Consumer Financial Protection Bureau – Necessary?

I just watched President Obama’s introduction of Elizabeth Warren to head the newly-created Consumer Financial Protection Bureau. Here is the text of those remarks:

THE PRESIDENT: Good afternoon, everybody.

Before we begin I just want to mention a report that was released by the Census Bureau yesterday about what happened to wages during the last decade. It revealed that between 2001 and 2009, the incomes of middle-class families fell by almost 5 percent.

I want to repeat that. Between 2001 and 2009, the incomes of middle-class families fell by 5 percent.

In the words of today’s Wall Street Journal, this “lost decade” was the worst for families in half a century — a decade that obviously ended in a devastating recession that made things even worse.

We know that a strong middle class leads a strong economy. And that’s why, as we dig our way out of this recession, we’ve set our sights on policies that grow the middle class and provide a ladder for those who are struggling to join it. And that’s why I am urging the leaders of the other party to stop holding middle-class tax cuts hostage and extend this relief to families immediately. They need it. They need our help. And that’s why we’re here today.

Part of what led to the financial crisis were practices that took advantage of consumers, particularly when too many homeowners were deceived into taking out mortgages on their homes that they couldn’t afford. But we also know that these practices predated the crisis, and we also know that these practices don’t just exist in the housing market.

For years, banks and mortgage lenders and credit card companies have often used fine print and confusing language and attractive, front-end offers to take advantage of American consumers. We’ve seen banks charge unreasonable overdraft fees. We’ve seen credit card companies hit folks with unfair rate hikes. We’ve seen mortgage lenders offer cheap initial monthly payments and interest rates that later skyrocketed. All this has cost middle-class families billions of dollars — tens of billions of dollars — that they could have used to pay the bills or make the mortgage, or send their kids to college.

And I have to say when Michelle and I were first starting a family, we had to navigate a lot of these financial decisions — whether it was buying a first home, or paying off our college loans, or putting a lot of debt on credit cards. And obviously, we were better off than a lot of families, but we still often found ourselves confused or finding ourselves in tough situations as a consequence. So we’ve got a pretty good idea — I’ve got a personally good idea of how this can be difficult and sometimes confusing for the average consumer.

And that’s partly why even when I was still in the U.S. Senate, I took such a great interest in the work of the woman standing next to me. I have known Elizabeth Warren since law school. She’s a native of Oklahoma. She’s a janitor’s daughter who has become one of the country’s fiercest advocates for the middle class. She has seen financial struggles and foreclosures affect her own family.

Long before this crisis hit, she had written eloquently, passionately, forcefully, about the growing financial pressures on working families and the need to put in place stronger consumer protections. And three years ago she came up with an idea for a new independent agency that would have one simple overriding mission: standing up for consumers and middle-class families.

Thanks to Elizabeth’s efforts, as well as the dedication and persistence of the person to my right, Secretary of Treasury Geithner, as well as leaders in Congress like Chris Dodd and Barney Frank, that agency will soon become a reality.

The Consumer Financial Protection Bureau, which was one of the central aspects of financial reform, will empower all Americans with the clear and concise information they need to make the best choices, the best financial decisions, for them and their families.

Never again will folks be confused or misled by the pages of barely understandable fine print that you find in agreements for credit cards or mortgages or student loans. The bureau is going to crack down on the abusive practices of unscrupulous mortgage lenders. It will reinforce the new credit card law that we passed, banning unfair rate hikes and ensure that folks aren’t unwittingly caught by overdraft fees when they sign up for a checking account. It will give students who take out college loans clear information and make sure that lenders don’t game the system. And it will ensure that every American receives a free credit score if they are denied a loan or insurance because of that score.

Basically, the Consumer Financial Protection Bureau will be a watchdog for the American consumer, charged with enforcing the toughest financial protections in history.

Now, getting this agency off the ground will be an enormously important task, a task that can’t wait. And that task is something that I’ve asked Elizabeth to take on. Secretary Geithner and I both agree that Elizabeth is the best person to stand this agency up. She was the architect behind the idea for a consumer watchdog, so it only makes sense that she’d be the — she should be the architect working with Secretary of Treasury Geithner in standing up the agency.

