John Hockenberry for the Takeaway: Call it the birth of an acronym, the Consumer Financial Protection Agency, the CFPA. Congress is dealing with it as the centerpiece of the President’s new regulatory scheme to prevent what happened in the credit markets that resulted and continued the financial crisis that we talk about nearly every day on this program. But the woman who is the architect or the inspiration for this Consumer Financial Protection Agency joins us now. Elizabeth Warren is the Chairwoman of the Congressional Oversight Panel on the TARP, which is another acronym, the Trouble Asset Relief Program. She’s also the Leo Gottlieb Professor of Law at Harvard and joins us from the Senate building in Washington, DC. Elizabeth, is it fair to say that throughout your career you’ve argued for a consumer protection agency, and one way or another, you’ve managed to get it to be the financial centerpiece for the President’s new regulatory strategy.
Elizabeth Warren: Well the first half of that, sure, I’ve been arguing about this in one way or another for most of my professional career. It’s the President who made the decision about what’s the centerpiece of his proposals.
John Hockenberry: Well, congratulations to you for being so persuasive. The question is can you regulate financial products in the same way that, say, the FDA regulates food and drugs, or other agencies like the FAA regulates how safety procedures are followed for the airlines.
Elizabeth Warren: Sure. The point is in many ways basically the same. We can pick a product. One of my favorites to think about is to think about how toasters are regulated. They’re regulated for the kinds of things that consumers can’t see. I don’t know about you, but I don’t know how to read a wiring diagram to tell whether or not there’s adequate insulation or whether or not they use substandard wiring, or whether or not they use the cheap safety switches that won’t shut off and my toaster will burst into flames. In effect, we’re kind of in the same position right now with a lot of our credit products. Again, I don’t know about you, but I can’t read my 30-page credit card agreement. It’s loaded with language that doesn’t make a lot of sense. Frankly, it’s too long. If I wanted to compare four credit card contracts, I’d have more than 100 pages of fine print I’d have to wade through, making it almost impossible to tell overall which is the cheapest card, which is the riskiest card, how much those free gifts are really costing me. So what this agency is about, is about saying, “Look, if you can’t explain it to the consumer than you shouldn’t be doing it.” You need simple, straight forward, some plain vanilla products that people can understand and compare.
John Hockenberry: It seems like there’s two parts to this regulatory scheme. And some have said that the simplification, the getting rid of the fine print and making it understandable, while really, really important is also something of the low hang fruit here. And the real question is how do you really protect people when risk is so hard to determine in the financial environment? You kind of don’t know what your bank is doing in China or Brazil. It’s hard for you to know the safety of your assets, if the institution that you’re getting your credit card from is off doing some sort of shenanigans someplace that you’re not even watching.
Elizabeth Warren: Fair enough point on that. And I should point out the plan here is really that those two operations are completely separated. The Consumer Financial Protection Agency, I hate to say it, it really is about the low hanging fruit. Another way to say it, is about the really awful stuff that’s right there in front of us that we can fix.
John Hockenberry: Can I interrupt you for a second. You said, you want to separate these two. That would suggest we’re going back to a Glass-Steagall model.
Elizabeth Warren: No, different direction in terms of the separation with Glass Steagall. What I mean is there will still be what are called prudential regulators of the financial institutions. These are the ones who are always watching the financial institutions for safety and soundness. So if they’re off investing in copper mines in Argentina that might be a high risk investment, that’s the sort of thing that the bank oversight agencies are supposed to be looking at. Currently, of course, that’s the Office of the Controller of the Currency, the OCC, and the OTS, Office of Thrift Supervision, under the administrations plan, those two are merged together and we’d have a single bank regulator. They’re looking at the riskiness of general business practices by the bank. This one is about products they sell to consumers like you and me.
John Hockenberry: At the very least, as things get understandable, managing risks is going to involve a lot of heads getting together around a very big table. Elizabeth Warren is one of them. She chairs the Congressional Oversight Panel which monitors the TARP, and is the Leo Gottlieb Professor of Law at Harvard. Thanks so much for helping us out with that explanation of federal regulations, Elizabeth.