Will the new Federal Consumer Protection Agency be Protected?

Elizabeth Warren - photo courtesy Harvard School of Law

The first time I saw Elizabeth Warren being interviewed – by Jon Stewart on The Daily Show – I was stricken by her unique ability to combine a soft-spoken approach and a stereotypical schoolmarm appearance on the one hand, with a tough-as-nails, coherent delivery on the other.

President Obama has selected Warren as his special adviser to get the new CFPB, or Consumer Financial Protection Bureau (do government agencies get funding based on how many syllables they have in their names?). The bureau was established by the Dodd-Frank financial regulation legislation that became law at the end of last year, before so many Democratic representatives packed their bags.

In Warren’s January 26, 2010 Daily Show interview she described how there are seven different federal agencies that supervise consumer lending, as in credit cards, mortgages, consumer loans, and the like. It will be her agency’s job to coordinate those agencies, get the fine print out of the loan agreements, summarize almost everything a consumer needs to know on one page of the loan agreement, and, overall, protect consumers from nefarious practices on the part of the financial big boys.

Do you know why there is so little illegal graft in Congress? It’s because Congress legalized it. And who is “donating” to all those congressional election campaigns? You? I? Please! It’s he big corporations. Warren, a Harvard Law School professor and former chair of the Congressional Oversight Panel on TARP (the Troubled Asset Relief Program), is quick to remind banks, “What part of ‘we bailed you out’ do you not get?” as she so pithily remarked on that January 2010 show.  If you remember, mortgage backed securities are the mortgages that were sliced, diced, and minced twice mortgages that were divided up and distributed into various securities that were then sold and resold until no one could figure out who homeowners actually owned money to.

            The banks apparently don’t like Elizabeth Warren because she is on the side of consumers (you know, the people whose grandchildren will be carrying the burden of our national debt, including the money paid to the banks by TARP) who should never get screwed again if the economy tanks and foreclosers move in.

            In an interview with Kiplinger’s Personal Finance magazine (January 2011), Warren gives an example of how her agency, which will not officially open for business until next July 21st, is already operating. Two years ago Congress passed the Credit Card Accountability Responsibility and Disclosure Act of 2009 or Credit CARD Act of 2009 (another example of a long title just so they can come up with a clever acronym) that eliminated some bad practices aimed at milking as much moolah out of unwary consumers as possible. The industry has modified its practices in order to comply, but sometimes in order to evade the spirit of the CARD Act. “What usually happens . . . is the industry then shifts slightly and the agency is called upon to write a new round of regulations. Thus grows a regulatory thicket that couldn’t be penetrated with a howitzer.”*

Warren’s agency has contacted the Federal Reserve, which currently has jurisdiction over credit card issuers, to seek redress. The Fed, in turn, added some rules under its powers to correct the shortfalls in the CARD Act.

            The CARD Act bans or curtails certain bad practices. But if you have ever read your credit card agreement – and it amazes me how many cardholders are clueless – you know it can be difficult to decipher their complexities. That’s where CFPB has a mission to boil it down to plain English that can be read in a few minutes.

            Warren wants to boil down the actual price of the card, usually buried in the fine print, to a list or table showing the interest rate, penalties and explanation of any bonuses that would enable the consumer to compare offers simply.

            As for mortgages, CFPB is aiming to condense the information borrowers need early in the process – not just before closing – to one page in order to understand the costs and the risks, and to make comparisons. It also aims to get rid of some of the documents now required by law. The one-page sheet would include the down payment, monthly payments, closing costs, cash at payment and length of the loan.

            Warren says she is hearing from people in both the credit card and mortgage industries that they are willing to try the reforms.

            She sees a day in the near future when technology will allow consumers to report things that need fixing a sort of rapid-response policing – and to give input for ideas on reform.

Her best advice to credit consumers? Pay off your credit cards. If you are carrying a balance month to month, you are in financial trouble.

I’m a big fan of Elizabeth Warren. I suspect anyone in Congress who is hostile to her goals is a fear-big-government or a “free market must prevail” hypocrite. While it’s okay to fear big government, we must also fear unrestrained corporate power. Three years of America on its financial knees is enough. To reiterate to the banks, whose officers are raking in obscene bonuses, , “What part of ‘we bailed you out’ do you not get?”

Please visit the CFPB web site at www.consumerfinance.gov. They’d love your input.

* Kiplinger’s Personal Finance, p.62, January 2011