Consumer Law & Policy Blog

Elizabeth Warren's Speech to the Bankers

by Deepak Gupta

Last week, Elizabeth Warren went into the lion's den, giving a dinner speech in Washington to the Financial Services Roundtable -- the banking industry's lobbying group. According to one account, she gave a "tough speech to bankers, comparing them to 'snakes' and their lending practices to 'garbage.'"

Or at least that's how the speech was characterized by certain news outlets. But if you go beyond the headlines and actually read the text of the speech, what you'll find is that Warren outlined a pragmatic, principles-based approach to regulation that contrasts sharply with a heavy-handed regime focused on technical disclosure requirements. Drawing inspiration from the SEC's first chairman, banker Joe Kennedy (pictured), Warren explained how smart regulation can create opportunities for good business to thrive. The heart of her speech focused on a proposal put forward by the Financial Services Roundtable itself:

Regulation can take two obvious forms: Regulators can make more pronouncements from on high, identifying suspicious practices in the various markets and banning them. Or regulators can layer on more disclosure requirements. But neither restores customer trust. In one case, it becomes the job of the agency to highlight industry shortcomings and pile on more and more “thou shalt not” rules, and, in the other case, consumers are hit with even more paperwork— and a growing suspicion that the game is rigged against them. . . .

But I’m here tonight to talk about an alternative recommended by the Financial Services Roundtable three and a half years ago: a principles‐based approach.

Instead of creating a regulatory thicket of “thou shalt nots,” and instead of using ever more complex disclosures that drive up costs for lenders and provide little help for consumers, let’s measure our success with simple questions. Your first principle is “Fair treatment for consumers.” I’ll paraphrase your explanation of how to tell if that principle has been met: Can customers understand the product, figure out the costs and risks, and compare products in the marketplace? Regulators should be aiming toward the goals you laid out.

Instead of layering on regulations that don’t fully protect consumers, a better approach would focus on how to give consumers the power to make the right choices for their families—and, at the same time, to ease the regulatory burden for the lenders. Best of all, if we do this right, perhaps together we can reassure families that the people in this room have met their own goal of fair treatment and that they should be treated as trusted friends.

More on Warren's vision for the new agency, below the jump.

Implications of the Dodd-Frank Wall Street Reform Act for Consumer Law Practice

The National Consumer Law Center has released an eight-page summary of the Dodd-Frank Act's implications for consumer law practice, covering changes to TILA and RESPA, foreclosure-prevention measures, and preemption, among other things.  Read it here.  NCLC is also presenting a webinar on the subject on September 15 at 2pm EST.

by Deepak Gupta

Consumer credit agreements, tax forms, regulations: They're all crammed with gobbledygook, says Alan Siegel, and incomprehensibly long. He calls for a simple, sensible redesign -- and plain English -- to make legal paperwork intelligible to the rest of us. Siegel says the Consumer Financial Protection Bureau should "make clarity, transparency and simplicity a national priority."

Among other things, he's designed a model one-page credit card agreement and simplified letters for the IRS.

St. Louis Post-Dispatch Column on Forced Arbitration

St. Louis Dispatch consumer reporter and columnist Matthew Hathway ran a nice piece this past weekend on forced arbitration, which provides a good overview for those unfamiliar with the issue--i.e. most Americans.  Read it here.

State Anti-Predatory Lending Laws Mitigated Foreclosures

by Alan White

Following up on our prior studies, we have posted a new paper finding that states with effective anti-predatory mortgage lending laws had fewer risky subprime loan originations and lower default and foreclosure rates than states without effective laws.  This new paper relies on loan-level data for 1.2 million mortgages observed monthly through 2008, and standard regression analysis to control for non-legal variables differing between states with and without effective laws. The effectiveness of state laws holds both at the state-wide level and when looking at metropolitan areas on borders between states with and without effective laws. 

Colbert Report Takes on CFPB, Elizabeth Warren, Mandatory Arbitration, and Barney Frank

Among other things, listen to Stephen read from the mandatory arbitration clause in his credit card agreement. Enjoy:

The Colbert Report	Mon - Thurs 11:30pm / 10:30c
Consumer Protection Agency - Barney Frank
www.colbertnation.com
Colbert Report Full Episodes 2010 Election Fox News

WSJ: Credit Card Companies Have "New Credit-Card Tricks"

 The Wall Street Journal explains here that after the new Credit Card Act became effective last February, credit card companies were barred from making profits in certain ways. For instance, the Act generally bans "universal default" -- that is, credit card companies cannot raise rates on one credit card account (or all of a consumer's other accounts) just because the consumer was late or missed a payment on another, separate account. 

So, the companies are turning to other ways to make money, some of which are perfectly legal, such as raising annual fees, and some that may "skirt[] the new rules." This raises the question whether the new Consumer Financial Protection Bureau established by the Dodd-Frank legislation will go beyond the Credit Card Act and seek to bar some credit card company practices as unfair and/or deceptive.

Elizabeth Warren for Consumer Financial Protection Bureau Director

by Deepak Gupta

The debate over whether President Obama should name Elizabeth Warren to head the new consumer financial protection agency -- an agency for which she provided the intellectual architecture, and that probably never would have been created without her  -- has taken on a surprisingly high profile over the past week, at times resembling an election campaign or Supreme Court nomination fight. 

