Warren promises fundamental change from Consumer Protection Bureau

Elizabeth Warren on Thursday promised the new Consumer Financial Protection Bureau would work to "fundamentally" change the "broken" consumer credit market and would protect American families from obscure and complicated credit arrangements.

Warren, who has been charged with building the agency, laid out her vision for it in a speech before the Consumer Federation of America. She said the new bureau would not focus simply on rulemaking efforts prohibiting specific business practices, but it would also adopt a more expansive mission of making consumer financial products easy to understand. 

"This agency has a moment, right now at the beginning, to envision fundamental change. ... This agency has a real chance to offer something better," she said. "What I want to focus on is how we get tough no-nonsense changes that will last and will address real underlying issues.

She said changes are needed to allow consumers to make their own choices and to help companies compete fairly with each other with clear up-front prices.

"No customer should be asked to take out a loan without knowing the costs and the risks of the deal, and every customer should be able to compare different financial products straight up, apples to apples," she said. "It’s clear that over time, disclosure has become a code word for obfuscation. ... Today, there is much more disclosure but much less understanding."

She envisions the bureau doing for consumer credit what the Food and Drug Administration and the Federal Aviation Administration have done for their respective areas of oversight. Those entities enjoy broad public support, and the CFPB will need a clearly articulated mission if it is to enjoy the same backing, she said.

"This is the work of agencies that enjoy widespread support because they limit the risk that consumer cannot protect on their own at the time of purchase," she said. "If the new consumer agency does its work right, not many Americans will complain that it should do less to rein in fine print or legalese."

Some had speculated the agency would embark on a mission focused primarily on targeted rulemaking of consumer credit. But Warren said rulemaking alone will not create the fundamental change that is needed.

"The agency can issue lots of targeted rules, and companies can work around them and the agency can issue more rules," she said. “But it won’t make the market work."

She went so far as to say that if the CFPB had been in place at the beginning of the decade, the financial crisis driven by the subprime mortgage fiasco might have been averted.

"There are many causes behind the financial crisis of 2008, but one simple fact is inescapable. If mortgages had been clearer, the crisis would not have unfolded in the way that it did," she said.

However, she warned the attendees that they needed to remain vigilant in their support of the agency as it faces opposition from congressional Republicans and industry lobbying groups, which have argued it will stifle innovation.

"American families have the agency they need, but they may have to fight for its survival," she said. “Goliath lost, but unlike in the Bible, this is not a one-round fight."

The CFPB was created as part of the Dodd-Frank financial overhaul. Warren, a Harvard law professor, was tapped by the President in September to oversee the creation of the agency and is currently the assistant to the president and special adviser to the Secretary of the Treasury on the CFPB. The agency will officially launch on July 21.