The Color of Money

She's the watchdog consumers will thank

By Michelle Singletary
Sunday, December 12, 2010

When Yahoo put out its top 10 searches in the financial category for 2010, there was no surprise to find, among the leaders, unemployment, foreclosures and the Dow Jones flash crash, the term coined for when the Dow dropped more than 600 points in one day in May.

At No. 7 on the Yahoo list, behind the tea party movement, was Elizabeth Warren.

What makes Warren stand out is her assignment to set up the new Consumer Financial Protection Bureau. If I know Warren, the agency will fundamentally change a financial industry that has long taken advantage of consumers with only an occasional and not nearly hard enough smack on the knuckles.

Warren, who is serving as assistant to President Obama and a special adviser to the secretary of the Treasury, sat down with me recently in her Treasury office for a discussion about the initial plans for the watchdog agency created to protect consumers from the abusive lending practices that contributed to the financial crisis.

"I wouldn't have guessed in a million years that I would be putting forth this agency . . . working to get it started and setting its first priorities," said Warren, who has taken a leave from teaching at Harvard Law School.

There has been lots of opposition to Warren heading or setting up the bureau. Critics argue that the bureau would stymie the creation of credit products and that Warren would advocate imposing regulations so tough that it would make it more difficult for people to get credit.

But right now, Warren says her focus is on helping consumers understand how much they are paying for debt on everything from credit cards to mortgages. At a recent conference held by the Consumer Federation of America, Warren said the bureau's initial goal isn't to impose a series of "thou-shalt-not rules." Instead, she said that first on the agenda is providing consumers with better and shorter credit disclosures. Although this goal may sound so simple, it has the potential to greatly reduce the financial burden for people, because they don't fully comprehend how much their debt is really going to cost them.

"There are a lot of financial institutions that make their money by keeping products confusing so the price isn't clear until it's way too late," Warren told me. "They make money by concealing risk, which means that people can't compare the products head to head."

Think about it this way, Warren says: Restaurants would lose customers if they weren't clear about what a meal cost.

"No restaurant survives by saying, 'You will find out how much the food costs on the back end after you've eaten, after it's too late to do anything about it,' " she said.

Yet that's exactly what happens to many people in their dealings with financial institutions. The true cost of credit is often hidden in lengthy, incomprehensible legalese documents.

"Making it clear means there will be some families who will know the true cost of these products and say, 'I don't want any part of this,' " Warren said. "If that had happened 10 years ago, there would be some families who wouldn't have refinanced their homes straight into foreclosure. There would be some families who didn't take on credit cards that pushed them straight into bankruptcy. We are not saying you have to put a cap on prices. What we are saying is that you have to make your prices clear."

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