She will help oversee all aspects of the bureau’s creation, from staff recruitment to designing policy initiatives to future decisions about the agency. She will have direct access to me and to Secretary Geithner, and she will oversee a staff at the Treasury Department that has already begun to work on this task.

She will also play a pivotal role in helping me determine who the best choice is for director of the bureau. And given the importance of these economic issues, I also want Elizabeth to have a role as a White House advisor as well as advisor to Secretary Geithner on consumer issues.

Elizabeth understands what I strongly believe — that a strong, growing economy begins with a strong and thriving middle class. And that means every American has to get a fair shake in their financial dealings.

For years financial companies have been able to spend millions of dollars on their own watchdog — lobbyists who look out for their interests and fight for their priorities. That’s their right. But from now on, consumers will also have a powerful watchdog — a tough, independent watchdog whose job it is to stand up for their financial interests, for their families’ future. And I am proud that we got this done, and I’m equally proud that Elizabeth Warren will be helping to make her original vision a reality.

So we are extremely proud of you, Elizabeth. Good luck.

MS. WARREN: Thank you. Thank you, Mr. Secretary.

Thank you, everybody.

Basically, to sum up President Obama’s remarks, “You Americans are too stupid to make financial decisions so we have created more bureaucracy and red tape to protect you from those bad, bad businesses.”

The thing is, we had regulations before all this mess started in the first place. We just weren’t enforcing the regulations we had. Not only that, the GOVERNMENT played a significant role in creating this mess by pushing lenders to loan money to people who really couldn’t afford to pay it back. There was no mention of the government’s role in this crisis in Mr. Obama’s remarks.

Instead of coddling people with a false sense of security, we need to bombard them with the good old saying: BUYER BEWARE! We can regulate all we want but we can never regulate away stupidity.

30 thoughts on “Consumer Financial Protection Bureau – Necessary?”

  1. So should we disband the Food & Drug Administration too? Buyer Beware and all that…

    In my mind, toxic financial products are the equivalent of toxic food and I gladly support my tax dollars to fight both.

  2. Just what we need, another Nanny watching over us because we are stupid, more tax payer dollars wasted because the existing set of regulators aren’t up to the job.

    As always, when regulation fails the obvious solution to politicians is more regulation.

    When people or companies do foolish things, they should suffer the consequences, not be bailed out. That is the best kind of regulation.

  3. The regulations failed because the Bush administration did not enforce them and protected business and the banks. How many times did the SEC get tipped off about Madoff and did nothing?
    The banks and credit card companies had a feeding frenzy for eight years and now the party is over.

  4. John,

    How long did Madoff operate? A lot longer than Bush was in office. Other presidents missed it too.

    Clinton was the one who signed the legislation to encourage low-income home ownership. The same legislation that strong-armed banks into making loans to poor people. It was also Mr. Frank who said that there was nothing wrong with Fannie and Freddie.

    There was plenty of blame to go around, John.

  5. BTW, that is in CURRENT dollars. Using 2009 dollars, the numbers were $51,647 in 2001, drifting up slightly to $51,691 in 2007. The Democrats controlled the budget after that point, and the numbers declined — to $49,942 in 2008, and $49,534 in 2009.

    So, that’s a 4.1% drop since 2001, not 5%. More telling, it is a 4.2% drop SINCE 0BAMA TOOK OFFICE.

  6. “Never again will folks be confused or misled by the pages of barely understandable fine print that you find in agreements for credit cards or mortgages or student loans.”

    Here’s a simple rule — if you don’t understand it, don’t sign it.

  7. Enforce existing regulations, that’s all
    the government needs to do. Put thieves in jail,
    whether it’s a street thug or suit
    wearing government or bank con man.
    (or Mr. Geithner)
    Both political parties are at fault.

  8. Our constitution is clearly missing a clause, which would prevent these regulations from being implemented. We should all have a fundamental right to make stupid decisions and pay the consequences.

    In my opinion we need clear disclosures, not rules against the products.

    Case in point: Overdraft protection. As long as the banks clearly EXPLAIN that they will charge a fee if I overdraw (which suggests I am too lazy or stupid to balance my checkbook), let them offer me the product, and let me choose whether to buy it.

    Case 2: As long as the credit card company explains that my rate is 29.99%, let me choose whether to borrow or not.

