On March 16, Elizabeth Warren, Special Advisor to the Secretary of the Treasury for the Consumer Financial Protection Bureau (CFPB), testified before the Subcommittee on Financial Institutions and Consumer Credit Committee on Financial Services United States House of Representatives. The CFPB, a new regulatory agency, is mandated under the 2010 Dodd-Frank Act for financial reform. Warren appeared before the Committee to update them on her activities in setting up the new agency.
Warren is a believer in markets— markets that are open, truly competitive, and fair to consumers. She believes big and small financial institutions must compete on a level playing field by providing easy to understand terms and conditions, so consumers can make informed choices about mortgages, car loans, and credit cards. In other words, no more tricks and traps.
If Warren has her way, with increased transparency and better communication of terms, your local community bank or credit union should be able to go toe to toe with Chase or Bank of America. Which is why community banks and credit unions are supportive of Warren’s proposals and the big banks and Wall Street—not so much. It is no secret that Wall Street continues to be addicted to ever increasing quarterly profits and the bonuses based on them. Needless to say, tricks and traps, and speculation through the creation of exotic financial instruments, have been highly lucrative for big banks and Wall Street. It is not clear they are ready or willing to give those up.
Wall Street funds political parties and candidates in order to influence policy and legislation that is beneficial for their institutions and shareholders. Thanks to Citizen’s United, they can now spend unlimited amounts to make sure those elected do their bidding. Wall Street and bank CEOs are paying lip service to Warren’s ideas of a level playing field, transparency, and increased regulation. But, it remains to be seen what happens under a Wall Street funded Republican controlled Congress that, for a host of reasons, has no real interest in seeing Warren or the CFPB succeed.
You can read Warren’s inspiring testimony here in its entirety, which summarizes her policy positions and what she accomplished since being appointed by President Obama as advisor to the CFPB. And what she has accomplished so far is indeed impressive.
The following is a summary of key items in her prepared remarks:
Warren is dedicated to making prices clearer, making risks more obvious, and cutting back on the fine print and legalese that can make it impossible for families to compare a mortgage or credit card with two or three others. She feels the CFPB and Congress are here to serve the American people by making sure the consumer financial markets work for them.
She does not envision new rules and regulations as the main focus of how the CFPB can best protect consumers. Her concern is that they are like “putting down fence posts on the prairie: They can be too easy to run around.” Rather than increased regulation, she wants to make markets for consumer financial products and services work in a fair, transparent, and competitive manner. “That means creating a level playing field where both parties to the transaction understand the terms of the deal, where the price and the risk of products are clear, and where direct comparisons can be made from one product to another.”
On the other hand, Warren does not feel that regulations inherently undermine the free market. The choice isn’t between regulation and the market, or between consumers and lenders. “Good regulation is about channeling market forces to make the market work better. Good regulation is about rooting out deception and promoting transparency so that honest competition actually works. Good regulation supports strong markets and makes strong markets more likely to persist over time.” A simple, straightforward, and consistent presentation of a credit agreement is the best way to level the playing field between consumers and lenders and foster honest competition. Average consumers who take out credit should not have to struggle to understand the basic agreement.
According to Warren, the main priorities of the CFPB are:
- Transparency in the mortgage market,
- Transparency in the credit card market,
- Financial education of the public,
- Responding to consumer complaints,
- Supervision of non-bank financial companies, and
- Innovative use of technology for communicating with and educating consumers
So far, Warren has met, one-on-one, with 60 members of Congress in both parties. She has also met with bank CEOs, investors, individual consumers, consumer groups, civil rights groups, labor unions, faith leaders, and other non-profit organizations and community leaders around the country. She has made a point to meet with military families who are often targeted by unscrupulous lenders, and with state attorneys general who are often first to know about consumer complaints in their communities. She has hired key people who have impressive resumes that, happily, do not include a stint at Goldman Sachs. What she has accomplished to date is astounding.
Warren continues to be a dedicated advocate of the American people, in a town basically controlled by money and special interests. She is unique in that her focus is on American families and what is best for them. It is the lens through which she sees everything. She wants nothing less than to heal this country by protecting and educating the American consumer and reforming the financial markets that have preyed on them. She wants markets to work for the ordinary citizen as well as for the financial institutions that serve them. She wants them to work in a healthy way, where the rules are clear to all parties, the playing field is level, and consumer demand drives market innovation. Toward that end, her work on putting together the CFPB is important, inspiring, and deeply moving.
My hope is that she becomes the new head of the agency, and barring that, that the blueprint she has put into place is actually realized. If it is, Warren will be responsible for restoring sanity to our consumer financial markets, and to the country as a whole. No small accomplishment, as we continue, years later, to suffer the consequences of the last financial meltdown.