President Obama’s new consumer financial protection advocate kicked off her agenda Wednesday in a tough speech to bankers, comparing them to “snakes” and their lending practices to “garbage.”
Elizabeth Warren declared her top priority is simpler mortgage and credit card agreements, telling 400 members and guests of the Financial Services Roundtable at a dinner in Washington, “credit agreements have gotten long and complicated.”
"In fact, there’s a new epithet: fine print,” said Warren, a Harvard Law School professor. “I understand that some of you call it ‘mice type.’ Where I come from, nobody calls fine print, hidden fees and surprise penalties ‘negotiated contract terms’ or ‘innovations.’ On a polite day, my brothers in Oklahoma call that kind of stuff ‘garbage.’"
Warren’s speech in the proverbial lion’s den was scheduled before the President appointed her two weeks ago to organize the Consumer Financial Protection Bureau, which Congress created as part of the Dodd-Frank financial-regulation reform bill.
Scroll down to read Warren's speech.
She is a long-time, outspoken industry critic who first proposed a separate government agency to regulate consumer financial products. Bankers lobbied the Administration heavily against her appointment.
In her speech, she called on banks to adopt a “principals-based approach” to credit contracts and held out an olive branch to the financial executives, suggesting lighter regulation if they work with her rather than fight her.
“Your first principle is ‘fair treatment for consumers,’ “ Warren said. “I’ll paraphrase your explanation of how to tell if that principle has been met: Can customers understand the product, figure out the costs and risks, and compare products in the marketplace?”
“Regulators should be aiming toward the goals you laid out,” she said. “Instead of layering on regulations that don’t fully protect consumers, a better approach would focus on how to give consumers the power to make the right choices for their families—and, at the same time, to ease the regulatory burden for the lenders.”
Her new “simple agreements” campaign follows a raft of recent legislation and regulation from Washington to clamp down on lending practices and increase disclosure in the wake of the financial crisis. But Warren suggested they don’t go far enough.
Bank customers “don’t care if (fine print) is there because regulators required it, because the companies’ lawyers were trying to ward off lawsuits, or because it was a good place to hide another new fee,” she said. “They simply see a world in which the financial institutions they do business with are not on their side. Every surprise hidden in the fine print is a bad surprise. Instead of seeing banks as their friends…too many Americans see dealing with banks like handling snakes—do it long enough and you’ll get bit.”
She singled out credit card agreements for quick changes.
“Customers should be able to understand the deal, assess the costs and risks, and compare one card to another,” she said. “What should we drive toward? Short agreements that can be read in very little time with very high levels of understanding. Certain basic information would have to be made available and each lender would set the terms of its deal: the interest rate, the penalty terms, the free gifts or rewards that come with the card, and any other terms.”
“For consumers, this would mean products that are easy to understand and easy to compare,” she added. “For lenders, this means regulatory compliance costs could be reduced.”
“So I’m here with all of you tonight,” Warren told bankers, “because I want to be part of a discussion about how we can make the idea of a short, easy‐to‐read agreement a reality.”