Warren discusses consumer finances with group of student journalists

By Sam Butterfield

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Courtesy of Harvard Law

If you are like 53 percent of American college students and recent college graduates, you will leave the University of Massachusetts with some degree of debt. The 2009 Dodd-Frank Wall Street Reform and Consumer Protection Act, however, aims to make the process of acquiring and using financial products like credit cards, home loans and student loans, smoother and more accessible. 

On Tuesday evening, Elizabeth Warren, a former professor of contract law at Harvard University and an assistant to the President and special advisor to the Secretary of the Treasury on the Consumer Financial Protection Bureau (CFPB), a regulatory agency created by last year’s act, spoke to a group of student journalists about how the new Bureau will help make students’ lives simpler. 

Warren opened by explaining to the reporters that President Barack Obama had asked her last month to start the new CFPB “right now,” and that she has been “filling out the new consumer agency implementation team and trying to start a culture that makes sure the Bureau remains a voice for years to come.” 

Warren explained that the Bureau’s mission is to, in essence, make consumers’ lives easier by forcing loan and credit issuers to be transparent in their statements, charges and fine print.

“People ought to be able to read their credit card statements and know the deal,” she said. “The new law creates a chance to put a tough cop on the beat and to provide real accountability and oversight over the consumer credit market.” 

Warren, who was last spring rumored to be among the candidates President Obama was considering as a nominee to replace retiring Supreme Court Justice John Paul Stevens, gave several examples of how she envisions the agency helping families and young people.

“For young people who need to take out a private loan to cover the cost of higher education, the new consumer agency will be able to supervise private student lenders, fight unfair lending practices and require student lenders to follow the rules of the road,” she said.

“For people with credit cards, the consumer agency will prevent evasion of the Credit Act of 2009, which bans arbitrary rate hikes and cleans up credit card practices for young people at universities,” she continued.

She further mentioned that the agency would oversee car rental agencies for young people who rent while in school, and added that the Bureau will fight to ensure that banks provide clear language and up-front disclosure about when consumers will be charged overdraft fees. 

Last, Warren explained that for those using “alternative financial services” like check cashing services and online creditors, “the financial reform bill establishes for the first time robust supervision and oversight of larger alternative financial services.” 

After outlining her four examples, Warren laid out what she sees as the very essence of the Bureau’s job.

“Anyone who uses a financial product ought to be able to tell the cost and the risks up front, and should be able to compare one product to another,” she said. “The idea is that we will empower young people to make smart financial choices by promoting financial education and financial literacy, and by safeguarding securities and investments, but most of all by putting into your hands the tools you need to make good decisions.” 

Warren then took calls from several students, most of them from Midwestern universities.

The first reporter, from the Michigan State University student newspaper, asked Warren, a member of the FDIC’s Commission on Economic Inclusion, how the agency will work to make financial literacy easier, more accessible and more engaging for young people.

“I see there being two problems simultaneously here,” said Warren. “One, Americans need more financial education; more information about how to survive in a complex financial world. At the same time, financial products need to be more readable,” she continued. “I teach contract law at Harvard, and I can’t read a credit card contract,” she joked. “[Credit card statements] are often designed not to be read,” she said more seriously, “so I think of this as a ‘you’ll push from your end and I’ll push from mine.’”

A University of Wisconsin student reporter then asked about what kind of research the new agency would conduct.

“The answer is, I don’t know yet,” Warren said. “We’ve got a big budget, we’ve got a big job to do here,” she continued, adding that “we are required to establish a search division.

“My thinking is that we’re going to be working both inside [the agency] and outside at the same time; I’m hoping we become a very open agency with lots of access for everyone.”

A reporter from Northwestern’s paper then piqued Warren on whether the CFPB would have any ability to directly affect tuition rates. 

“We have our hands full with the credit issue here,” lamented Warren. “When the costs of student lending are clearer,” she added, “then the pressure on universities to control increases in tuition will be more intense. 

“I’ll have to be straight with you here,” she finished, “we do the debt part of it here, we don’t get to talk about the tuition itself.” 

A University of Missouri student then asked Warren if the agency would have the ability to help students in debt retroactively. 

“What this new agency will be able to do is to review the procedures used by private student loan issuers in the calculation and collection to debt, and work to rebalance the power between the borrower and the lender,” responded Warren. 

A final caller from the University of Michigan queried Warren about what degree of responsibility she places on those who take out sometimes slippery loans, stating that professors at her university had said they believe regulation takes responsibility out of the hands of consumers.

“I believe the professors you’ve spoken to are wrong,” Warren said lightly. “I believe in personal responsibility, but in order to be responsible, you’ve got to be able to read what’s in the bill,” she said. “Too much of the consumer credit industry is structured around pretending to sell products at one price and then using tricks and traps buried in the fine print to charge far more.

“This new agency is about making sure that costs and risks are visible up front,” she continued, “and then it’s up to the student to make good decisions.”

The CFPB was established as Chapter X of the Dodd-Frank Act, initially proposed in 2009 and signed into law this July. The call was part of a series of call-in sessions the Obama Administration has hosted with student reporters to discuss their agenda regarding student issues. 

Sam Butterfield can be reached at [email protected].