Kathleen L. Kraninger's Speech at the Exchequer Club
Thank you for that introduction, and thanks for having me. I’m delighted to be here to spend time with such a distinguished group of experts and leaders in financial and economic policy.
As you heard from the introduction, I’ve been in public service now going on 20 years working in both the Congress and the Executive Branch. I’m honored to be able to carry this forward at the Consumer Financial Protection Bureau. And, I can tell you, I hit the ground running.
On day one as Director last December, I launched a listening tour. Now more than six months into this job, I’ve met with more than 600 consumer groups, consumers, state and local government officials, military personnel, academics, non-profits, faith leaders, financial institutions, and former and current Bureau officials and staff.
Nobody’s been shy about sharing their great diversity of thoughts. Their feedback and viewpoints have helped shape my approach, and we continue to listen to all sides of the issues.
Just last month, we launched a series of symposia on financial matters. We started with a dynamic, informative discussion about abusive acts or practices under the Dodd-Frank Act. The next symposium is on September 19th on Behavioral Law and Economics. Future symposia include small business loan data collection, and cost-benefit analysis. The full list of topics is on our website.
Today, I will elaborate on some of the Bureau’s takeaways from this ongoing engagement with experts and stakeholders, and what it means for the Bureau and our partners.
Utilization of All Tools to Prevent Consumer Harm
Congress gave significant powers and tools to the Director to protect consumers. These tools include education, regulation, supervision, and enforcement. As Director, I intend to use every tool at my disposal to carry out this mission. And in using those tools, I am focusing the Bureau on prevention of harm.
Preventing harm to consumers I believe is the most effective, efficient way to carry out our mission of ensuring consumer access to a fair, transparent and competitive market. To me, prevention of harm comes through fostering a culture of industry compliance, helping consumers gather financial know-how, and from consumers and industry both knowing their rights and responsibilities.
Let me now go into a little more detail about each of these tools and how we will use them.
Empowering Consumers and Turning Financial Education into Action
First, Congress charged the Bureau with devising financial education programs and making sure consumers receive timely and understandable information to make responsible decisions about financial transactions.
The Bureau cannot be everywhere, with everyone, at every transaction – nor should it try to be. Therefore, empowering consumers to help themselves, protect their own interests, and choose the financial products and services that best fit their needs is essential to preventing consumer harm and building financial well-being.
During my first six months, the Bureau has put thought into action and made strides in consumer educati0n. We expanded the Misadventures in Money Management financial education tool for active-duty servicemembers; informed consumers about mortgage closing scams; and educated consumers on debt collection, including steps they can take to resolve a debt and on how to tell the difference between a legitimate debt collector and a scam artist.
This reflects a focus on a consumer-centric definition of financial well-being that goes beyond cold statistics like income and credit score. It speaks to a person’s sense of financial security and financial freedom of choice in the present and the future.
Central to that is control over day-to-day and month-to-month personal finances as well as the capacity to absorb financial shocks. We have also found that consumers can experience financial well-being – or lack of it – across a wide range of incomes. It is tied to financial skills and confidence in those skills.Toward that end, the Bureau launched a savings initiative we call “Start Small, Save Up,” to help increase the number of Americans who can cover an urgent expense. A recent Federal Reserve report found that almost 40 percent of Americans would turn to credit to cover a $400 emergency. This statistic is something I hope we can work together to change.
Tackling emergency savings is a logical place to focus. It’s a key element as people address the broader issues in their financial lives around attaining and retaining good credit, managing their debt, and maintaining a healthy habit of savings.
I encourage you to find out more about Start Small, Save Up at our website. And to partner with us on your financial education efforts. This investment is substantial across the nation, but we need more robust research to determine what works. As an example of partnership in research, the Bureau will release a report in the coming weeks on a study we did with H&R Block. It looked at whether consumers could be encouraged to use a savings feature on a prepaid card to set aside a portion of their tax refund. It focused particularly on consumers who get the Earned Income Tax Credit. In its marketing campaign, H&R Block sent two types of emails to prepaid card customers before the tax filing season to test strategies to encourage tax-time saving.
