WEBVTT - CFPB Nominee Kraninger Faces Senate Confirmation

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<v Speaker 1>Welcome to the Bloomberg Law Podcast. I'm June Grosso. Every

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<v Speaker 1>day we bring you insight and analysis into the most

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<v Speaker 1>important legal news of the day. You can find more

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<v Speaker 1>episodes of the Bloomberg Law Podcast on Apple Podcasts, SoundCloud,

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<v Speaker 1>and on Bloomberg dot com slash podcasts. Today, Kathy Cranninger,

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<v Speaker 1>President Trump's pick to replace Mick Mulvaney at the head

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<v Speaker 1>of the CFPB, faced a Senate Banking Committee to defend

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<v Speaker 1>her qualifications to run a controversial agency that many Republicans

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<v Speaker 1>think should not exist. This is her confirmation hearing, and

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<v Speaker 1>at it, Kranninger discussed her commitment to keep in the

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<v Speaker 1>CFPB true to its mandate. For more on this story,

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<v Speaker 1>we're joined now by Evan Weinberger. He's a reporter for

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<v Speaker 1>Bloomberg Law. He's in our Bloomberg eleven three, our studios

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<v Speaker 1>in New York and having a lot of people have

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<v Speaker 1>been scratching their heads about this one. What is up

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<v Speaker 1>with this nomination? Well, what is up is that at

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<v Speaker 1>this point looks like she has the votes to at

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<v Speaker 1>least make it out of committee, and if Mitch McConnell

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<v Speaker 1>wants to bring it before the Centaploor get her confirmed

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<v Speaker 1>to be the next director of the Consumer Financial Protection

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<v Speaker 1>Bureau UM after that. The real motivation here was at

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<v Speaker 1>the end of June there was a deadline to nominate somebody.

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<v Speaker 1>Otherwise mc mulvaney, who's currently the acting director, would have

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<v Speaker 1>had to leave his post at the CFPB. So they

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<v Speaker 1>put in Kathy Cranniger, who was kind of an unknown quantity.

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<v Speaker 1>She works at the Office Management and Budget, where mcmilvany

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<v Speaker 1>also works UM, and nobody really knew anything about her.

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<v Speaker 1>She didn't have any experience of financial policy or in

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<v Speaker 1>consumer finance or anything relevant to the CFPB, mostly in

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<v Speaker 1>budget work and Department of Homemound Security and security issues,

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<v Speaker 1>things like that. That's a kind of a shell nomination,

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<v Speaker 1>or I wouldn't say shell necessarily, although it's it's clear

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<v Speaker 1>that if she is confirmed, she's most likely going to

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<v Speaker 1>follow along with what mcilvaney has been doing at the CFPB. UM.

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<v Speaker 1>She's a budget person. The Trump administration proposed cutting the

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<v Speaker 1>cfpp's budget by in fiscal but because it's an independent agency,

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<v Speaker 1>they don't actually have any control. The fear and Senator

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<v Speaker 1>Elizabeth Warren, who was kind of the brainchild of the

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<v Speaker 1>cfpb the intellectual architect of the cfpb. UH. She expressed

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<v Speaker 1>some concerns that Cranninger is going to go in there

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<v Speaker 1>and find ways to cut that budget, whether it's firing

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<v Speaker 1>civil servants or cutting examination budgets and things of that nature.

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<v Speaker 1>Had did Crowdinger in the nomination? Since she has no

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<v Speaker 1>experience in banking or financial services? What did she say

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<v Speaker 1>her qualifications are for running this consumer watchdog, the biggest

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<v Speaker 1>consumer watchdog agency we have primarily budget issues. I mean,

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<v Speaker 1>she she by all accounts, is a talented manager. She's

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<v Speaker 1>a talented budget person. She knows that. She's a twenty

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<v Speaker 1>year veteran of government, both on Senate and House committees

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<v Speaker 1>and at the Department Homeland Security and the Office of

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<v Speaker 1>Management and Budget. So she comes in there qualified for

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<v Speaker 1>a range of jobs. It's just not necessarily we are too,

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<v Speaker 1>at least Democrats on the committee where those skills come

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<v Speaker 1>into play when it comes to running a consumer regulator. Yeah.

