Q&A on consumer protection

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Long-time consumer advocate and Harvard professor Elizabeth Warren was the first to propose the inclusion of a consumer protection bureau in the Dodd-Frank Wall Street Reform and Consumer Protection Act, so she was a natural choice to lead in the creation and staffing of the new bureau.

That’s why it was no surprise when President Barack Obama nominated her, in September 2010, to the post of assistant to the president and special adviser to the Treasury Department for that purpose. Since then, she’s been hard at work building the new agency from the ground up.

In this Q&A, Warren gives her take on the how Dodd-Frank will impact consumers in 2011 and beyond.

In the months before the Credit CARD Act took effect, many card providers rushed interest rate hikes and other adverse actions to get them in before the act was fully implemented. What’s the likelihood of something similar happening in 2011, before the bureau comes fully online?

I think that’s a pretty unlikely response. The Credit CARD Act was very specific about pricing mechanisms that would be banned. The new agency will be about clarity and simplicity, making clear to the consumer upfront the cost of a product and its risks, and making it easier to compare one credit card with three or four others.

Elizabeth Warren

It’s hard to envision how one deals with that in advance. Making a credit card agreement longer in anticipation of changes like that really doesn’t work.

The CARD Act hammered 10 fence posts in the ground, so there are now 10 prohibited acts. But companies shifted just slightly to the side of each of those rules and accomplished many of the same outcomes. A principles-based approach — one that’s directed toward making the price clear or making it easy to compare products — doesn’t permit that kind of behavior.

In your opinion, what aspect of Dodd-Frank will have the most effect on consumers in 2011?

For the first time, there will be a strong voice in Washington on behalf of American consumers. Until now, consumer financial issues were divided among seven different agencies, each of which had a different principal function that was not related to consumer finance.

So you think just having a watchdog there will prevent a lot of bad behavior from happening?

That’s exactly right. Having a cop walk the beat makes the neighborhood safer.

One of the most interesting aspects of Dodd-Frank from a consumer perspective was the consumer hot line to report abusive practices. When will the hot line will be up and running?

It will be operational by July 21, 2011. Period.

Can you give me a brief description of how that will work?

The description in the statute, which sounds a little 1980s — like long sideburns and two-tone shoes — is for a hot line. What we’re trying to talk through is how a lot of that can be accomplished online now. I read the statute to be about responding about consumer problems whether it’s by e-mail, by phone or by something that hasn’t been invented yet.

So it’s technology-neutral?

It’s to leverage off of technology. It’s not just technology-neutral. It’s to try to find the best leverage.

Where can we accomplish the most on behalf of American families?

Its central mission is to help families, but it will also be an important tool for gathering information. So we’re trying to build this in a way that we can learn from the families who get in touch with us.

What personal finance products will see significant changes from the bureau and from Dodd-Frank this year?

Our first priorities are home mortgages and credit cards. What we’re working toward — because in this case, they’re similar — is clearer, shorter agreements that are much more user friendly.

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