Encouragement appears to have an impact, as results show the savings-related emails increased customers’ likelihood of saving using that feature on the prepaid card compared to customer who were not sent any savings-related emails. For those that did use the feature to save, savings persisted beyond the end of the tax filing season, with about one in five who took advantage of the savings feature sticking with it 8 months later. This suggests that simple, timely marketing messages and small incentives help encourage consumers interested in ways to save during tax time.
We want to move the needle on the number of Americans in this country who can cover a financial shock, like that $400 emergency. I am bringing together interested parties from across sectors to develop and execute a strategy to achieve this outcome. While the investment in financial education in this country is substantial, our understanding of the return on that investment remains a challenge. The Bureau is sincerely interested in partnerships to focus where we can add value to this undertaking and where we can make a difference.
Ensuring Clear Rules of the Road
Our second tool for preventing consumer harm is rulemaking and guidance – articulating clear rules of the road for those we regulate. Rules that promote competition, increase transparency, and preserve fair markets for financial products and services. Where Congress directs the Bureau to put forth rules or address specific issues through rulemaking, we will comply with the law. Where the Bureau has discretion, we will focus on preventing consumer harm by maximizing informed consumer choice, and prohibiting acts or practices that undermine the ability of consumers to choose the products and services that are best for them.
To develop the best possible rules, the Bureau has to use the best possible process. One based on transparency that allows stakeholders to submit comments; that reflects rigorous economic and market analysis; and that provides for judicial review.
Part and parcel of this is the Bureau’s responsibility under the law to ease unwarranted regulatory burdens and to consider the impact of our rulemaking on consumers and those we regulate, and we take it seriously. We need to recognize that the costs imposed on regulated entities can affect the cost of credit for consumers, and its availability. So we continue to sift through the comments from the comprehensive call for evidence the Bureau issued last year, which includes some 1,750 separate issues related to rulemaking.
And we have already made changes in response to these comments. For example, we used a longer-than-usual 90-day comment period for our complex Payday and Debt Collection rulemakings and released supplementary materials to summarize and explain those formal rulemaking documents in plain language. As another example, the proposed Debt Collection rule includes many interventions suggested by the call for evidence responses. And we recently began considering changing the Bureau’s existing Remittances Rule in a Request for Information that was substantially informed by the call for evidence responses.
We have more changes in the works spurred by the call for evidence, some of which relate to our formal rulemaking engagement with small business representatives (known as the SBREFA process). These include providing information about the SBREFA proposals under consideration to small businesses earlier, making the materials easier to understand, and releasing SBREFA panel reports – including the comments of the participating small businesses – as soon as they are completed. We are also committed to releasing more informal guidance on our rules and have published 30 FAQS and one flow chart on our website addressing inquiries received.
Ensuring a Culture of Compliance through Supervision
Educating consumers to help them protect themselves, and writing rules that clearly articulate the legal requirements for institutions are two elements of preventing harm. Another is the Bureau’s supervision authority, which can keep violations of laws and regulations from happening in the first place.
Over the past few months, I have met many of the Bureau’s examiners, even sitting in with an exam team on site and by observing examiner training. I have had the opportunity to hear examiners perspectives on the work they do and how we support them at headquarters. They walked me through the systems they use, their interactions with regulated entities and the steps they take to evaluate whether an institution is complying with its legal obligations. They talked about how they review an institution’s compliance management systems. I was encouraged to hear their focus on working with the institution to prevent consumer harm, and I will encourage and expect this productive focus going forward.
I have also challenged the staff to take a fresh look at the entire process of examination to ensure we are risk-prioritizing our resources, using technology to automate certain tasks, and taking full advantage of appropriate partnerships with fellow regulators, We’re in the midst of a deep dive on these questions now, as we look to set our upcoming exam schedules. Our approach needs to incentive institutions to do precisely what we want them to do – have good compliance management systems that enable them to identify issues quickly, self-report and provide restitution where appropriate.
Supervision is the heart of this agency – something underscored by the percentage of our personnel and resources dedicated to conducting exams. I am focused on ensuring we use this tool as effectively and efficiently as possible, and that we apply it in a consistent way. Heading trouble off at the pass may not grab big headlines, but it will prevent a lot of headaches for industry and the consumers we serve.