    Case 3: If my mortgage rate is 1% but will increase by a factor of 5 afte 2 years, show me the worst-case payment scenario and let me decide if I want to buy it. And if the bank is so stupid that they want to lend me money on these terms, with no money down – let them do it.

  9. Unfortunately, these apparently Libertarian talking points tend to be self-contradictory. Most so-called conservatives and Libertarians say they want smaller government, lower taxes, less support for public schools, and less regulation of companies. Let’s examine those points.

    With smaller government and less regulation, you will get more economic crashes as we had in 2007-08. Business made risky investments and loans for the sake of PROFIT, not because the government “forced” them to make those loans or investments. The CEOs of AIG, Goldman Sachs, Lehman Brothers, and Countrywide Financial personally raked in hundreds of millions of dollars (more than all of your readers combined will earn in our lifetimes), without shedding any tears over government control. The mortgage companies were not forced to do anything except apply existing financial criteria fairly and stop discriminating based upon geography (redlining) and race, not ignore those criteria to make bad loans. They chose to make sub-prime loans because they could charge higher interest rates. Besides, I believe loans under the Community Reinvestment Act accounted for less than 2% of loans (probably much less). Way more than that 2% are failing. The CRA also did not require banks to make “liar” loans, but banks sure did… No one forced AIG or Goldman to participate in selling packaged loans. They did it because they made Billions of dollars per year. Saying otherwise is revisionist history.

    How do you expect to have a public educated enough to understand the fine print created by legions of corporate lawyers without good schools? Good schools means paying for them, or you get lousy education. Public schools seem to be a successful experiment in all industrialized countries. Only third world nations have no public education. Not a good role model, thanks. Adequate funding for public schools is essential for good education and, I would argue, for a functioning democracy. Please point me to a nation with an all-private school system- Is it a functioning industrialized democratic nation larger than, say, Lichtenstein? I seriously doubt it.

    Speaking of fine print, those legal documents sure are not written (in 6 point font) to benefit anyone but the company that wrote them. Do you think “voluntarily” signing away your right to sue in court is GOOD for you? (Companies have a very high success rate in arbitration, when they pick the arbitrators. Less so in court.) Credit card companies have required arbitration (and no lawsuits) in their terms of service up until the new government consumer protection agency (that you do not like) takes that away. Way to go, guys, arguing in favor of multinationals and against your own interests.

    While a small local store can lose its reputation by being unfair to customers, a multinational can not even be touched by most small claims suits, and has legions of lawyers to fight class action suits. Believing otherwise is a fantasy. \

    Even Adam Smith did not argue in favor of complete deregulation. The “invisible hand” did not function in a situation where the individual has so much less power and no fair information flow.

    Even with the FDA, drug companies sometimes sell drugs or foods that hurt people. And Big Pharma tries to hide the studies that show it… You want less “intrusive” regulation? Look to China, where an ineffective government system let baby milk formula companies put poisonous melamine into the mix. Babies died. You go ahead and trust your families to that style of really unregulated free market economy. I want my son to give me grandkids who will survive, thanks all the same.

    Your Libertarianism relies on a power _balance_, not a wildly imbalanced individual vs. Goliath Inc. The only organization big enough to stand up to a multinational is a federal government agency. (State offices are even too small.) It’s not the Big Bad Government against a Mom & Pop store, because that’s not who this new agency is regulating. That’s delusional. It’s the Government against a Multinational Company with a bigger, better paid legal team. Think of it as leveling the playing field.

    Re-think your philosophy, please, or be prepared to trust your family to any company that puts profits ahead of your economic well being and your lives. That’s all of them.


  10. Hi Jerry,
    I think most conservatives or libertarians want government to be smaller because they want government to follow the enumerated powers in the constituiton. The DC bureaucracy keeps getting larger and spending more money and most of us believe it is out of control. There seems to be plenty of regulations that are not enforced. Why make more until we get a handle on the ones we have? Personally, I don’t mind spending more on schools, but I believe it should be a local and state responsibility, not a federal one. Do you really believe some bureaucrat in DC can have a handle on education issues throughout this country?
    As far as the mortgage crisis, I believe the irrational housing bubble began with congress (both Repubs and Dems) and the Fed. I think their policies started the ball rolling. Then banks and Wall Street got on board. Greed makes people do some strange things. But all of that would not have been possible if people bought homes they could afford. Regardless of what lending program Wall Street made up, people tried to use their homes as a cash machine. Too many people bought homes they could never afford.
    The only way to stop this type of thing in the future is to have so much government as to have no free will.

