of permanent loss mitigation option.

 

The CFPB's provided guidance in an FAQ 10 that is just really unclear, doesn't address the situation. Despite numerous attempts to seek clarity from trade groups and others, they just declined. So they leave companies just not knowing what is the right thing to do there. Rather than a "gotcha" mentality, it would be really nice to give clear guidance when a specific issue's been presented.

 

The second example I can say is the Hunstein case that came out of the Eleventh Circuit recently that discusses, with regard to debt collectors, what information you could use to have service providers conduct or not without violating the FDCPA. Again, the issue's not clear, and the Bureau declined to provide guidance, and maybe that was a little different when there's active case law. But again, I think now we have a circuit case that's the law in three states that are subject to the Eleventh Circuit, it would be nice to have guidance there. So clear rules of the road would be number one.

 

Number two would be -- I do like the idea of coordinated regulating and enforcement between the federal and the states, but in my experience, what it turns to, particularly with non-banks, is now you have 54 regulators all looking at the same thing, so it makes it really expensive for companies, and that just gets passed down to consumers.

 

So federal preemption has been kind of, I would say, out of style in the last several years since the Dodd-Frank Act that amended the preemption standard, and I think that's something that needs to be revisited on how we can ensure that there is adequate consumer protection, but not making it so uncostly for companies to do business in trying to deal with 54 regulators.

 

Brian Johnson:  Well, I think we have hit our mark almost exactly. I have 2:59. Thank you, Todd; thank you, Chris; thank you, Nanci, so much for joining me on this panel. And thanks to the audience for joining the entire conference today, and thanks especially to The Federalist Society for hosting today's event. This now concludes the conference. Thank you very much.

 

Nanci Weissgold:  Thank you. It was great participating with you all.

 

 

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