TOPICS > Economy

Warren Spells Out Mission for New Consumer Watchdog Agency

September 17, 2010 at 4:36 PM EDT
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President Obama named Harvard law professor Elizabeth Warren to head a new consumer financial protection agency, but the nomination does not require Senate confirmation -- a move that irked some. Judy Woodruff speaks with banking consultant Bert Ely and UCLA law professor Lynn Stout on what is expected for banks and consumers.

JUDY WOODRUFF: One of Wall Street’s leading critics, Elizabeth Warren, will now fashion a new oversight agency.The president announced the appointment today, but he steered clear of a confirmation fight with the Senate.


Just two months ago, the president signed the financial reform bill that authorized a new Consumer Financial Protection Bureau.Today, in the White House Rose Garden, he said the job of turning the concept into reality will go to one of the country’s fiercest advocates for the middle class.

U.S. PRESIDENT BARACK OBAMA:The Consumer Financial Protection Bureau will be a watchdog for the American consumer, charged with enforcing the toughest financial protections in history.

Now, getting this agency off the ground will be an enormously important task, a task that can’t wait.And that task is something that I have asked Elizabeth to take on.Secretary Geithner and I both agree that Elizabeth is the best person to stand this agency up.

JUDY WOODRUFF: Elizabeth Warren is a Harvard law professor and bankruptcy expert.For two years, she chaired the panel that oversees TARP, the federal bank rescue fund, before resigning that position today.

Along the way, she even took on Secretary Geithner at a TARP oversight hearing in June on the administration’s efforts to stave off foreclosures.

ELIZABETH WARREN, chairwoman, Troubled Assets Relief Program Oversight Committee:What is the metric for success here?Is it 120,000 families saved over 15 months at a time when 186,000 are posted for new defaults and foreclosures every month?

U.S. TREASURY SECRETARY TIMOTHY GEITHNER:These programs were not designed and could not have been designed responsibly to try to prevent a set of foreclosures that, tragically, were probably unavoidable.

JUDY WOODRUFF: Warren has been hailed by consumer groups and many liberal activists.One group even went so far as to produce a rap video in support of her nomination.


JUDY WOODRUFF: Today, in a blog post on the White House Web site, Warren spelled out her view of the new mission she’s taking on.

She said — quote — “The time for hiding tricks and traps in the fine print is over. This new bureau is based on the simple idea that, if the playing field is level and families can see what’s going on, they will have better tools to make better choices.”

Under the new law, the bureau will have the power to regulate mortgages, credit cards, loans, and other financial products.Warren’s appointment allows her, in effect, to serve as unofficial head of the agency until 2012 without Senate confirmation.In that way, the president avoided a fight with Senate Republicans, who could have blocked a confirmation vote.

The move brought criticism, including this statement from Republican Spencer Bachus on the House Financial Services Committee: “To pay off their political allies, the administration will subvert the Senate confirmation process, curtailing the very transparency and accountability they claim to demand in their financial regulation.”

Major business groups also opposed the appointment.David Hirschmann of the U.S. Chamber of Commerce said Warren’s ideas about regulation could end up hurting consumers.

DAVID HIRSCHMANN, U.S. Chamber of Commerce:The issue is more, what will she do with these powers?If this is taking away choices from consumers and restricting credit in the marketplace, count us out.

BARACK OBAMA: Good luck.

JUDY WOODRUFF: The Consumer Protection Bureau’s first task will be a forum on mortgage disclosures next Tuesday.

For a closer look at Elizabeth Warren and the new agency she is to get up and running, we turn to two people who follow developments closely.Bert Ely is a banking industry consultant who heads his own firm in Northern Virginia.And Lynn Stout is professor of corporate and securities law at the University of California, Los Angeles.Thank you both being with us.

Lynn Stout, I’m going to start with you.We are just heard two voices critical of Elizabeth Warren.Why do you think she is the right person for this job?

LYNN STOUT, law professor, UCLA:She’s very clearly the right person for the job, because she thought up the job.

Elizabeth Warren has been tracking problems with consumer protection in borrowing practices for many years.She’s one of the first people to identify that this was a cause of personal bankruptcies and that people were getting into trouble unnecessarily and through fraudulent and predatory practices.

And, indeed, the entire agency is her idea.She really is someone very dedicated to making sure that consumer lending is done on a fair basis, on the basis of full disclosure.And it’s really hard to imagine anyone would do a better job than she would.

JUDY WOODRUFF: Bert Ely, better — nobody better to look out for fairness for the consumer?

BERT ELY, banking consultant:Well, I think the — the concern is that, first of all, she is not going to be really running the agency, because she is just involved in helping to get it set up.

The president didn’t make a commitment to nominate her to be the director of the agency.And, quite frankly, she may end up not being the director of the agency, but merely a transition figure to kind of get the mechanics of it going.

JUDY WOODRUFF: But what about her qualities for the — her qualifications, I mean, for this job?

BERT ELY: Well, she is certainly very knowledgeable about the issues.But the concern is that a lot of her actions would actually discourage banks and others from lending to consumers because of the rules that will be put in place that will actually make it very risky for banks and others to lend to consumers other than those who have absolutely crystal-clean credit records.

JUDY WOODRUFF: What is an example of a rule that you would be worried about?