    I’ll take the bumps as they come without the big government trying to take care of me.

  11. #5 Jack) You realize that Obama didn’t take office until January 2nd, 2009. Those massive losses you see in 2008 were under Bush. I love that spreadsheet you link to showing only the top 5% earners having a growth in income while the other 95% of the American population having a dropping income. Thanks for reinforcing Obama’s point!

    #7 Jack) Even Greenspan (and his team) admitted they didn’t understand the CDO “products” that Bear Sterns and others were selling. So, if the Chairman of the Federal Reserve (for 5 terms) cant’ understand the products — why were they allowed to be sold?

    And could someone please tell me the name of the federal agency that was regulating the mortgage origination market leading up to the crash? Tell me the agency that should have been “enforcing the regulations”, that supposedly already exist. (hint: there is no such regulatory agency — which is why Obama is just now creating it).

  12. JPL – Mr. Harry Markopolos submitted written information to the SEC in 2000, 2001, 2005, 2007 and 2008 as stated in his testimony to Congress. All of these dates fall under the Bush administration.

  13. BG, do you understand how Microsoft Windows works? Should it not be allowed to be sold?

    The simple rule is that if you do not understand a financial product, don’t buy it. That was not the problem. The problem was that we did not allow the failures to fail. This is something that you agree with — at least on a personal level. You think that the government should rescue people from stupid decisions such as not taking advantage of the free education offered, not saving enough for a solid down payment on a house, signing a mortgage one does not understand, and not saving for retirement.

  14. “I love that spreadsheet you link to showing only the top 5% earners having a growth in income while the other 95% of the American population having a dropping income. Thanks for reinforcing Obama’s point!”

    What spreadsheet are YOU looking at. Here’s what I posted:

    12,280 30,855 51,647 80,978 176,848 315,562

    11,949 30,457 51,691 81,839 173,763 297,094

    Hmmm, the lowest two went down (in 2009 dollars), as did the HIGHEST QUINTILE AND THE TOP 5%.

    Then, the Democrats took over, and…

    11,552 29,257 49,534 78,694 170,844 295,388

    EVERYBODY WENT DOWN. That’s the equality the liberals want — everyone poor.

  15. John,

    That’s not true. I know Bush made mistakes. I just get tired of people blaming Bush for everything that happened. Clinton waltzed out of office as the internet bubble was blowing up, giving the illusion that he was a great president. I guarantee you that had Gore won in 2000, he would have faced the same rough conditions that Bush faced.

    Bush messed up on several fronts:

    1. Iraq. Although I agree that world is better without Sadam, I didn’t like the reasoning behind the invasion.

    People who claim that our invading Iraq soured relations with other countries ignore the fact that those countries had cozy oil-for-whatever relationships with Irag and were willing to overlook Sadam’s evil ways.

    2. Prescription drug coverage.

    3. Cutting taxes without cutting expenses too.

  16. DUDE — “No child left behind” was from Bush too:

    As for the spreadshseet:

    2009 11,552 29,257 49,534 78,694 170,844 295,388
    2008 11,612 29,405 49,942 79,457 170,408 293,591

    Only the top 20% of earners had incomes increase between 2008-2009.

    The downward spiral in incomes started in 2006 (clear from the spreadsheet) across all income groups, except for the third quintile which had their downward spiral start in 2007.

  17. Being stupid for buying a mortgage one does not understand should not be bailed out. Being fraudulent by selling mortgages with ridiculous (probably unwritten) claims or intentionally misleading the product is criminal and should be prosecuted!

    I’m not saying to bailout the people who don’t understand what they are buying — I’m saying to go after the sellers who were profiting hands-over-fist by getting granny out of her safe 15-year fixed prime mortgage and sticking her into a subprime balloon ARM.

    As for Bonds that you invest in: do you go read the fine-print in every bond that you hand-pick? Of course not, everyone invests in Bond-funds — and for me, only AAA rated bonds are in my funds. Thanks to Warren Buffetts Moody’s: my bond funds got tainted with these crap CDOs that Moody’s had rated AAA.

