3/23/2011 11:31 AM ET|
Meet the woman the banks fear
Why do they see this affable 'granny' as a threat? She wants a consumer-friendly financial industry and may soon have the power to bring it about.
When I asked Elizabeth Warren last week how she'd like to be remembered, I expected her to cite one or more of her professional accomplishments. Perhaps:
Her groundbreaking research as a Harvard law professor with the Consumer Bankruptcy Project, which exposed the fragility of many American families' finances, or her best-selling books that sprang from that research, "The Two-Income Trap: Why Middle-Class Mothers and Fathers are Going Broke" and "All Your Worth: The Ultimate Lifetime Money Plan."
Or her role as head of the Congressional Oversight Panel, which investigated the bank bailout, criticized how rescue funds were used and suggested ending the notion of "too big to fail" by liquidating insolvent banks.
Or her current job putting together the fledging Consumer Financial Protection Bureau, which she championed and which she believes, had it existed earlier, could have prevented the financial crisis by blunting the growth of subprime mortgage lending to unsophisticated borrowers.
But no. After first asking for a rain check to consider my question, the former Sunday school teacher blurted out that what she'd really like to be known for is being "a good granny" to her three young grandchildren, whom she was flying to see in California the next day.
Warren, 61, has a way of confounding expectations. Bankers so loathed her for her criticism of their industry that naming Warren as the director of the consumer protection bureau was considered politically untenable last year. President Barack Obama instead hired her as a special assistant to Treasury Secretary Tim Geithner, which didn't require congressional confirmation.
But recently, in what The Wall Street Journal and others have called a "charm offensive," Warren has been reassuring groups of bankers that what she wants is more transparency, not necessarily more regulation, which the Oklahoma native likens to fences on a prairie that lawyers can easily dodge around.
She has also been soliciting the opinions of credit card companies' CEOs. In our conversation, she cited Nigel Morris, a co-founder of Capital One, as someone who "thoughtfully talks about how the thing works, how decisions are made."
"It's been people like Nigel, who are on the inside," Warren said, "who've helped me understand the role the regulation should play to keep a market free, to make a market competitive."
Warren's corner office at the Treasury Building looks out on two of D.C.'s best-known icons: She can see the Capitol from one window and the Washington Monument from another. These are visual reminders of just how far she's come, from studying the lives of financially desperate families to wrestling with some of the most financially powerful special interests.
Competition is not an excuse for deception
It remains to be seen whether Warren can blunt the antipathy that bankers feel toward her in time to be named the head of the bureau by its July 21 launch date. Meanwhile, House Republicans still are looking for ways to gut the agency's funding. They're convinced that an agency devoted to protecting consumers from unsafe and deceptive financial products will squash innovation and kill jobs.
Warren, obviously, doesn't see it that way. Rather than tying lenders up in regulatory vines that prevent them from competing, she wants to see clearer disclosure and less fine print, which she famously likens to shrubbery in which the "muggers" of hidden fees and other anti-consumer "gotchas" can hide.
"A competitive market is one where the competition is not about how many things you can hide in the fine print," she said. "A competitive market is one where the consumer sees the differences, and so people are competing to attract the consumer. That's the whole difference."
The role of the bureau, Warren says, will be "to ask the questions, gather the data and to monitor the markets to make sure they work for consumers."
The credit card market, for example, has always been competitive, she said -- but not competitive in a way that necessarily benefited consumers. Instead, card companies competed for how much revenue they could produce.
"And the smartest way to do that had over time become to pretend to sell at a low price at the front end and then sock people hard on the back end with fees and interest rate repricing," Warren said. "The difficulty, of course, with doing that is that the consumer can't ask two basic questions: 'Can I really afford this?' and 'Could I get it somewhere else cheaper?'"
The Credit Card Accountability Responsibility and Disclosure Act, which went into effect a year ago, banned some of the worst practices:
- Rate hikes for no reason.
- Universal default, which allowed card issuers to raise your rates if you fell behind with another lender.
- Repeated approval of over-limit transactions in order to charge multiple fees.
- Ever-moving due dates and due times, which meant you could be slapped with a late fee if your payment didn't reach the card's processing company by a certain time of day.
Some have claimed that the Credit CARD Act caused card issuers to slash credit limits, raise interest rates and precipitously close accounts. The reality is more nuanced. Card companies began reducing credit limits, closing accounts and raising rates when the credit crunch began in late 2007, well before the act was passed. The recession accelerated those trends.
The Credit CARD Act definitely cut into issuers' revenue. According to a report by the Office of the Comptroller of the Currency, card companies' income from over-limit fees virtually disappeared in the year after the law went into effect and issuers were required to get consumers' consent before approving over-limit transactions. Late-fee revenue dropped in half after issuers were required to fix due dates and due times were eliminated.
The issuers knew their revenue was in peril, of course, and that interest rate hikes would be much tougher under the law, so they raised rates on many accounts before the law kicked in.
But Warren said the comptroller study, and the bureau's analysis of data supplied by the largest credit card issuers, show that the Credit CARD Act was still beneficial to consumers.
"The data indicates that the overall cost of credit cards did not go up," Warren said. "The pricing is just more visible upfront."
Hacking through the gobbledygook
But there is still work to be done, thanks to that fine-print shrubbery that Warren wants to chop down.
"Today it is not possible to look at four credit card agreements and tell which one is cheaper," Warren said. "Part of the reason is that agreements are still too long and complicated."
The same is even more true of mortgage agreements. Warren said that the agencies responsible for two forms provided to consumers have been in negotiations to combine the forms -- for the past 15 years. Instead "the forms have been revised to become longer and more complicated," she said.