BERT ELY: Well, I think the rules having to do, for instance, with disclosures.The reason that consumer disclosures for lending products are as complicated as they are, as much as anything else, is because of the way Congress has written the laws.And what I would be concerned about is that, in addition, that complexity, that despite her attempt to bring simplicity to it, there would actually be increased complexity and legal traps for lenders that would cause them to back away from many types of lending decisions.

JUDY WOODRUFF: Lynn Stout is that a danger, that she would go too far in putting these regulations forward?

LYNN STOUT: Well, you know, it’s an interesting concept that you can go too far in preventing fraud.

The reality is, as any consumer who has ever gotten a credit card statement or looked through mortgage documents knows, that they’re written in a fashion that is almost impossible for people to understand. And, frequently, they are full of tricks and traps, as Ms. Warren has put it.

So, her brief is very simple and very clear.She just wants consumers to be treated fairly and honestly.And it’s pretty hard to see why there could really be much objection to that.

JUDY WOODRUFF: And is it something about her, Bert Ely, that has caused this strong opposition from the banking industry?

BERT ELY: Well, she is a lightning rod in terms of a lot of the comments that she’s made, again, the tricks and traps.

Certainly, that has gone on.But, you know, she characterizes the ideas of all lenders are operating that way.And I would contend that that is not the case, and that what many of these tricks and traps, so-called the complexity of, for instance, a lot of consumer lending agreements, is again reflecting the law that Congress has written.And the difficulty that people have in understanding a lot of these agreements again is reflecting really congressional intent.

JUDY WOODRUFF: But you’re saying she would just be carrying out the laws that have been passed.

BERT ELY: Well, she might be carrying out the laws that have been passed, but, again, there is an awful lot of room for interpretation.And the concern is that she would put additional rules and complexities in place that would make it reluctant for bankers to lend in many circumstances.

JUDY WOODRUFF: And, Lynn Stout, that doesn’t concern you?

LYNN STOUT: Not particularly.It’s interesting.The banking industry’s reaction has really been dominated by some, I would say, strident and almost alarmist voices that have raised a lot of fears that don’t seem to be grounded in any real evidence.

I mean, Elizabeth Warren is a very sensible, plainspoken person.In fact, it’s the fact that she is plainspoken that some people seem to object to.But, you know, she’s very straightforward.And she — when she sees a problem, she calls it a problem.And when she doesn’t see a problem, she’s very reasonable.

And I think, really, more than anything, what is going on is that the banking industry is simply concerned because they don’t know exactly what she will do, and they’re concerned that she’s not in their pocket.But I don’t think there is any evidence.We have had two years of seeing her oversee the TARP oversight committee, and she seems to be a very competent and careful and politically savvy leader.

JUDY WOODRUFF: You’re not — you’re shaking your head yes, that that is some of the concern.

BERT ELY: Well, there are concerns about that, but, actually, in many ways, it may actually be moot, because if she is not ultimately nominated and confirmed to be the director of the agency, then she’s never going to get into the rule-making business, but instead is going to basically be kind of an administrator, getting the agency up and running, getting at least some of the people in place. And, again, she…

JUDY WOODRUFF: So, you’re saying she will have less power, you believe, because she’s not the permanent director?

BERT ELY: Yes.She will have less power because she is an adviser to the president.She wouldn’t even be the acting director of the agency.And, quite frankly, if she stumbles during this initial period of time, that would actually greatly hurt her chances of eventually becoming or even being nominated as director of this agency.

JUDY WOODRUFF: Professor Stout, I want to read — I mean, even Senator Chris Dodd, the chairman of the Senate Banking Committee, who praised the appointment today, said in a statement, he said, “The teeth that this new bureau needs to put strong protections in place won’t be there.”And he said it could leave the entire bureau in jeopardy.

He’s worried about the fact that this is just an interim appointment.

LYNN STOUT: Again, that sounds a little bit like an alarmist view.Eighteen months is a good long time.She can get an enormous amount done.

And during that period — I think this is also very important — the lending industry, I think, will have greater experience with her, and some of their more out-there fears will be alleviated. And it seems to me very possible that, at the end of 18 months, she will receive a permanent appointment.

And I think the banking industry will be glad of it.I think it’s important to bear in mind that, as Mr. Ely has said, there are responsible lenders out there.Being a banker was once an honorable profession.

And putting down some rules of the road that prevent predatory and fraudulent practices is actually good for the honest businesspeople out there.And that is what she really has said she’s going to do.And I expect that’s what she will, in fact, do.

JUDY WOODRUFF: Do you think you could end up being surprised?

BERT ELY: We could end up being surprised.I mean, anything is possible.The sun could rise out of the west.


BERT ELY: But I certainly don’t have very high expectations in that regard, nor do I think bankers — I think there is a lot of concern about her in terms of what she has said in the past.

I could point out something else that is going to be a problem for her in terms of getting this agency going, and that is the difficulty she will have in attracting really good people for the senior positions, because they will be unsure about who they would eventually be working for.

And so this is one of the reasons why this agency will get off to a rocky start, because of the lack of a permanent confirmed director.

JUDY WOODRUFF: All right, we are going to be watching it closely.And we’re going have to leave it there. Bert Ely, Lynn Stout, thank you both.

BERT ELY: Thank you.

LYNN STOUT: Thank you.