Czar amazed by threats to nascent consumer agency

By Gregory Karp
Posted Feb. 24 at 2:36 p.m.

Elizabeth Warren, the point person creating an agency to protect consumers of financial products, said she was surprised there areĀ  efforts afoot in Congress to kill or disable the agency before it’s born.

Warren, in Chicago for a speech at Northwestern University, told the Tribune in an interview Thursday that it’s crucial the agency is created and that its funding remain independent from the political process. She also held an olive branch to community banks and credit unions wary of more regulation.

“It really amazes me,” Warren said. “There are people who, before the agency is even born, are trying to find ways to kill it. I admit. It really surprises me.”

The new Consumer Financial Protection Bureau, created among Wall Street reforms after the financial crisis, is meant to regulate financial products, such as credit cards and mortgages.

President Barack Obama appointed Warren to set up the agency, which will begin operating July 21. It has not been determined whether she will be the first chief of the consumer bureau.

Efforts by Republicans against the new agency include a bill to cut the its funding and another to move the bureau into the Treasury instead of the Federal Reserve to give Congress more power over its operation. A House Financial Services subcommittee plans to hold a hearing on oversight of the bureau March 16, according to a CNN story Thursday.

Warren said she has tried to engage her Republican adversaries. “I have reached out to everybody I can on the Republican side of the aisle,” she said.

She said, like many of her adversaries, she believes in markets, but true competition can’t happen with many financial products because the market is broken.

“It’s broken in the sense that companies now compete by offering upfront prices that are very different than the real prices. Look around at the credit card offers that come in the mail,” she said.

Card issuers offer low interest rates and even pay people to take their cards, in the form of rewards points and cash. “Does anyone really think that’s the business model? What it’s really about are all the fees that are going to be loaded on the back end, and the repricing and all the other ways to get revenues,” Warren said.

That makes it virtually impossible for consumers to understand offers, compare products and make an informed choice, she said. “In a way, the fine print has become the new way to avoid competition,” she said. “What we end up with is a market that competes, in effect, by adding more tricks and traps on the back end.”

She said the job of the consumer bureau will not be to dictate what products banks and other financial institutions can offer.

“The job of a regulatory agency, in my view, is not to say ‘there should be one design here.’ It’s to hold for the central premise of what make markets work. And that is clear prices, clear risks and [making it] easy to compare one product to another.

“In terms of how you want to design and how you want to offer it to your customers? Hey, knock yourself out.”

She said her hope is that financial institutions will innovate, offering new products, such as money management tools, such as self-imposed spending caps and helpful mobile phone apps. “I think we’ll see innovation in products that are a lot more consumer-friendly,” she said.

Warren also said Thursday the new agency needs to partner with credit unions and small banks, often called community banks.

“By and large, community banks and credit unions have followed a business model that’s very customer-friendly,” she said. “These are folks who have had to engage in pretty visible competition and put their prices upfront.”

But the small banks and credit unions have to compete with unlicensed lenders, such as check-cashers and payday lenders, as well as giant banks that don’t play by the same rules and competitive forces, she said. “What I see is the consumer agency ought to be natural allies with the community banks and the credit unions, because we want to push the other two kinds of providers of financial services much closer to the community bank model.”

Warren said she is trying to set up the new agency in the most transparent way possible. “We’re actually trying to build this thing in public,” she said.

The agency has put on its Web site,, its organizational chart and parts of its budget. It posted videos from new hiresĀ  and encouraged consumers to send in questions. It uses the social networking tool, Twitter, to provide updates about its progress.

“We’re a little like a construction site, and people stop and watch the bulldozers and pieces of machinery moving dirt around,” she said. “It’s fun doing that.”

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