On Friday, Felix Salmon went so far as to deem Warren's nomination a "foregone conclusion." And the latest signs, including positive comments today from Robert Gibbs and a steady stream of endorsements in the Senate, do suggest that Warren's appointment has become increasingly likely. One key indicator is that Gibbs described her not only as a "terrific candidate" but also as "very confirmable." (Interviewed a few days ago on Good Morning America, Obama himself was more equivocal.)

Today, Public Citizen endorsed Warren's candidacy and rolled out an online petition for supporters to sign.  It's no secret that the contributors to this blog are, and have been, strong Warren supporters all along. As Jeff Sovern said last week, "I want the CFPB to be just like Elizabeth Warren. . . . We need an agency that bases its decisions on empirical realities rather than ideology. Just like Elizabeth Warren. And if that's what we want, shouldn't the CFPB be led by Elizabeth Warren?"  Over at Credit Slips, where Warren was once a contributor, her friends and academic colleagues have been posting some must-read commentary on her candidacy. Katie Porter describes Warren--the person, not the caricature--as someone who sincerely believes in markets and wants to make them function more efficiently. And Bob Lawless talks about Warren as someone whose thinking is grounded in facts and pragmatism, not ideology. Finally, Adam Levitin demolishes one of the baseless criticisms of Warren that's been making the rounds--that she lacks the necessary administrative skills. (By the way, does anyone really believe that her opponents' true concern is insufficient administrative experience?)

My own view is that Warren should be the nominee, but not primarily for the reasons cited above. The other top candidates, Michael Barr and Gene Kimmelman, are experienced and well-respected consumer advocates who could probably also be counted on to arrive at the elusive right mix of empirical realism, consumer protection, and flexibility. Both have more Washington experience than Warren does. Indeed, Barr has been the true architect of the financial reform legislation within the administration and would bring to the job considerable government experience together with a scholarly background on consumer financial protection issues. He would be a fine choice. That said, Warren stands out for two reasons:

How the New Consumer Financial Protection Law Will Affect FTC Authority

Guest Post by Dee Pridgen

 As consumer advocates celebrate the new consumer financial protection law, which certainly contains many good things for consumers, I wanted to take some time to figure out how this legislation will affect the nation’s first national consumer protection agency, the Federal Trade Commission.  While the FTC has neither been abolished (as has the Office of Thrift Supervision), nor suffered mandatory transfer of functions and personnel to the new Bureau of Consumer Financial Protection (as have the bank regulatory agencies), its authority and power in the area of financial services has been diminished, and it did not gain the quid pro quo hoped for in terms of streamlining the outmoded Magnuson-Moss rulemaking procedures.

The new law creates the Bureau of Consumer Financial Protection (BCFP) with sweeping powers to regulate in the consumer financial sector.  All the consumer financial protection functions of the Federal Reserve Board, Comptroller of the Currency, Federal Deposit Insurance Corporation, National Credit Union Administration, Department of Housing and Urban Development and a few other government entities are transferred to the BCFP. 

The FTC loses authority to promulgate rules, issue guidelines, or conduct studies or issue reports under the federal consumer credit laws but it retains its authority to enforce the credit laws with respect to entities under its jurisdiction (i.e., nonbanks).  [Section 1061(b)(5).]  However, the FTC will now share enforcement authority of the credit laws (e.g., TILA, ECOA, FDCPA, etc.) with respect to nonbanks with the BCFP.  The FTC and the Bureau will negotiate an agreement for coordination regarding enforcement actions. The BCFP will issue regulations in these areas in lieu of the Federal Reserve Board, which previously had that authority. Unlike the other regulatory agencies affected, no employee of the FTC will be mandated to transfer to the new agency. However, the FTC will likely be less active in the financial services area because the new agency will have broader authority. The FTC also retains all of its authority under the FTC Act with regard to economic sectors outside of financial services.

The Dodd-Frank Wall Street Reform Act: Mandatory Arbitration Provisions

by Deepak Gupta

The Wall Street Reform bill has a lot of stuff in it. If you have time to kill, you can pore through the actual text of the legislation here. If you're looking for something beyond the relatively superficial accounts in the newspapers, a few big law firms have already produced impressive summaries of the legislation, including Davis Polk, Mayer Brown, and Skadden.  Davis Polk also created a nifty set of slides showing the complex implementation process for the legislation (skip to slide 24 for the consumer financial protection provisions).  By their count, the bill will require a whopping 243 rulemakings and 67 studies.

One sure-to-be-closely-watched study/rulemaking combination is called for by Sec. 1028, which requires the new Bureau of Consumer Financial Protection to conduct a study of, and provide a report to Congress concerning, the use of mandatory pre-dispute arbitration in consumer financial services. The Bureau then has the authority, by rulemaking, to "prohibit or impose conditions or limitations on the use of" mandatory arbitration clauses, consistent with the study. This provision had its origins in the Obama Administration's initial white paper on financial reform and, amazingly, it stayed in the legislation all the way.  

Needless to say, Sec. 1028 is an enormous step forward in the campaign to end forced arbitration in the consumer-protection context. Corporate lobbyists, however, will use every opportunity to thwart a pro-consumer rulemaking and will likely return to Congress if they don't like what the study says.

The Act also confers similar authority on the SEC to ban mandatory arbitration in the securities context (Sec. 921) and flatly prohibits mandatory arbitration in mortgage and home equity loans--without the need for any further study or rulemaking (Sec. 1414).  Finally, the Act bans mandatory arbitration that would waive protections for those who blow the whistle on securities fraud (Sec. 922) and commodities fraud (Sec. 748).  The text of Sec. 1028 is below the jump.