Yesterday, the Senate passed the Dodd-Frank financial regulatory reform bill on a 60-39 vote, meaning that, among many other things, a new Consumer Financial Protection Bureau will come into being. The agency fixes a critical gap in the regulatory framework, as there is no regulator specifically tasked with policing consumer products and ensuring that banks can’t rip off consumers with (usually highly profitable) predatory products.
A handful of names have been tossed around in the media as to who will be nominated to be the CFPB’s first director. The most oft-mentioned name is Elizabeth Warren, the Harvard Law professor who is currently heading the Congressional Oversight Panel for the Troubled Asset Relief program.
It was a 2007 journal article written by Warren that motivated lawmakers to propose creating the new agency in the first place. “Clearly, it is time for a new model of financial regulation, one focused primarily on consumer safety rather than corporate profitability. Financial products should be subject to the same routine safety screening that now governs the sale of every toaster, washing machine, and child’s car seat sold on the American market,” Warren wrote.
Last night, it was reported that Treasury Secretary Tim Geithner is opposed to Warren heading the agency. Assistant Treasury Secretary Michael Barr refuted that notion today, saying “I don’t know where that (report) came from.” “I believe and Secretary Geithner believes that she’s exceptionally well-qualified to run it,” he said.
Whetever Geithner’s personal feelings on the matter, Warren is eminently qualified to lead the CFPB. She explained her philosophy regarding the regulation of consumer products to me during an interview back in May 2009:
We need to think at the product level. All these lousy mortgages got sold, one family at a time. These were crummy mortgages, like selling plastic spoons that have carcinogens in them or toys that put out little children’s eyes. We sold them one product in a time. If we had had just basic safety standards in place from the beginning, then we never would have fed these into the front end of the financial system, where they then would have been bundled up and then sliced into tranches and rated and rebundled and sold and rated again.
House Financial Services Chairman Barney Frank (D-MA) backed Warren, saying “she is a brilliant advocate. She is sensible. She has a good sense how to operate. She is not some windmill-tilting ideologue.”
Barr himself has also been mentioned as a potential CFPB head, and would be an excellent choice, as he’s been intimately involved with the regulatory reform bill since the beginning. Illinois Attorney General Lisa Madigan, who was one of the first public officials to try to crack down on subprime lending, has also had her name tossed into the ring, but said that she preferred Warren. “She has long understood the need for such an agency to ensure that another financial crisis doesn’t devastate the futures of millions of hardworking Americans,” Madigan said.