White House adviser Elizabeth Warren wants to make it easier for consumers to understand loan products by reducing the amount of "useless" information and paperwork that lenders are required to disclose, easing the burden placed on small lenders due to government red tape while boosting their ability to compete with large banks, the consumer advocate told The Huffington Post.
In an interview last week in Washington, Warren reiterated her call for a more flexible approach towards government regulation of consumer credit products, emphasizing that excessive "thou shalt nots" create more confusion thanks to the proliferation of excessive disclosure forms while driving up the lenders' costs to comply. Instead of rules, regulators should adopt a regime based on core principles -- like fairness.
"It breaks my heart to say this, but I think the word 'disclosure' has become a dirty word," she said. "What it's come to mean is layers and layers of fine print that nobody reads and nobody understands. Indeed, it's worse than useless because it is shrubbery to hide muggers," Warren said in a reference to lenders who use complex disclosure forms to hide fees.
Warren's idea -- simple, concise agreements -- appears to be at the top of her agenda, based on the interview and her public statements since joining the Obama administration. In a speech last week to the Financial Services Roundtable, a Washington trade group representing the nation's biggest financial institutions, the former bailout watchdog told the assembled bankers that many of them shared her vision, too.
And like lenders, Warren doesn't believe more pages of government-mandated fine print is the answer.
"The idea that what we're talking about in trying to make these products clear is six more pages of disclosure is the wrong project," she said. "This is really about, in fact, pushing away some of that and getting it down to the whole basic deal." The agreements should be "short, easy to see, easy to read. The key principle here," she added, is for there to be "no place to hide."
It's that principle that will likely guide Warren as she sets up the new consumer-focused agency. A part of the recently-enacted financial reform law, the Bureau of Consumer Financial Protection will be charged with protecting borrowers from abusive lenders. It consolidates consumer protection authority that had been spread out over about half a dozen agencies; it will have an annual budget approaching half a billion dollars.
But to make it "sustainable," Warren is adopting a different approach than what most had initially expected: she's embraced industry's long-held desire for a system of oversight more reliant on basic principles like fairness than one dependent on elaborate and often-convoluted rules.
"I should be clear: consumers would be better off" with more rules, she said. "They would be protected from some of the worst possible practices," Warren, a top adviser to both Obama and Geithner, added. "But, the agency would always be a step behind. It's only after some number of consumers have been whacked on the head" that the agency would finally take action. "And there'd always be the fighting back and forth" between the agency and the accused lender because the agency would "put a lot of resources into it."
However, it's not just consumers who'd suffer from the same old approach to regulation. As Warren points out time and again, lenders would suffer, too.
"You encourage an industry that wiped out the small competitors because the cost of threading the regulatory thicket would keep going up and [industry] would put a lot of its resources into lawyering," said Warren, a noted bankruptcy expert who taught at Harvard Law before joining the administration. That would be helpful for lawyers, she points out, "but not very helpful ultimately for consumers or frankly for the industry.
"We have a chance to completely reform this entire area," she said. "If we get it right, there is a smaller regulatory burden on the lenders themselves. I'm looking for sustainability."
The consumer advocate, whose message thus far has received positive reviews from lenders and initial opponents in Congress, said she looks forward to working with industry. But she's not changing who she is.
"Look, I was pretty straightforward when I went in there," Warren said of her evening with the Roundtable. "I made it very clear: I am who I am, and that's not going to change. I will do everything I can to build an agency that is strong and independent and acts on behalf of middle class, hardworking families. That is my job, and that is not going to change.
"Now, what I also said is, 'I invite you to think about ways that we can work together and create products for your customers, these same middle-class families, that they can have confidence in and that they can have some confidence in you.'"
Like lenders, Warren also has to win others' confidence. Federal agencies are typically very protective of their turf. With Warren taking a bit from several Washington entities, she's trying to ensure as smooth a transition as possible.
She said she's spent the first few weeks on the job meeting with the heads of all the agencies whose consumer protection role her agency would assume and calling the chief executives of the nation's largest banks. Her last meeting before the interview with HuffPost was with Federal Reserve Chairman Ben Bernanke.
Warren was mindful of what brought her to temporarily lead the agency she had largely conceived, and for which she arguably was the most effective in getting enacted into law.
"I was so deeply touched by what happened," she said of the outpouring of public support for her candidacy to lead the consumer regulator. "I was overwhelmed. It meant an enormous amount to me, but in a way it felt 100 percent right because this is about building an agency that belongs to the American people. And in many ways, they picked what they wanted."
WATCH the full interview below:
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Shahien Nasiripour is the business reporter for the Huffington Post. You can send him an e-mail; bookmark his page; subscribe to his RSS feed; follow him on Twitter; friend him on Facebook; become a fan; and/or get e-mail alerts when he reports the latest news. He can be reached at 646-274-2455.