    BTW: Obama’s massive stupidity: Cash-for-Clunkers. What a huge waste of assets.

  18. I’m glad that Elizabeth Warren was appointed to this position. I think consumers need better protection. If she was in there ten years ago, her policies would have prevented the Sub-prime meltdown.

    Unless you’re a banker trying to figure out ways to scrape your poorest customers, you’re going to benefit from Elizabeth Warren.

    And I’m unsubscribing to your blog, JLP. Buh bye.

  19. You guys need to calm down, Obama has no interest in actually helping these people who can’t understand these financial products. He only wants to appear to care until after the election then the progressives will go right back under the bus.
    If you will take notice of the fact, he didn’t appoint EW head of the new agency, he appointed her as a special advisor and “architect”. I’m sure he will take her advise “very seriously” until he gets his votes and then go right back to making sure Wall Street gets PAID.
    The top 2% can continue milking the stupid and WE can all relax under our umbrella of superior intellect. Content in our upper middle class lifestyle, knowing that OUR kids will get to go to good schools and never fall victim to a contract that has paragraph 6 subsection 13a on page 36.

  20. Matthew,

    I’m not sure why you got all bent out of shape over this post. I merely asked if this new agency was necessary? What?…are we not allowed to have opinions? Are we not allowed to debate things that have a DIRECT IMPACT on our finances? I did not put down Obama in this post.

    Leave if you want. That’s you choice.

  21. @Leland,
    Do you like predicting future behavior? Do you like inflammatory remarks that are incredibly off topic? What does that add to a back and forth conversation? Oh wait, yours was not a conversation- it was a rant.
    I’m sure that you felt betrayed by former President Bush, the neo-conservative who spent our tax money freely. Aside from two “tax cuts for the rich” a.k.a. top 2%, and No Child Left Behind, I believe that he kept very few of his promises. When you talk about throwing ones’ own constituents under a bus, former President Bush sure did that to the middle class. Then again, he was born into a multimillionaire family, so what did he and V.P./CEO Cheney have in common with you?
    That is not the case with our current President Obama, who really was middle class for a long time. He has kept several of his campaign promises already, including the formation of a consumer protection agency. Many progressive liberals would have preferred that he do more, or less in the case of bipartisan corporate welfare and continuing the Republican bailouts, but I think he has at least moved the nation forward.
    Let’s save the bitter nightmarish predictions for fake psychics who advertise on late night cable television, shall we? In the meantime, do please stay in the present.

    @All others,
    I tried to show that a Libertarian philosophy as described in the original post- when taken to a logical extreme- does not really do much for most people in our country. Others have taken liberal or progressive views to an extreme with comments about a “Nanny State”. These caricatures are amusing and serve to agitate the political “base” but they will not help solve our country’s problems. The truth, and good real legislation like we once saw 20-30 years ago, is good for the country. We need to talk WITH each other, not AT or past each other. I can agree that most of you want what is good for the country and good for each other. We can respectfully disagree on methods, but we do not disagree on the end results. Can you say the same?
    My point, previously, was that the pendulum in corporate regulation has swung too far towards “laissez-faire”, with little to no government regulation as the goal of the Republican and now Tea Parties. Look where that has gotten us- market crashes, millionaires making bonuses while laying off workers, and Republican led socialist-style government bailouts for corporations deemed “too big to fail”.
    President Obama got elected partly because people were angry at tax money being used to bail out big banks, and angry at insurance companies who take premiums but don’t pay for claims. Does anyone here remember that? The current administration is not leading us down a slippery slope into socialism, or a “Nanny State”, or anywhere but towards the political CENTER.
    In the “Good Old Days(tm)”, politicians of all parties would sit down and discuss ideas, then pass legislation with compromises. The legislation would start from the left or the right, but would end up close to the center. The Republican party has recently voted for NO major legislation, even AFTER receiving significant compromises. Unless we again have a functioning government with compromises and votes across party lines for legislation important to the nation, then we are all collectively hurting ourselves.
    You can disagree all you want, but this is reality, from my memory, not a slanted CNBC or Fox News opinion piece. (President Obama is not a Muslim and was born in the U.S. If you believe otherwise, then I can only suggest that you turn off the television and the radio, take a deep breath, and speak with a psychological professional to get back in touch with the real world. Living in constant fear and paranoia is not healthy.)
    All others, I welcome your suggestions IF your final goal is also mine- helping the country. Thanks,

  22. JLP,

    I came back to check on the comments. I’m still unsubscribing from your blog. I didn’t unsubscribe because you’re accusing Obama of anything.

