Jonathan McKernan, who has been tapped by President Donald Trump to become the next director of the Consumer Financial Protection Bureau, promised lawmakers Thursday he would not preside over shutting down the agency.
Democrats on the Senate Banking Committee pressed McKernan in his confirmation hearing about how he would lead the regulator given that Trump and his billionaire special adviser Elon Musk have called for eliminating it.
McKernan was one of four nominees who appeared before the panel. The others were William Pulte, director designate of the Federal Housing Finance Agency; Jeffrey Kessler, the nominee for undersecretary of Commerce for industry and security; and Stephen Miran, the nominee for chairman of the Council of Economic Advisers.
Most of the CFPB has been shut down since Feb. 7, when Russ Vought, the director of the Office of Management and Budget, took over as acting director.
Senate Banking ranking member Elizabeth Warren, D-Mass., said the CFPB was created by Congress, which she said gave it 88 specific obligations under the 2010 financial overhaul law to provide oversight of consumer financial products such as credit cards, mortgages and student loans.
“How do you plan to run the CFPB legally when Elon Musk has told every one of its 1700 employees to do nothing?” Warren asked McKernan.
McKernan said he’s not familiar with the details of current activity at the regulator but pledged to execute the provisions Warren cited.
“If confirmed, I’m going to follow the law,” McKernan said. “I’m going to have to get advised on the specifics of the situation in there.”
A former director of the Federal Deposit Insurance Corporation who once was a Senate Banking Committee Republican aide, McKernan said he would ensure the agency adheres to the laws that govern it.
“The North Star here is, you got to follow the law fully and faithfully execute the statute,” McKernan said. “I [take] that very seriously as a former congressional staffer, an Article 1 [of the Constitution] guy. I’m going to make sure the CFPB performs each of its statutory” functions.
He also referred to a recent court filing by the administration that said it would leave the CFPB in place but streamline it.
Warren said at the end of the hearing that even while McKernan was testifying, the CFPB dropped several enforcement cases. The agency said it is ending actions against Capital One Financial Corp., Rocket Homes Real Estate LLC and others.
“It seems to me the timing of that announcement is designed to embarrass you and to show exactly who is in charge of this agency right now: Elon Musk and his little band of hackers,” Warren said, referring to the people working for the Department of Government Efficiency.
“I appreciate all of your happy talk about following the law, but I think we all know what’s going on here,” she said. “And that is, Elon Musk is determined to shut down this agency even though he has no legal authority to do that.”
Warren and other Democrats assert that Musk is stymieing CFPB investigations to protect his own business interests, such as a payment system linked to his X social media platform, formerly known as Twitter.
McKernan said he intends to make changes at the CFPB, arguing that the agency has acted beyond its authority to expand its jurisdiction and power. He accused it of practicing regulation by enforcement and imposing regulations that drive up costs for consumers and reduce their financial-product choices.
“Even if you don’t agree with that view, it is clear that CFPB suffers from a crisis of legitimacy,” McKernan said. “This must be corrected. The CFPB needs to be made accountable to our elected officials and its past excesses need to come to an end.”
If he’s put in charge, McKernan said the CFPB would shrink.
“We need to right size it, make sure that we have an efficient CFPB,” McKernan said. “And we need to reinstate some accountability to our elected officials.”
The message that McKernan sent about changing the CFPB echoed Senate Banking Republicans’ goals.
“The CFPB has become a tool for progressive overreach, making it harder for small banks and lenders to serve their communities,” Senate Banking Chair Tim Scott, R-S.C., said. McKernan has the expertise needed to rein in the CFPB’s excesses and ensure the agency works for consumers, not against them, he said.
Sen. Mark Warner, D-Va., tried to get McKernan to acknowledge that the approximately $21 billion the CFPB has returned to about 195 million harmed consumers since its inception was a good thing.
“I don’t think we should evaluate the success of the CFPB based on dollar numbers or enforcement count,” McKernan said. “We should evaluate the CFPB director based on whether we have fair” rules for the market.
Warner began to get agitated.
“You’re going in the wrong direction,” he told McKernan, implying that he was giving him an opening to endorse at least part of the CFPB’s work. “It bothers me that you can’t say $20 billion back to American consumers based upon illicit activity” is good.
Sen. Jack Reed, D-R.I., said the CFPB is likely doomed regardless of McKernan’s intentions.
“I have the sinking feeling you’re departing Liverpool on the Titanic, so good luck,” Reed said.
Privatizing Fannie and Freddie
McKernan received the majority of the questions at the hearing.
Warren raised concerns during her opening statement about plans to take mortgage lenders Fannie Mae and Freddie Mac out of conservatorship and sell them to private investors.
“FHFA has helped run these multimillion-dollar companies, but now a group of Trump’s billionaire friends are pushing to privatize Fannie and Freddie so they can make billions of dollars for themselves, and in the process, they could jack up costs for people trying to buy a home,” Warren said.
She didn’t direct the question to Pulte, in part because Scott only allowed one round of questions during the hearing. But Pulte addressed the issue in his opening statement.
“While their conservatorship should not be indefinite, any exit from conservatorship must be carefully planned to ensure the safety and soundness of the housing market without upward pressure on mortgage rates,” said Pulte, whose family founded the home builder Pulte Homes.
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