On the fifth floor of an office building near the White House, consumer advocate Elizabeth Warren has begun shaping the centerpiece of the recently enacted Wall Street reform law — the Consumer Financial Protection Bureau.
Both Warren and the new agency are controversial.
Most Republicans and much of the financial industry opposed creation of the agency, which will have broad authority to write and enforce rules covering mortgages, credit cards and other consumer lending products.
Many of those same people also opposed making Warren the director of the powerful agency, calling her too much of an activist. President Obama decided to avoid a Senate confirmation battle and last month appointed Warren to dual Treasury Department and White House advisory positions to launch the agency, which begins operations next July.
Warren, 61, a Harvard Law School professor, sat down with The Times this week to discuss her priorities and the financial issues facing consumers. The edited transcript:
When do you think consumers will start seeing the impact of this agency?
Now. The fact that the agency is now in place means that a number of credit providers are starting to reexamine their business models for long-term sustainability in a world with a cop on the beat. So I think the changes are starting now.
Can you point to any specific changes?
Look at the credit card offerings online and note how many are trying to advance the notion of clarity, simplicity and the absence of tricks or traps. That's a direct response to the impetus that created the consumer agency.
Is disclosure your priority?
No, it's clarity. Disclosure has come to be a dirty word. Disclosure has become like shrubbery, a dense thicket of words that are a good place to hide tricks and traps. Clarity is about emphasizing the key pieces of information that someone needs to know: price, risk, easy comparison of other products.
Many in the financial industry strongly opposed creation of this agency. Should they be afraid of this agency?
It depends on their current business model. If they make money from tricks and traps, they will have a problem. But if they want to provide services to the customer that are valuable in a straight-up, apples-to-apples comparison, they will do great with the new agency.
One concern is whether you think people are capable of making the right financial decision or do some products need to be banned.
I have great faith in the capacity of people to make good financial decisions — when they have good information. No one makes great decisions — consumers or businesses — if the relevant information is hidden from view. This agency is designed around the premise that with good information, consumers can make good decisions for themselves, their families and ultimately for the economy.
What's your priority in getting this agency running?
It's to build into the bones of this agency service to American families. This agency must always belong to the American people, not to the industry it regulates. That happens in every piece of the building process, from developing an organization chart that draws deeply on data about how consumer markets are working through outreach to the many constituencies that are profoundly affected by consumer credit. It's an A-to-Z attitude that this agency should drive toward … making credit products easy to understand and easy to compare.
You're not the director of the agency. Are you still interested in that position?
Right now, my plate is so full in trying to get this agency started that I'm not focused on that question.
Do you believe you have the authority to take actions until a director is in place, including writing rules?
The lawyers are still working on the scope of the authority. For now, we have plenty of power to do what needs to be done to get started. We're setting up the agency, hiring, initiating research. There is so much that needs to be done, and it needs to be done now.
Had this agency existed 10 years ago, would we have the foreclosure problems that we have now?
No. If this agency had been in place a decade ago, the subprime mortgages that were sold to families across the country and that ultimately cost so many of them their homes would never have been marketed. Without those subprime mortgages fed into the system, the housing bubble would not have inflated with such speed, and an asset securitization market would not have … grown to such gargantuan proportions, built on a fundamentally unstable base.
We might still have had a housing bubble, but it would have been modest and most families would have survived without significant disruption. Too-big-to-fail would not have entered the lexicon, at least not through home mortgages.
What are the best ways to try to prevent a recurrence?
It starts with research, understanding what's happening in credit markets and the kinds of products that are sold to American families and insisting on some basic principles. If a customer can't tell the price or the risk easily and can't make an apples-to-apples comparison among products, then something is wrong. That's where regulatory inquiry should start.
Do you support a nationwide foreclosure moratorium?
Right now my money is on the attorneys general [who have launched a joint investigation in all 50 states]. Foreclosure rules differ from state to state, and they are in the best position to determine who has and who has not followed the law.
Do you think some consumers might be surprised that you are not advocating a broader pause on foreclosures while bank paperwork problems are being worked out?
This agency will not veer from its support of American families, whether it's in the foreclosure crisis or elsewhere. But no one would want this agency … to act before it had collected all of the necessary data and thought through the options. The attorneys general are moving fast, and at this moment, I think that's the right response …with emphasis on "at this moment."
Are you concerned about what Republicans might do should they take majority control of the House or the Senate?
This agency has enemies, political and economic. That won't change what I do. I'll keep working every single minute to build a strong, independent agency to represent American families.