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<v Speaker 1>One of our stories on the terminal calls her an

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<v Speaker 1>enigma kind of she most definitely mastered the skill of

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<v Speaker 1>using a lot of words to stay a very little

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<v Speaker 1>amount in the questions from senators. But we know what

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<v Speaker 1>the President thinks of the Consumer Financial Protection Bureau. He

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<v Speaker 1>doesn't like it, he wants to roll it back, cut

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<v Speaker 1>it and all that. She's just she's going to follow

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<v Speaker 1>the marching orders. Um that is the best guess that

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<v Speaker 1>anyone has a source of mind. Uh emailed me during

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<v Speaker 1>the hearing. I actually know less about Kathy Crottinger now

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<v Speaker 1>than I did before the hearing started. So we mentioned,

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<v Speaker 1>you mentioned Elizabeth Warren, and this the CFPP is her baby,

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<v Speaker 1>so to speak, and we've seen her in these hearings

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<v Speaker 1>get very you know, sarcastic, sharp, whatever you want to

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<v Speaker 1>call it. Did she take that attitude with Kranneinger. She

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<v Speaker 1>was outraged at Kranneger, but not because of CFPB issues,

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<v Speaker 1>at least at the start. Her first round of questioning

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<v Speaker 1>focused on Kranneger's potential role in the Trump administration zero

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<v Speaker 1>tolerant immigration policies and the child separation policies at the border,

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<v Speaker 1>because her role at o m B is to oversee

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<v Speaker 1>the Homeland Security Department and Justice Department's budgets. So Democrats

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<v Speaker 1>had asked for the hearing to be postponed to get

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<v Speaker 1>more information about what she did in helping to craft

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<v Speaker 1>the policy and the documents, right, I mean, at one point,

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<v Speaker 1>uh Warren said that the child separation policies will be

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<v Speaker 1>a moral stain on Kranneger, and any senators who vote

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<v Speaker 1>to confirm her will have will carry that moral stain

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<v Speaker 1>because as they gave her a big promotion in the

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<v Speaker 1>wake of it. Can we clarify to just for the record,

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<v Speaker 1>what mc mulvaney has actually done at the CFP b

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<v Speaker 1>B while he's there. I know that he has rolled

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<v Speaker 1>back some proposed regulations and some consumer protections, but the

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<v Speaker 1>CFPB still has a basic mission that it must fulfill,

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<v Speaker 1>right well, what one of mc mulvaney's first actions was

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<v Speaker 1>to say that a controversial payday lending rule that the

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<v Speaker 1>CFB finalized right before his predecessor, Richard Coudray left the bureau,

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<v Speaker 1>uh it was scheduled to take effect. Mulveney said that

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<v Speaker 1>they're going to reconsider it, and many advocates for the

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<v Speaker 1>rules think that that's just a prelude to eliminating the

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<v Speaker 1>rule altogether. There also, he took the cf AB's Office

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<v Speaker 1>of Fair Lending, which was its main anti discrimination unit,

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<v Speaker 1>and it had been a fairly independent office within the

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<v Speaker 1>CFPB UH, Mulveney took that and for that into another unit,

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<v Speaker 1>took away its independent enforcement authority UH, and there he

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<v Speaker 1>has slowed down the pace of enforcement actions. And even

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<v Speaker 1>with the enforcement actions that he's taken outside of the

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<v Speaker 1>Walls Fargo UH enforcement action from earlier in the summer,

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<v Speaker 1>he's taken a much lighter touch on enforcement actions than

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<v Speaker 1>his predecessor did. And when she was asked by Shared

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<v Speaker 1>Brown to name something specific that she approved of that

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<v Speaker 1>Mulvaaney has done, it was or that the CFPB has done.

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<v Speaker 1>She mentioned Wells Fargo and Equifax, right, not the two

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<v Speaker 1>biggest things that they've they've well Wells Fargo technically was

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<v Speaker 1>the biggest enforcement penalty that that the CFB had ever applied,

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<v Speaker 1>but one it did it in conjunction with the Office

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<v Speaker 1>of the Controller of the Currency, which is another bank regulator.

