Elizabeth Warren has been tapped by President Obama as a special
adviser to set up the new Consumer Financial Protection Bureau,
which was established by the Dodd-Frank financial regulation
legislation last summer. Warren, an expert in bankruptcy issues who
chaired the congressional panel that monitored the Troubled Asset
Relief Program, is coordinating efforts with the seven agencies
that currently supervise consumer lending to get the new bureau up
and running by July 21.
A controversial figure, Warren hasn't actually been named to
head the agency -- widely recognized as her brainchild -- and would
probably face a tough confirmation battle. Will she throw her hat
in the ring? She is a little coy with her answer: "When the
President and I met over the summer and discussed how I could
serve, being appointed director was certainly on the table. I'm not
one to fuss about fancy titles. I wanted to get to work right
away." In her Treasury Department office next to the White House,
the Harvard law professor told
editors Janet Bodnar, Jennifer Schonberger, Anne Kates Smith and
Mark Solheim what consumers can expect from the bureau.
Will anything official come from your agency before July
I think the best way to understand the situation is this. Congress
passed and the President signed the Credit CARD Act early in the
spring of 2009, and it eliminated some pretty bad practices that
credit-card issuers had been following. The law went into effect in
stages, and the industry has adjusted, sometimes in ways that might
fairly be read to violate if not the letter of the rule, then
certainly the spirit of the CARD Act. So we've been in touch with
the Federal Reserve, which currently has authority, and the Fed has
decided to add some rules for the enforcement of the CARD Act.
We're not waiting until we receive full authority in July. So in
that sense I would say that credit-card holders are starting to see
the effects of having a consumer agency to speak for them.
What are your goals for the agency?
We're doing two things simultaneously: building an agency and
starting our first initiatives. The first two initiatives are
centered around credit cards and home mortgages. I've already met
with CEOs of the major credit-card issuers and other
financial-services companies and with consumer groups on the
readability of credit disclosures.
You mean those hard-to-read brochures you get with your
Yes. We're trying to drive toward a short, easy-to-understand
credit-card agreement. But we're also talking with the industry
about how to approach regulation. The CARD Act identifies bad
practices and bans or curtails them. Of course, what usually
happens -- and this is exactly what's happened with the CARD Act --
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. Consumers are
better protected from the worst practices, but they don't
necessarily gain mastery over their financial dealings. Even after
the CARD Act, credit-card agreements are almost impossible to read.
An alternative approach is agreements that allow people to see the
costs and risks easily and to make comparisons in the marketplace.
I've proposed that we push toward a simpler, easy-to-read credit
agreement, and so far I've received a very warm reception from bank
CEOs. In many ways, they're as frustrated by the way this market
has evolved as I am. And they say they're ready for change.
How do you change the culture of the way the regulatory
system works? Because, as you say, there are always going to be
consequences that you don't anticipate.
One way to approach regulation is to put down "thou shalt nots,"
which necessarily creates a lot of regulation. The alternative that
I've put on the table is to make credit-card agreements readable in
a few minutes by someone with an average reading comprehension in
the U.S. Think about it. If the agreements were simpler, if they
had straightforward pricing information, what would they look like?
You'd see the fees, the interest rate, the penalties and an
explanation of any free gifts -- or supposedly free gifts. That's
it. Someone could lay down four credit-card offers and make
apples-to-apples comparisons. At that point we've got a market that
works for consumers, that's no longer driven by one advertised
price when we know that the actual prices will be buried in the
Wouldn't that ultimately affect card issuers' profits? Are
they really going to agree to this?
We start with a conversation with the industry because it is the
right place to start. And we see how many within the industry would
embrace a newer, simpler product that makes costs and risks clearer
and permits apples-to-apples comparisons. If we get movement, then
we do two things: We figure out what kinds of rules we need to
bring along the laggards and whether rules are needed to move even
further. But I think it is fair to the industry to make the offer,
to work with them to create a better product for customers. If they
reject the offer, then regulation is still in the toolbox.
You said that your second priority is mortgages.
We're starting with a one-page shopping sheet that gives people the
key pieces of information they need to understand the costs and the
risks, and to make direct comparisons. Something given to them
early in the process, at a time when they're shopping, not within
hours of a closing or at closing. In return, we want to get rid of
some of the forms that are now required by law at closing.
Some of those forms were revised fairly recently.
But community bankers tell me that they're still very difficult.
There's overlap and complexity, forcing lenders to incur a lot of
costs to collect the information and get the forms properly filled
out. So it appears that we have hit the worst of all possible
worlds: regulations that drive up costs for the industry and
produce little good for the consumer.
You think you could do it in one page?
It would have all the information a consumer needs: the monthly
payment, cash at closing -- including closing costs and the down
payment -- and how long it will take to pay off the loan.
Variable-rate mortgages take more disclosure, but consumers should
be able to make comparisons and find out which mortgage is cheaper
Will simplifying credit cards and mortgages result in fewer
In the case of credit cards, it's the issuer who picks the actual
fees, the interest rates, the penalties and free gifts, not the
regulator. What the card issuer loses is the ability to hide a term
in the fine print that no one ever sees or understands and, as a
result, a term that the consumer is not pricing into the product.
People say, "Oh, well, you'll cut innovation." I think there will
be plenty of innovation. Issuers can innovate on customer service.
Innovate on price. Innovate on cool iPhone apps. But innovate in
ways that customers can see. Same sort of point on mortgages.
There's room to design mortgages and room to price mortgages
however the issuer wants to price them. But if the plan is to
surprise the borrower, then that's the part this agency is
responsible for eliminating.
What feedback are you getting?
People in the industry I'm speaking with are saying they are
willing to try. Some CEOs I've spoken to recognize that their
business is not sustainable when their customers see them as
dangerous or as the enemy. They need to be partners with their
How would you use technology, especially social media, to
bring consumer voices into the agency?
First, we can use technology as a means to make our work
transparent and to involve people in the design of the agency. That
means, for example, that my brothers in Oklahoma can have virtual
seats at the table right next to industry lobbyists. Second, we can
tap directly into the experiences of millions of Americans to
develop a rapid-response approach to policing credit markets.
Finally, we can open up the agency in a way that allows people
around the country to come up with better ideas or new
What's your advice for
readers while they're waiting for this to happen?
Anyone who carries credit-card debt from month to month is in
financial trouble. This is not a normal state, nor is it
sustainable over time. Not paying off that credit card is always a
bad sign, so pay it off. That's my best advice.