Under the Trump administration, the Consumer Financial Protection Bureau has all but closed its doors. Acting Director Mick Mulvaney has been outspoken in saying the federal agency created after the 2008 financial crisis to safeguard Americans needs do to less, not more.
That view may explain the White House's nomination this week of Kathy Kraninger, a mid-level government staffer with no experience in consumer protection or financial services to serve as the CFPB's new director.
If Kraninger is confirmed, banks and lenders can look forward to several more years in which government gives them a wide berth. If her confirmation stalls, it will allow Mulvaney to prolong his stewardship of the agency -- continuing the deregulatory push for several more years.
A surprise nomination
Kraninger was a virtual unknown until late last week, when rumors of her nomination started circling. Unlike other contenders for the job, she has no experience in finance or leading an agency.
A career government official, Kraninger spent many years at the Department of Homeland Security and working for appropriations committees in the House and Senate. Since last year, she has worked at the Office of Management and Budget, which Mulvaney runs, where she oversees budgets for Treasury, Department of Housing and Urban Development and the CFPB.
The lack of financial or consumer experience on her resume quickly drew criticism. "The nominee is unqualified," said J.W. Verret, a law professor at George Mason University and former chief economist for Republican Congressman Jeb Hensarling of Texas.
"Kathy Kraninger has zero relevant experience that qualifies her to be America's chief consumer advocate," said Karl Frisch, executive director of Allied Progress, a consumer watchdog group.
Elizabeth Warren, the liberal Massachusetts senator who helped create the CFPB, promised to block Kraninger's nomination.
Consumers can expect less help
Kraninger's lack of experience makes it hard to know what approach she would take at the helm of the CFPB. But the White House has made it clear it expects Kraninger to continue Mulvaney's deregulatory push. "As a staunch supporter of free enterprise, [Kraninger] will continue the reforms of the Bureau initiated by Acting Director Mick Mulvaney," said White House Press Secretary Lindsey Walters in a statement.
So far, those reforms mean less money in consumers' pockets.
In a year under Mulvaney's leadership, the bureau has not taken any new enforcement actions. It has dropped multiple projects, including an investigation of a tax preparer and a lawsuit against a group of payday lenders. It has scaled back its student loan division and disbanded three , including that gives input on how the agency's rules affect everyday consumers. The bureau is also looking at rewriting a recently finalized rule to limit short-term, high-interest loans.
In the six years prior, the CFPB recovered nearly $12 billion for Americans who had overpaid to debt collectors, credit card companies or fraudulent enterprises. Since Mulvaney took over, that number has grown by just $400 million. He is also considering hiding the agency's consumer complaints database, which lists complaints that have been made about financial companies and the companies' responses.
Finance industry welcomes the nomination
The industry group that represents payday lenders, the Consumer Financial Services Association, endorsed Kraninger's nomination. So did the Mortgage Bankers Association, and the head of the Consumer Bankers Association described her as "a 'clean up the mess' pick."
"[W]e think she will continue the lead established by current Acting CFPB Director Mick Mulvaney to end the CFPB's pattern of regulation by enforcement," analysts for KWB wrote in a note.
The CFPB director serves a five-year term. If Kraninger is confirmed, "the 800-pound gorilla that is the CFPB would be significantly diminished," said Ed Mills, an analyst at Raymond James. It takes the bureau two to three years to create a new rule, Raymond James found, so after a new director is in place, "the next time finance might have to worry about a new rule from the CFPB could be 2026, 2027," Mills said.
How long can Mulvaney stick around?
Whether Kraninger gets confirmed is a toss-up, say Wall Street watchers. But if her nomination is allowed to sit for some time, or if she's rejected, it extends the period of time Mulvaney can run the agency on an acting basis.
"We do not view Trump's nomination of Kraninger to be an error or oversight despite her lack of experience with consumer or broader financial services issues. We view it as a calculated move to keep Mulvaney at the helm of the CFPB for as long as possible," Height LLC analyst Ed Groshans wrote in a note.
Mulvaney's custody of the CFPB was set to end on Friday. But now that a formal nominee is in place, he has another 210-day period while the permanent director is confirmed or rejected by the Senate.
Here's how Groshans broke down the timing: "We expect the confirmation process will last four to six months, which means Mulvaney will be leading the CFPB into 4Q18. If the Senate rejects Kraninger's nomination or she withdraws her nomination from consideration, [the Federal Vacancies Reform Act] would give Mulvaney another term of up to 210 days."
The White House had dragged its feet on choosing a director, which for some is evidence it intends to keep Mulvaney running the agency as long as possible.
The administration teased a nominee for the post since November, but it issued a formal nomination with a few days left to spare. Meanwhile, Mulvaney has told reporters he staying on as acting CFPB head until the end of the year.
While the current situation at CFPB is positive for the financial industry, it creates a squishy situation long-term because it effectively means there are fewer definite rules. Rather, enforcement will shift with each new administration, said analysts.
"Wide swings in policy as we are seeing from Team Obama to Team Trump force financial firms to abandon prior systems and invest in new ones," wrote Cowen analyst Jaret Seiberg in a research note. "It also means consumer financial firms must always worry that conduct that they believe was permitted could be viewed as illegal if there is a change at the White House."
For the bank customer, it could mean that ill treatment that one administration views as illegal -- and that results in their money getting returned -- becomes kosher in a few years time, and vice versa.