As I mentioned, in partnering with our fellow regulators, our approach must recognize that the Bureau is not the only government agency with supervisory authority over financial institutions. This year, I became chair of the Federal Financial Institutions Examination Council. There, my goal is to work with other agencies to advance consumer protections in the same spirit of collaboration and innovation that prompted its creation in the first place. I am genuinely excited about working with the other agencies to make government perform the way we all hope it will, and the way our citizens expect.
Holding Bad Actors to Account and Deterrence through Enforcement
This brings me now to enforcement. Education, rulemaking, and supervision alone won’t prevent every violation. A purposeful enforcement regime can foster compliance, deter unlawful conduct, help prevent consumer harm, and right wrongs.
Public, decisive action against wrongdoers sends a clear message to the marketplace – one that should deter unlawful behavior and support a level playing field – all while reaching a just outcome for harmed consumers.
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.
I have experience working with law enforcement and can say that at the Bureau as elsewhere, each case is truly fact and circumstance specific. The Bureau weighs many factors to determine the precise mix of restitution, penalties, and injunctive relief appropriate in each case. All of this is in the name of serving justice in the public interest.
As in the use of our other tools, the Bureau has a strong history of working with state and federal partners on its enforcement actions. This partnership is important to execution of justice, and I am pleased that state attorneys general and bank supervisors have commended the work we have done together on enforcement actions.
We’re taking this same collaborative approach to combat the financial exploitation of seniors, a potential epidemic given the aging of the Baby Boom generation.
Older Americans are attractive targets for fraud and abuse. They may have significant assets or equity in their homes and usually have a steady source of income such as Social Security or a pension. They may also be especially vulnerable due to isolation, cognitive decline, physical disability, or other health problems.
This makes them targets of a rogues’ gallery of scam artists – from corrupt caregivers, financial advisers, or home repair contractors to unscrupulous relatives. It sometimes even includes court-appointed guardians and agents under powers of attorney.
Elder financial exploitation destroys the financial security of millions of older adults and costs them and their communities billions of dollars each year. Too often it goes unreported and the victims get no assistance. So the Bureau is redoubling its efforts to alert banks and credit unions to this problem. They are uniquely positioned to detect that an older account holder has been targeted or victimized, and to take action.
Later today, the Bureau is releasing an Update to its 2016 Advisory for financial institutions on preventing and responding to elder financial exploitation. This update encourages banks and credit unions to report to the appropriate local, state and federal authorities should they suspect that an older adult is the target or victim of financial exploitation. The Bureau also recommends that financial institutions file Suspicious Activity Reports with the federal government when they suspect such exploitation. Both recommendations are voluntary. Today’s updated advisory builds on the Bureau’s earlier voluntary recommendations and its recent research on elder financial abuse.
The Bureau analyzed data from more than 180,000 suspicious activity reports, or SARs, filed by financial institutions with the federal government from 2013 to 2017. The analysis confirmed that elder financial exploitation is widespread and damaging. We found that:
- The number of reports of elder financial exploitation increased fourfold from 2013 to 2017. And based on recent studies, these reports still represent only a tiny fraction of actual incidents.
- The average loss to those aged 70 and older was nearly $42,000. In seven percent of reports, the loss topped $100,000.
The Bureau is releasing the update because we found that less than one-third of elder financial exploitation SARs were reported to adult protective services, law enforcement or other authorities. This is a huge missed opportunity to prevent harm and strengthen response. A report from a bank or credit union can prevent ongoing exploitation, and trigger services for victims. So we want more of these reports passed along to the proper authorities.
We at the Consumer Financial Protection Bureau stand ready to work with federal, state and local authorities and financial institutions to protect older adults from abusive financial practices that rob them of their financial security.
I thank you again for giving me this opportunity to share my approach to the work of the CFPB – to effectively and efficiently use all of the tools Congress gave us to enhance consumer finance markets. Through supervision, rulemaking, education, and enforcement, we hope to create a climate where problems are dealt with promptly and fairly – and even better, kept from the consumer’s doorstep in the first place. Thank you.