Fallout: The Financial Crisis

Consumer protection agency’s standing

Marketplace Staff Jan 22, 2010
Fallout: The Financial Crisis

Consumer protection agency’s standing

Marketplace Staff Jan 22, 2010


Tess Vigeland: This was one bad week for some of the nation’s top banks. Citigroup reported it lost more than $7 billion in the final three months of last year. Bank of America lost more than $5 billion. And then on Thursday, President Obama said there should be no such thing as banks that are “too big to fail.” He proposed far-reaching regulations to reign them in. And he also called once again for a new consumer agency, sort of a Consumer Product Safety Commission for things like mortgages and credit cards. Just a week earlier the idea seemed in peril.

We’ve asked Elizabeth Warren to join us again. She’s a professor of law at Harvard and also came up with the idea for this agency a few years ago. Welcome back to the program.

Elizabeth Warren: Thank you.

Vigeland: Now, we last got a progress report from you in early October and at the time, you still had quite a bit of faith that we would get this consumer agency, so I will ask you now again, are you still keeping that faith?

Warren: It’s been a rollercoaster ride, but I’ve still got the faith.

Vigeland: Why?

Warren: Well, you know, there was an announcement last week that indicated that the agency was dead.

Vigeland: And in fact, that was from Senator Dodd, who chairs the Senate Banking Committee, so…

Warren: So said the Wall Street Journal. And the president of the United States said, “Not so fast” and he’s pushing back and pushing back hard.

Vigeland: What do you think it would mean for consumers if the CFPA is scrapped?

Warren: Then it means financial reform wasn’t serious. When the administration first announced, “Here’s our financial reform package.” The lobbyists for the big banks said, “We will kill the consumer agency.” And they also, basically, went through the rest of the bill and took out their little red pens and decided which parts were acceptable to them and which parts weren’t.

So, the consumer agency, it really is, is the litmus test for determining, are we going to have a bank, pre-approved version of financial reform, which frankly means business as usual, or are we going to get serious and make some changes to rein in the out-of-control banks that have brought us this crisis?

Vigeland: You know, the economy imploded in 2008, and we are now in January of 2010. Do you think consumers are any safer now, when it comes to financial products like mortgages, than they were before the collapse?

Warren: No, not at all. This is, in fact, an even more dangerous world if that’s possible. There are no new effective rules effectively enforced in place. We’re still operating, largely, under the same set of rules that brought us this crisis. I don’t want to be a total naysayer — sure, there have been some little places around the edges. But the fundamental problem is that consumers are not offered contracts that they can read and easily understand. The idea that we can change a comma here or a margin over there and make any real difference is just fundamentally wrong.

Vigeland: What about the argument that it’s up to all of us to… buyer beware, that it’s our responsibility to be reading the paper work.

Warren: You bet. Let’s just let the banks hire an army of lawyers to lawyer up these contracts and let ’em hire an army of MBAs to figure out how many new tricks you can devise that no one can explain. You know, try explaining double-cycle billing and reverse half-nelson off the high dive.

Vigeland: I’ve never understood that one.

Warren: That’s right and just throw them out there and say, “Hey, if you open a checking account here, you agreed to be bound.” If you really believe in free markets, if you really are a market person and you think people ought to be personally responsible for what they commit to, then what you ought to stand behind is that they can read and see the provisions that they are committing to.

Vigeland: Elizabeth Warren is a professor of law at Harvard University, and she also chairs the Congressional Oversight Panel on banking bailouts. And we’ve been talking to her about the prospects for a consumer financial protection agency. Thanks so much.

Warren: Thank you.

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