The primary mission of the Consumer Financial Protection Bureau (CFPB) under its new director, Kathleen L. Kraninger, will be in focusing on preventing harm to consumers by empowering them, educating them, ensuring clear rules by which financial institutions should operate, and ensuring a culture of compliance through supervision.
This was the vision laid out by the Director herself in a keynote speech made Wednesday morning at the Bipartisan Policy Center (BPC) in Washington, D.C.
Prevention of harm
In her opening remarks, Kraninger outlined the series of events that led to the CFPB’s creation, and how the financial crisis in 2008 led to a robust debate in Congress that resulted in the Dodd-Frank Act. The passage of that act into law established the CFPB and its mission in focusing on consumer protection in the market for financial products and services.
“Congress gave significant powers and tools to the Director to carry out that mission,” Kraninger said. “Those tools include education, regulation, supervision, and enforcement, each of which serves an important component in the Bureau’s execution of its mission. As Director, I believe that the best application of these tools is to focus on prevention of harm to consumers.”
To achieve that mission, Kraninger outlined four key pillars she will look to in order to fulfill the Bureau’s obligations: education, rulemaking, facilitating a culture of compliance, and enforcement. Looking to financial education as a primary tool to fulfill the Bureau’s mission, Kraninger detailed identified shortcomings in the public’s understanding of financial services and the laws that are designed to govern them.
“Specifically, the Bureau recognized a gap and conducted extensive research to develop a consumer-centric definition of financial well-being that goes beyond income and credit score,” Kraninger said. “It captures a person’s sense of financial security and financial freedom of choice in the present and the future.”
Key to this financial security is how much control a particular consumer has over his or her regular personal finances, along with the capacity to, “absorb financial shocks.” Of particular note to Kraninger was the fact that many Americans don’t have enough savings to cover an emergency expense of $400, which led to the creation of the Bureau’s “Start Small, Save Up” campaign.
Rulemaking, culture of compliance
Two additional pillars discussed by Kraninger include clearly and concisely establishing the rules by which the Bureau will operate, but that will also allow for regulated entities to continue promoting competition and preserve fair markets for financial institutions.
“Where Congress directs the CFPB to promulgate rules or address specific issues through rulemaking, we will comply with the law,” Kraninger said. “Where the Bureau has discretion, we will focus on preventing consumer harm by maximizing informed consumer choice, and prohibiting acts or practices which undermine the ability of consumers to choose the products and services that are best for them.”
Kraninger also emphasized that she will use the Bureau’s supervision authority in situations that warrant it, emphasizing that she seeks a culture of compliance from regulated entities to uphold the mission of preventing consumer harm.
“Bureau examiners can review compliance management systems at an institution to assess whether the institution is taking its obligations seriously, and whether it has a culture of compliance that tries to prevent harm in the first instance,” she said. “Supervision can uncover inattention to compliance and other internal controls that, if unaddressed, might lead to future violations. We can then suggest ways the institution can make improvements that might stop this from happening.”
Enforcement, measuring success
The Director also expressed a willingness to lean on enforcement actions in order to ensure that the Bureau’s primary mission is upheld, particularly for institutions and organizations that demonstrate an outward aversion to complying with the law. However, she also outlined that the positive effects of enforcement actions can be limited, and that any future enforcement actions taken by the Bureau.
“Let me state emphatically my view that enforcement is an essential tool Congress gave the Bureau – particularly because education, rulemaking, and supervision will not prevent every violation,” she said. “There will always be bad actors who don’t comply with the law. Ensuring that justice is served in the public interest – that is our goal in using the enforcement tool. Further, a purposeful enforcement regime can foster compliance, help prevent consumer harm, and right wrongs.”
Enforcement, however, is not the same as creating a lasting solution and should only be applied carefully in circumstances that warrant it, she said.
“I am committed to ensuring that enforcement investigations proceed carefully and purposefully to ensure a fair and thorough evaluation of the facts and law,” Kraninger said. “And I am also committed to ensuring that we move as expeditiously as possible to resolve enforcement matters, whether through public action or a determination that a particular investigation should be closed.”
The ability to measure the success of the Bureau’s mission is also paramount, but difficult. Because government agencies tend to judge their successes by quantifiable measurements like the handling of complaints or the comparison of complaints received over a period of time, Kraninger argues that focusing solely on these outputs provides an incomplete picture.
“The Bureau’s work must be measured by how well we use all of our tools to prevent consumer harm,” sh”e said. In the coming years, we will be working within the Bureau and with stakeholders to develop the most appropriate ways to measure progress in preventing harm.”
Kraninger’s full speech can be watched at the BPC YouTube channel.