By Truman Lewis

September 16, 2010
photo It's unofficially official -- the White House is naming Harvard law professor Elizabeth Warren to run the new Bureau of Consumer Financial Protection (BCFP). Sort of.

Technically, President Obama has so far appointed Warren only to a lead role in setting up the agency but around Washington, that's pretty much the same thing. If you insist on knowing the complete title, it's Assistant to the President and Special Advisor to the Treasury Secretary.

The interim appointment means Warren won't yet have to undergo Senate confirmation, a process that would likely be highly unpleasant, given Warren's penchant for outspoken criticism of business and government alike.

The new bureau will be writing and enforcing rules governing credit cards, mortgages and other financial tools that too often turn into traps that trip up the unwary or unlucky consumer. An outspoken critic of Wall Street and big banks, Warren is likely to cause severe indigestion both in New York and Washington, where her scathing criticism of government's response to the mortgage crisis has not been warmly received.

"So many of the people in financial trouble are desperately trying to hold it all together. They are struggling to save themselves, their children and their elderly parents from the consequences of complete collapse. They work hard, but they just can't seem to get it right," said Warren in an interview with the Harvard Law Bulletin earlier this year. "Doing this kind of work is not just about numbers and regressions. It's about human beings."

A native of Oklahoma, Warren earlier this decade ran an intensive Harvard study of 2,000 families that had gone bankrupt. The Harvard Consumer Bankruptcy Project found that even families with two working partners were often just barely scraping by and were in danger of bankruptcy and homelessness if hit with a job loss, divorce or serious illness.

The situation is even worse for single parents, most of whom are women, Warren said. They often have a mere 4 percent of income remaining after they pay their fixed costs -- items like mortgages and rent, car payments, healthcare costs and insurance. All have risen drastically as a percentage of income in recent decades.

She and her daughter, Amelia Warren Tyagi, a Wharton M.B.A. and former consultant with McKinsey & Co., co-authored a book, "The Two-Income Trap: Why Middle-Class Mothers and Fathers Are Going Broke" (Basic Books, 2003) that drew on the Harvard study -- and perhaps helped shape her view of the financial meltdown that left so many families bereft over the last few years.

Access to credit

The financial services industry fiercely opposed creation of the BCFP, perhaps fearing a populist like Warren would be named to run it. Bankers and Republicans have claimed the new agency's regulations will do little to protect consumers and will instead make it even harder to get credit.

Known in its legislative gestation period as the Dodd-Frank Wall Street Reform and Consumer Protection Act, the measure was signed into law by President Obama in July, after supporters fought for months to pass the legislation that they say will protect consumers from hidden fees and investment scams and require the financial industry to provide clear information so consumers can make the best financial decisions.

Obama echoed those claims in his remarks as he signed the measure at the Ronald Reagan Building in Washington. "These protections will be enforced by a new consumer watchdog with just one job: looking out for people - not big banks, not lenders, not investment houses - looking out for people as they interact with the financial system," he said.

"If youve ever applied for a credit card, a student loan, or a mortgage, you know the feeling of signing your name to pages of barely understandable fine print. What often happens as a result is that many Americans are caught by hidden fees and penalties, or saddled with loans they cant afford," Obama said.

Obama added: "With this law, well crack down on abusive practices in the mortgage industry. Well make sure that contracts are simpler - putting an end to many hidden penalties and fees in complex mortgages - so folks know what theyre signing.

"With this law, students who take out college loans will be provided clear and concise information about their obligations.

"And with this law, ordinary investors - like seniors and folks saving for retirement - will be able to receive more information about the costs and risks of mutual funds and other investment products, so that they can make better financial decisions as to what will work for them. "

With an eye on the upcoming midterm elections, Republicans -- who had almost unanimously opposed the measure -- said that the government's attempt to more closely regulate banks and Wall Street would lead to more bailouts, not fewer. Republican Rep. Mike Pence of Indiana echoed last week's call by Minority Leader John Boehner (R-Ohio) to repeal the measure.

"This financial-services reform is nothing more than a permanent bailout of Wall Street that will restrict credit, kill jobs, raise taxes and expand government control of the private sector," Pence said.

Obama returned the favor, calling the Republicans "a partisan minority determined to block change."