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<v Speaker 1>And they also did it after the President tweeted that

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<v Speaker 1>there would be big penalties for Wells Fargo. Evan Weinberger,

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<v Speaker 1>reporter for Bloomberg Law, Thanks for your reporting. The Republicans

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<v Speaker 1>sweeping federal tax law put a new ten thousand dollar

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<v Speaker 1>cap on the federal tax deduction for state in local taxes,

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<v Speaker 1>which will hit Northeastern states like New York hard. Here's

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<v Speaker 1>New York's Governor Andrew Cuomo on the tax plan in

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<v Speaker 1>late they call it a tax cart plan. In New York,

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<v Speaker 1>it is a tax increase plan. So now New York

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<v Speaker 1>is joining with New Jersey, Connecticut, and Maryland and suing

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<v Speaker 1>the Trump administration to invalidate the cap. Joining me is

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<v Speaker 1>Laurence Zelenak, a tax professor at Duke Law School. So

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<v Speaker 1>let's start with the basics. How much will this cap

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<v Speaker 1>on the so called salt deduction actually affect taxpayers in

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<v Speaker 1>these Northeastern states. Well, it affects you if you pay

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<v Speaker 1>more than ten thousand dollars in state and local taxes,

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<v Speaker 1>and that would be the sum of your property taxes

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<v Speaker 1>and your state income tax. Uh, it will be Uh.

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<v Speaker 1>I can't give you specific data on those states, but

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<v Speaker 1>but it's it's clearly significant. I. UM, there will be

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<v Speaker 1>some people who would have had a tax cut from

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<v Speaker 1>the rate reductions if it weren't for the salt limit,

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<v Speaker 1>where with the salt limit there end up gonna they're

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<v Speaker 1>gonna end up having no tax cut or even a

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<v Speaker 1>tax increase. So on what legal basis are the states

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<v Speaker 1>bringing the lawsuit. Well there, their argument, which I think

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<v Speaker 1>is extremely weak, is that a state and local tax

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<v Speaker 1>deduction is constitutionally required. It's so it's based on the

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<v Speaker 1>on the tenth Amendment, which says basically that power is

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<v Speaker 1>not specifically convert conferred on on the federal government by

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<v Speaker 1>the Constitution, are reserved to the state and by general

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<v Speaker 1>principles and on general principles of federalism or states rights.

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<v Speaker 1>But I think it's a very much a long shot.

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<v Speaker 1>Why why a long shot? Well, a couple of reasons.

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<v Speaker 1>One is um there's a Supreme Court case which from

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<v Speaker 1>called South Carolina v. Baker, which is not directly on point,

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<v Speaker 1>but it's pretty darn close. So since the beginning of

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<v Speaker 1>the federal income tax, interest on municipal bonds or state

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<v Speaker 1>in local bonds had been tax exempt. Then in the

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<v Speaker 1>early nineteen eighties, UM Congress imposed a minor limitation on

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<v Speaker 1>that exemption, which said basically that the exemption no longer

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<v Speaker 1>applied to state and local bonds that were not in

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<v Speaker 1>registered form. So if you could hold the bonds anonymously,

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<v Speaker 1>then the income wasn't tax exempt anymore. And South Carolina,

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<v Speaker 1>a number of other States sued on on the basis

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<v Speaker 1>that they had arguing that they had a constitutional right

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<v Speaker 1>to issue bonds with income tax exempt at the federal

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<v Speaker 1>level UM and that, uh, therefore, the early nineteenies legist

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<v Speaker 1>Lasian violated their constitutional rights. And in in the South

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<v Speaker 1>Carolina by Baker case, the Supreme Court ruled by a

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<v Speaker 1>vote of eight to one. So it wasn't even close

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<v Speaker 1>that there was no constitutional requirement that state and local

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<v Speaker 1>bond interest be tax exempt. Now this is not, obviously

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<v Speaker 1>not exactly the same issue, but on the other hand,

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<v Speaker 1>it's pretty darn close. And uh, it's hard for me

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<v Speaker 1>to see what the argument would be for distinguishing South

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<v Speaker 1>Carolina by Baker so Lawrence. In in the complaints, some

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<v Speaker 1>of the things that the States says. The States say

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<v Speaker 1>is that the federal government went after the states deliberately

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<v Speaker 1>that are democratic. And they they quote conservative economist even Moore,

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<v Speaker 1>who advised Trump on the tax policy, quoting him as saying,

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<v Speaker 1>the salt deduction is death to Democrats. Will that play

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<v Speaker 1>any part in the Court's decision whether this was done

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<v Speaker 1>to hit democratic states? Well, I don't think so. I mean,

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<v Speaker 1>my my, if I remember right in the recent UM

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<v Speaker 1>um Supreme Court ruling on the the the immigration restrictions.

