No tricks. Less fine print. Clearer agreements.
That's how banks should market products to consumers, says Elizabeth Warren, the Harvard law professor in charge of setting up a new federal agency that will police credit cards, mortgages and other financial services.
The Consumer Financial Protection Bureau was created as part of the sweeping overhaul of financial regulations last year known as the Dodd-Frank Act. Proponents said such an agency could have sounded an early warning for the abusive lending practices that precipitated the economic meltdown.
It's not clear when a permanent head will be named to lead the new agency. Warren, a vocal consumer advocate who first championed the creation of the agency, is a possibility but is regarded as a contentious choice. President Obama did not need Senate confirmation when he named her in September as a special adviser to help oversee the creation of the agency.
The CFPB won't be able to exercise its rule-making powers until July 21. In the meantime, Warren has been making key appointments and meeting with banking executives and consumer groups to get the agency up and running.
In an interview with The Associated Press, Warren said one of the first goals will be to make the true cost of financial products easier to understand. She said that should eventually drive down prices for consumers.
Here is an excerpt:
Q: You've said improving the disclosure of credit card terms is going to be a top priority. How is the CFPB going to change what's provided to consumers?
A: Think about how long a credit card agreement has become — it's become pages and pages and pages of largely incomprehensible fine print. In effect, it's paperwork that says "Don't read me," and that's a real problem. Because hiding in that fine print can be anything.
So one of the things we want to push toward is trying to clear out that kind of shrubbery. So that if there are real changes that a company is proposing, they stand out. They're not camouflaged by all those other words.
Q: And what's the timetable for when consumers can expect to see such changes?
A: Well, it's interesting. I think people are starting to see somewhat clearer disclosures. For example, there are a couple of major credit card issuers who — following our early conversations last fall — went back and voluntarily rewrote their own credit agreements and began to shrink them down. There have been others who've advertised their credit products along the lines of "No Tricks," "Less Fine Print," "Clearer Agreements."
This agency, even before it has its full legal authority, has driven a conversation and driven a direction for the industry. And it's toward a better informed customer who can make apples-to-apples comparisons among products.
Q: In terms of the required disclosures — do you see new forms replacing the Schumer box, which is already intended to clearly lay out the APR, fees and other terms for a credit card?
A: We're having conversations with credit card issuers right now and talking through what the Schumer box does and how it might be improved.
You know, even the Schumer box has gone from smaller and skinnier to longer and more complicated. So I will readily admit it's an uphill walk to try to get there. But I think we're developing a path in working with the companies.
In terms of a timetable, I just have to remind you. We won't have legal authority to do anything by way of rule-making authority until after July 21.
But we've started now with the industry and with consumer groups and with other stakeholders, investors — talking with them, showing them what we have in mind, asking for their input, asking for their data, asking for information.
Q: More banks began to cut back on free checking last year in response to new regulations. Do you think further regulation by the CFPB will drive up the price of banking?
A: If the consumer knows the price of a good, the risk associated with it, and can make apples-to-apples comparisons, that's what makes markets work for consumers. They can figure out who's offering the most expensive product and who's offering the cheapest product. And I'm of the belief that over time, that's going to make financial products cheaper for consumers, not more expensive.
Q: Online banking is top-of-mind right now. With so many new mobile and online banking options, is the CFPB dedicating a team to ensure these options are safe?
A: We've organized the new consumer agency to be market facing. That means that we have divisions dealing with (1) revolving debt and credit cards, (2) mortgages and installment loans, like student loans (3) with payments and deposits and (4) credit reporting and (5) debt collection.
We want to be a very data-driven agency around those five markets. Technology and innovation is hitting all of them. And so a big part of what we're doing is hiring people who are technology savvy and actually deeply interested in it.
Q: Another area the CFPB will be reviewing is services for people who don't have a bank account. How do you regulate services like payday loans and still ensure people have access to small loans?
A: Well you know, access to small dollar loans is critical to many families. The notion that we somehow try to eliminate that, it's just not going to happen.
It can force people into unregulated markets, including "Jimmy the Leg Breaker," which is not where we want people to be.
So it is important from a regulatory standpoint that people are not at the mercy of lenders who build business models around fooling people. They're drawn in the front door thinking they're going to pay one price and then beat about the head and ears, financially speaking, so that they're paying much, much more.
On the other hand, there's a real problem. And that is how to get good, small dollar lending started in areas where there's great need.
Sometimes that's going to be by community banks. Sometimes it's going to be by non-bank lenders and sometimes it's going to be innovations and new technology that's going to open up markets for the currently underserved population.
I anticipate a lot of change in this area.
Q: Is the idea to bring the unbanked population into the traditional banking world? Or is there a valid place for services like check cashing?
A: I think the traditional banking world concept is going to change over the next 10 years. I think technology changes it and I think the needs of an unmet population (change it).
I'm going to take a little bit of a side step from the question. The basic paradigm in which we've thought about this is actually starting to break apart.