Elizabeth Warren, the top Obama administration official in charge of setting up the Consumer Financial Protection Bureau, made it clear late Wednesday that she intends to target financial disclosures as one of her top priorities.
In a speech to the Financial Services Roundtable, Warren emphasized that she wants to work with the industry to create principles-based disclosures that are simple for consumers to understand and is not seeking to add more layers of fine print.
"If all we do is … to continue writing 'thou shalt not' regulations and layering on more disclosures, then we will have missed a real opportunity," she said, according to a copy of her prepared remarks. "And if all those resources are used just to force an entire industry, begrudgingly or worse, to accept marginal changes in a few forms, we will have missed a real opportunity. On the other hand, if we use this moment to rethink our approach to regulating financial services, then we can seize the opportunity to do something unexpected — and exceptional."
Warren said the goal should be the proliferation of simple, easy-to-understand products and disclosures. In particular, she cited credit card disclosures as an area needing improvement. Instead of blaming the industry, she said that lawmakers and regulators had made disclosures too complicated by requiring vast amounts of information to be included. As a result, lawyers have told companies to use legalistic language in an effort to ward off lawsuits.
In crafting a new disclosure regime, Warren said new requirements would go the opposite direction.
"What should we drive toward? Short agreements that can be read in very little time with very high levels of understanding," she said. "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."
Warren said creating clear disclosures would help both consumers and lenders.
"For consumers, this would mean products that are easy to understand and easy to compare," she said. "For lenders, this means regulatory compliance costs could be reduced. Competition would flourish but in ways that consumers can see — better customer service, lower prices or cool new iPhone apps."
She touted her bureau as uniquely positioned to cut through red tape and make better disclosures a reality. "Thanks to this new law, for the first time ever, a new agency will be born not simply to create new regulations but also to get rid of old regulations that are dated, expensive or just plain don't work," she said.
The agency will use its power broadly, she said.
"Before this agency decides to cut regulations in some areas and add in others, we have a chance to take a step back to ask: What vision should drive this agency?" she said. "What test should be used to determine when the agency should act, when it should not and which tools it should use when it does take action? What is the central aim of financial services regulation?"
But Warren also took the opportunity to reassure industry critics that she is someone they can work with, acknowledging that many bankers opposed the creation of the consumer protection agency and her role with it.
"Some of you may have noticed that I have not kept my opinions to myself about where I think the financial industry has gone wrong," she said. "And I notice that some of you have not kept your opinions to yourself about me. But there is something you may want to know: I come to Washington as a genuine believer in markets and a genuine believer that the purpose of regulating the consumer credit market is to make that market work for buyers and sellers alike: a level playing field where the best products at the best prices win."
Better disclosure is an area that the industry and CFPB could agree on, she said, noting that the Roundtable endorsed a principles-based disclosure approach more than three years ago. Warren, who has met with several bank executives and lawmakers in the two weeks since she was appointed, said lenders appear enthusiastic about simpler disclosures.
"The early feedback I've received from credit card issuers suggests that industry is eager for simplification too," she said. "Some bankers have told me that a simple contract is exactly what they want, too. I believe there are people in this room who are ready to run with this idea. At its core, this is a pretty simple idea that builds on the basic principles your industry laid down through this group. So I'm here with all of you tonight 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."
She added that the industry and CFPB both have a chance at a fresh start. "It is now, right here at the beginning, that we have a remarkable chance to put aside misconceptions and preconceptions?whether they are yours or mine," she said.
"We have a chance to build something better, to pore over the research and data together and to identify problems and solutions, with or without regulation."
This story has been reprinted with permission from American Banker.
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