The new Consumer Financial Protection Bureau, created by the Wall Street reform bill signed by the president this summer, will put a “tough cop on the beat” to make sure unfair business practices in the credit industry will be regulated for young Americans, according to the special advisor in charge of setting up the bureau.
Elizabeth Warren, assistant to the president and special advisor to the secretary of the treasury, says the new bureau will attempt to level the playing field for consumers by removing all the hidden traps hidden in the fine print of financial contracts.
“I want you to understand the basic thrust of (the bureau). Anyone who uses a financial product ought to be told the cost and risks upfront, and be able to compare choices,” Warren said in a conference call Tuesday.
Warren added the new bureau would help students by fighting unfair lending practices for private education loans, enforce a new credit card law that prevents arbitrary interest rate hikes, and inform students about high overdraft charges before they sign up for plans.
James Johannes, University of Wisconsin business professor, said in an e-mail to The Badger Herald the new bureau was created because people believed the current regulators were not proactive enough in monitoring and regulating consumer financial products.
“The underlying view is that consumers are either too stupid, too lazy, too uneducated or too powerless to manage their own investments and balance sheets so government has to do it for them,” Johannes said.
However, Warren said, the bureau will make sure consumers have all the information they need and will remove the complicated language in many contracts.
“I teach contract law at Harvard and I can’t read a credit card contract,” Warren said.
Warren added it is then up to the consumer to make responsible decisions and said if someone runs out to the mall and racks up a large amount of debt the bureau will not help.
Another issue surrounding the bureau is what it will do with its large research budget, according to J. Michael Collins, UW faculty director of the Center for Financial Security.
Collins said he would like to see the bureau fund research done at the university level.
Warren said she did not know yet how they would handle the research, but said she would like to see some research done in house and some done by outside the agency.
She added she would also like to bring university professors into the bureau to use the data they collect and then have them go back to their universities to continue their research.
The bureau is still being put together at this time, so it is too early to tell what the bureau will do and if it will have any real impact, Johannes said.
“The skeptical view is that it will be just one more government agency staffed by the same people who somehow missed all the problems in the recent economic cycle, so why should we expect them to get out in front of new problems”? Johannes said.