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<v Speaker 1>There was there were quotations not from Stephen Moore, who

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<v Speaker 1>I think kind of doesn't count in a way, and

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<v Speaker 1>he's not he's not in Congress after all, that from

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<v Speaker 1>from the President himself indicating some dubious motivation, and h

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<v Speaker 1>and and and the court said that didn't matter. So

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<v Speaker 1>if if the president's motivation doesn't matter, I hardly think

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<v Speaker 1>that Stephen Moore's motivation is probably going to be that crucial.

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<v Speaker 1>Can I put corn out? One? One other thing, and

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<v Speaker 1>relating to this is um if if if the state

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<v Speaker 1>and local tax deduction is really constitutionally required, then the

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<v Speaker 1>federal income tax has probably been unconstitutional for a long

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<v Speaker 1>time because it's it's always been the case that you

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<v Speaker 1>get to deduct your state and local taxes only if

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<v Speaker 1>you itemize, and traditionally the percentage of taxpayers who itemize

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<v Speaker 1>has only been about one third. So so we've had

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<v Speaker 1>a situation we're all along about two thirds of taxpayers

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<v Speaker 1>have not gotten this deduction, which supposedly is is constitutionally required.

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<v Speaker 1>In addition to anyone who's subject to the alternative minimum

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<v Speaker 1>tax hasn't been allowed the salt deduction for since I

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<v Speaker 1>think nineties six and and for a long period of

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<v Speaker 1>time from until fairly recently. UM, state sales tax wasn't

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<v Speaker 1>deductible under any circumstances. UM. And all of those things,

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<v Speaker 1>by the logic of this new lawsuit, UM, we probably

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<v Speaker 1>were unconstitutional, but of course they weren't unconstitutional. And for

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<v Speaker 1>the same reason they weren't unconstitutionally. I don't expect this

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<v Speaker 1>loss to succeed either. Well, let's let's switch a little bit.

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<v Speaker 1>We have a minute here. Governor Cuomo advanced proposals in

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<v Speaker 1>the state budget this year to help New Yorkers try

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<v Speaker 1>to circumvent the cap on deductions, creation of new charitable

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<v Speaker 1>credits and payroll tax deductions. The i R said in

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<v Speaker 1>May that it would scrutinize that New York tax workaround.

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<v Speaker 1>Has anything happened there? Uh? No, not. Well, I have

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<v Speaker 1>an article on the very topic coming out in tax

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<v Speaker 1>Well tell us, tell us in thirty seconds that the

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<v Speaker 1>basics of your article, Uh, that that I think that

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<v Speaker 1>there's two different kinds of workarounds. UM. One is trying

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<v Speaker 1>to convert charitable or excuse me, trying to convert state

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<v Speaker 1>in local taxes to charitable deductions. That's what the article

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<v Speaker 1>is about, and I conclude that doesn't work. The other

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<v Speaker 1>the other workaround UM is basically trying to convert state

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<v Speaker 1>taxes income taxes on wages into a payroll tax paid

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<v Speaker 1>by the employer rather than by the employee. I think

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<v Speaker 1>that probably could work as far as the federal tax

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<v Speaker 1>result is concern. Okay, we're going to take that good news.

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<v Speaker 1>You'll have to end it there. Thanks so much. That's

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<v Speaker 1>Laurence Zelena, perhaps professor at Duke Law School. Thanks for

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<v Speaker 1>listening to the Bloomberg Law Podcast. You can subscribe and

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<v Speaker 1>listen to the show on Apple Podcasts, Sounds Out, and

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<v Speaker 1>on Bloomberg dot com slash podcast. I'm June Rosso. This

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<v Speaker 1>is Bloomberg m HM.