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Embattled consumer watchdog says top priority is financial education

Brian Cheung

America’s consumer watchdog says its biggest win since getting new leadership has been financial education, despite calls on the agency to be more aggressive on policing consumer abuses in the marketplace.

Kathy Kraninger, who began heading the Consumer Financial Protection Bureau in December 2018, told Yahoo Finance on Wednesday that she is proud of the agency’s work on educating U.S. consumers on healthy savings habits.

“Savings is the unique aspect that really helps people in their financial well-being,” Kraninger said, pointing to the agency’s surveys on the issue.

The CFPB was created in the aftermath of the financial crisis to address consumer protection in financial products. Although bank regulators have always had jurisdiction over financial products from regulated banks, no agency existed for the sole purpose of monitoring financial products from non-banks.

But the CFPB has become a lightning rod for criticism in Washington, D.C., for more reasons than the fact that now-presidential candidate Elizabeth Warren was the creator of the agency itself. Proponents of the agency argue that the watchdog is needed to protect consumers from predatory practices, but opponents have alleged that the CFPB has too much discretion to crack down on companies that may not be guilty of wrongdoing.

Kraninger, who survived a heated confirmation hearing after being nominated for the post by President Donald Trump, said her priority at the agency is to do what the law mandates the CFPB do. 

UNITED STATES - MARCH 7: Kathy Kraninger, director of the Consumer Financial Protection Bureau, testifies at a House Financial Services Committee hearing titled "Putting Consumers First? A Semi-Annual Review of the Consumer Financial Protection Bureau," in Rayburn Building on Thursday, March 7, 2019. (Photo By Tom Williams/CQ Roll Call)

“Certainly first and foremost, it is that articulation of the mission, consistent with the statue, and demonstrating that continues to be our guiding light,” Kraninger told Yahoo Finance of her top priorities for the agency.

Kraninger noted that in addition to education, the agency has tools that can address regulation, supervision, and enforcement in the financial marketplace. Critics of the Kraninger-led CFPB have alleged that Kraninger has not effectively used those other tools to find and punish bad actors.

In a hearing in March, Warren accused Kraninger, then about three months in on the job, of doing nothing on issues like student loans, lending discrimination, credit reporting companies, and debt collectors.

“It seems pretty clear to me that you stopped enforcing the laws designed to protect consumers,” Warren said.

‘Glad' to see Supreme Court challenge

Beyond the political rhetoric, the CFPB also faces an existential crisis in the Supreme Court, where it could be deemed “unconstitutional.” Kraninger told Yahoo Finance that she is looking forward to having that case resolved.

At issue: the CFPB’s single director structure, which allows a president to appoint the head of the agency but prohibits the president from firing that director unless that individual needs to be removed “for cause.” The agency only has one director (unlike the Federal Reserve or Securities and Exchange Commission, which have boards or commissions), fueling critics who argue the “for cause” protection gives that one director too much power.

Kraninger said that multiple court cases filed over the years have “dogged the agency since its inception,” arguing that lawsuits have impeded the agency’s ability to follow through on enforcement cases.

“It’s really up to the Supreme Court and Congress to provide certainty around the agency structure and put that issue behind us,” Kraninger said. “So I am glad the court took up the case and look forward to the outcome of that.”

Kraninger said some “regulatory actions” have also been challenged. 

Several companies punished by the CFPB for alleged consumer law violations have turned around and sued the agency, arguing that the penalties are unlawful because the agency itself is unlawfully structured. 

New Jersey-based mortgage servicer PHH Mortgage tied up the CFPB in a nearly four-year legal battle after the CFPB slapped the company with a $109 million fine for alleged violation of laws regarding real-estate settlement procedures.

A court ultimately vacated the fine but ruled the agency structure constitutional, a decision that Brett Kavanaugh, then a judge on the D.C. Circuit Court of Appeals, dissented against. Kavanaugh wrote that he would prefer the “for cause” provision be changed to “at will” so the president could fire the director whenever.

But a separate suit, filed by a law firm that the CFPB was investigating for possible violations of telemarketing law, now finds its way to the Supreme Court. In October, the Supreme Court said it would take up Seila Law v. Consumer Financial Protection Bureau and decide on the agency’s constitutional structure.

According to SCOTUSblog, the decision for the case will likely come by next summer.

Brian Cheung is a reporter covering the banking industry and the intersection of finance and policy for Yahoo Finance. You can follow him on Twitter @bcheungz.

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