    I unsubscribed because of your comment in the third from last paragraph when *you wrote*, “Basically, to sum up President Obama’s remarks, “You Americans are too stupid to make financial decisions so we have created more bureaucracy and red tape to protect you from those bad, bad businesses.””

    You seem to think that everyone who lost their home to a bank because of the interest rate going up makes them stupid. Elizabeth Warren has vowed to make a mortgage a two page, understandable document. I don’t see how that’s a bad thing. Please explain if you do.

    President Obama appointed Elizabeth Warren to a special office because the Bank Industry Lobbyists wouldn’t let it happen if Congress had to vote her in. So you’re on the side of the consumer, Obama and Warren, or on the side of the banks. As a consumer, I’m on my side, not theirs.

    Warren is there to remove bureaucracy (lobbyists and special agenda groups) and remove red-tape. You seem to be against that, and on the side of bureaucracy and the banks.

    I am all for individual financial independence and the freedom to make decisions for myself. Elizabeth Warren wants to make these financial documents clear enough ensure that normal people can make better decisions for themselves. I don’t see any harm in that.

    And I’m worried about people who wish to, what…? Retain the complexity? Keep credit request forms extra complex? Allow banks to hide fees in lengthy contracts?

    So, JLP. How do you see yourself personally effected by Elizabeth Warren’s appointment? Do you have any interest at all in aiding those that don’t think about finances 24/7? If you’re not out for the little guy, why are you blogging at all?

  23. “You seem to think that everyone who lost their home to a bank because of the interest rate going up makes them stupid.”

    Yeah, pretty much. If you take a variable rate mortgage when mortgage rates are at a 30-year low, you are stupid.

  24. Per Jerry: “President Obama got elected partly because people were angry at tax money being used to bail out big banks.” If I recall correctly TARP was passed around Oct 2008, so did voters really have enough time to digest this Act and to vote for Obama based on this one issue? As a reminder, our current President agreed TARP was necessary.

    Otherwise, good rant. However, I still am a gal who believes in pulling oneself up by his or her own bootstraps…and trusting that people have the basic reading skills afforded them by their free public education to read the fine print of any contracts they CHOOSE to enter and have a basic level of intelligence to ask the right questions. The list of personal responsiblities extend from the above into child-bearing/rearing decisions and the ability to parent well. Public education, and thus by extension, basic financial literacy, sure would have a leg up if children were sent to school:

    1)having had good rest/a decent breakfast/supportive home environment;
    2)having been read to since birth
    3)being surrounded by caregivers and family w/a good command of the English language guiding their vocabulary/literary development (all the while acknowledging the benefits of learning the language of their respective heritage and becoming bi- or tri-lingual.)

    To do these simple things would provide insurance that they not fall behind in school out of the gate as a pre-schooler or kindergartener.

    There are a lot of snowballing problems we Americans can easily remedy if the proper “baby steps” are taken early on.

  25. “If you take a variable rate mortgage when mortgage rates are at a 30-year low, you are stupid.”

    Yep, I agree — stupid! The problem is, most of these people were in California, inside of a crazy housing bubble. When you are in the bubble, you can’t see it. You think that your bubble-world is normal. Things weren’t helped when you had everyone in the home-buying business (realtors, inspectors, mortgage brokers, wall street) all in a feeding frenzy.

    All these players convince you that you need to purchase a million dollar house (because it’ll just go up in value) and they do some fancy financing tricks (ARMs) to show you that you can afford the payments (but only for the first year) — I still don’t see how these people could afford the property taxes either way. Then they convince you that you just need to do a refinance after the first year to keep the party rolling!

    Those of us who didn’t live in these housing bubble areas were looking at those in the bubble and thinking they were crazy (I remember doing so).

    Remember: if your ‘investment’ is such a sure thing, then why do you think someone is trying to sell it to you? Wouldn’t they just keep it for themselves?

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