Cutting through the bureaucracy is something the nascent bureau can do, since it will take over consumer protection responsibilities that are currently scattered among seven agencies.
That is, of course, exactly what scares the banks, which are used to ineffective, understaffed consumer protection departments hidden in the agencies' backwaters.
Equally scary is that the bureau may be headed by a plain-spoken, personable "granny" who understands exactly how tough it is for consumers today and who wants financial products that can help them rather than make things worse.
For her part, Warren seems to relish the challenge.
"I have so much fun doing this," she said. "I get up every morning looking forward to this."
Liz Weston is the Web's most-read personal-finance writer. She is the author of several books, most recently "The 10 Commandments of Money: Survive and Thrive in the New Economy" (find it on Bing). Weston's award-winning columns appear every Monday and Thursday, exclusively on MSN Money. Join the conversation and send in your financial questions on Liz Weston's Facebook fan page.
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Warren is the same lady who warned the government during the Clinton administration of the peril in not regulating mortgage default swaps and mortgage backed securities. If she had been allowed to protect the public then, she might have been able to save this country a lot of pain.
Regulatory policy is like surgery. If it's dumb, it does more harm than good and costs money and jobs. If it's smart, it protects the interests of the American people.
This lady is smart and has a proven record of acting in the public interest. Whatever your political bent, that is the kind of public service we should support.
Since our supreme court has determined that corporations are citizens, they MUST be treated acordingly, equally with all of our other citizens. Since most states now have "3 strikes, you're out" laws (Here in Georgia it's 2 strikes, you're out) we must find the proper way to apply this to our corporate citizens.
Therefore, I propose that the first incident of financial malfeasance results in a warning to change deceptive practice. The second incident should result in heavy sanction (A nice 8 or 9 digit fine). Third strike, you're out. All of the corproations assets are seized and forfiet, all senior management goes to prison for 25-life. Just like all of our non-corporate citizens.
A nice, even handed way to handle our new influx of citizens..... Amen.
CqpraEsq is right they "gamed the system". Look at what happened. Mortgage brokers would lie, cheat, and steal to write a loan, the banks would package the mortgages, sell them, and they were broken into pieces, repackaged, sold again, fraudulently rated by people like Moody's, etc. This would increase the sales of homes, inflate values due to demand, benefit the Wall Street real estate boys (and girls), which would increase the speculations, more deals, repackaging, etc. In the meantime bankers could bet against the success of these securities with credit default swaps. It was nothing more than a Ponzi scheme. What is the result? The falsely inflated bubble bursts like all Ponzi schemes. The economy collapses, we give money to the Ponzi creators, there is no tax income to the state and federal government due to the scam, and who pays?
The middle class, the working poor, teachers, students, the poor, while bail outs, tax breaks, subsidies, offshore accounts, etc. go the very rich. Look anywhere at wealth and income distribution over the last 30 years and it is quite clear. Your pockets are being emptied by the very rich and their political shills of both parties. Don't kid yourself. it's not the free market, it is the conscious redistribution of wealth and unitil we recognize it and stand up, it will continue. This is not a conservative vs. liberal issue. They use that to distract you from the truth. Just look at the numbers and the answer is clear. WAKE UP!
If you are unfamiliar with Warren, I most highly suggest watching "Maxed Out" (I think it's still available for Netflix streaming). It is an eye opener on how financial companies (specially credit card issuers) prey on the most vulnerable, and how they profit from shady practices. To those preaching that consumers are 100% at fault, I need to remind you that marketers are master manipulators. They are able to find the least suspecting and most needy, and slapping them with astonishing fees and penalties for doing exactly they were predicted to do. Ms. Warren was a prominent contributor in this important expose. Her passion and disdain for the way consumers are constantly targets of such creative means of deception was clear, even with her calm disposition and soft spoken ways.
Although I voted for the other guy, I am pleasantly surprised and applaud President Obama for appointing Warren to a position where she can help oversee how banks deal with us - the unsophisticated lenders.
What's in your wallet? .357 in mine.
B of A, the lost $14,000 of my US Saving Bonds for my kid’s college. Can you believe a bank can loose your Safe Deposit Box? B of A did. Then they tried to say I never had an account with them. I showed them my Deposit box key and the manager said it was the banks key alright. Then she asked if she could have it. Can you believe it? I told her hell no you can’t have it, it’s the only tangible evidence I had to try and straighten out this mess. B of A never did fix the problem. I had to confront the Treasury Department. And believe me! That’s a whole nother chapter in the reality of crooked business. Took almost 1.5 years and you’d better have kept good records. They sure won’t go out of their way either.
In God I Trust, who else is there?
Said and done, I want to know why did Madoff get 150 years for stealing from the rich and the banks get bailouts and bonuses for screwing us?
Great for them and great for us because it is fast easy and saves a check and stamps plus the time for us to prepare and process.
However, get this......Payment is due on a given date and I send my electronic payment at least two days before the due date.....Surprise! I get a late charge because American Express says "it takes two to three days to log my payment into their accounts receivable.
The fact is that when I send money electronically it is good as soon as it is sent as it is in their bank account. Proof is that my bank has deducted and sent it to them.
American Express is simply "stealing". Nothing more nothing less. I'm sure their company "policy" is applied several thousand times per pay period.
This is the kind of white collar crime that needs to be fixed.
Love to see the Feds or a law firm take these guys on.
Banks should compete as other businesses do: price points, product quality, marketing, managing overhead, etc. Allowing the most profitable enterprise to be the one best at deception violates the very tennants of freemarket economics.
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