Warren shining light on 2008 financial meltdown

By Sally Greenberg, NCL Executive Director

Hurrah for Elizabeth Warren! The new Senator from Massachusetts is shining a bright light on so-called financial regulators from her perch on the Senate Banking Committee. This past week Warren asked officials from the Comptroller of the Currency (OCC) and the Federal Reserve to provide information to the public and the Committee.

These two federal agencies – each with responsibility for overseeing financial institutions – proved pathetically unwilling and unable to protect the public during the financial meltdown of 2008.

Warren and banking committee colleagues asked Daniel Stipano of the OCC to turn over information on what happened that led to massive foreclosures in 2008. Stipano claims there is a “longstanding policy not to publish information deemed part of the bank oversight process.” Stipano also said disclosing investigative findings by outside consultants in their review of the foreclosure crisis would make “institutions less willing to be forthcoming with us” during bank examinations.

The problem, which former FDIC Chief Sheila Bair describes in her book “Bull by the Horns,” is that these consulting firms are hired to review bank practices and paid princely sums to do so by the very banks themselves, which is a built-in bias.

PricewaterhouseCoopers told the Senate it received a whopping $425 million to conduct reviews for US Bancorp, Citigroup, and SunTrust Banks. The total amount made for conducting reviews is roughly $2 billion.

Senator Jack Reed, a great consumer champion himself, argued at the hearing that the consulting firms should be paid by the regulators instead. That’s a good idea – it does mean that tax dollars could be going to pay these fees (though there could be fund created to pay for consultant review by imposing a surtax on banks) but there are two advantages. First, the government can negotiate consultant services for much lower rates (government doesn’t always strike great bargains for professional services but it often does), and second, this would remove the bias inherent in banks hiring consultants to review their practices.

One thing is clear: Senator Warren’s voice on the banking committee is proving to be the game changer consumer advocates had hoped for.


NCL symposium examines consumer issues and the next Congress

By John Breyault, NCL Vice President of Public Policy, Telecommunications and Fraud

The freshman class of the 113th Congress will feature 12 new Senators and 67 new Representatives. For consumer advocates, this is an opportunity to introduce ourselves to these new lawmakers and develop relationships that can help promote our economic and social justice mission on the Hill. Freshman like Senator-elect Elizabeth Warren have long been heroes to the consumer movement, but others such as Senator-elect Heidi Heitkamp and Members-elect Kevin Cramer, Joseph Kennedy III, and George Holding all have experience in regulatory agencies and in the legal system where consumer issues arise.

The incoming members of the 113th Congress will have a full agenda when it comes to consumer issues. Even before the next Congress, the Lame Duck session of the current 112th Congress is tackling the so-called “fiscal cliff” of tax increases and spending cuts mandated by the Budget Control Act of 2011.

It is in this context that NCL convened our inaugural Consumer Issues Symposium on Wednesday, November 14 to examine the future of three important consumer issues in the lame duck session and the coming 113th Congress. We chose to focus the event on three issues near and dear to NCL’s heart – food safety, sequestration and privacy. The goal of the event was to examine not only the future prospects for consumer-focused legislation in Congress, but also to highlight the real-world impact of these policy areas on consumers.

For example, the sequestration cuts envisioned as part of the “fiscal cliff” will require numerous federal agencies to significantly scale back their activities. When the USDA’s Food Safety and Inspection Service is projected to take an $86 million haircut, what does that mean for the safety of America’s food supply? Likewise, in a scenario where the federal Low-Income Home Energy Assistance Program is on track to take a $285 million budget hit, how will consumers living through the cold winter months adjust?

The event, organized in partnership with the law firm of Kelley Drye, was a great success. (Historical note: One of Kelley Drye’s name partners was Nicholas Kelley, son of Florence Kelley, the first General Secretary of NCL). It featured more than a dozen expert speakers from Executive Branch, Congress and advocacy organizations, including FTC Commissioner Julie Brill, FDA Deputy Commissioner Michael Taylor and former Congresswoman and CPSC Commissioner Anne Northup. Photos from the event are currently viewable on NCL’s Facebook page.


Consumer advocacy as needed as ever

By Sally Greenberg, NCL Executive Director

This Saturday’s New York Times is filled with interesting consumer stories, which–once again–confirm that the work consumer advocates do is just as important today as ever.

Consumer Watchdog Is All Ears for Ideas,” talks about Elizabeth Warren and her work at the Consumer Financial Protection Bureau. “After Long Battle, Safer Cribs” is a story about the Consumer Product Safety Commission’s (CPSC) efforts to ensure crib safety, and finally, “Food Companies Act to Protect Consumers from E.Coli Illness,” focuses on Costco and Beef Products Inc decision to test for six additional of the most virulent strains of E.coli pathogens in food.

The CFPB piece is about that new federal agency receiving multiple tweets from people who want it to develop protections that haven’t ever been available on financial transactions from federal agencies. Gail Hillebrand, the associate director of consumer education and engagement at CFPB, (and my former colleague at Consumers Union) said, “We are actively working toward simplifying credit card contracts.” Hallelujah! Its about time someone took at look at these documents that were drafted to confuse and confound, and blew the whistle on their purposeful obfuscation.

In the product safety arena, under new rules adopted by Congress, manufacturers of cribs must undergo 75,000 cycles of testing. It sounds onerous, but as CPSC Chairman Inez Tenenbaum notes, “After dozens of babies had tragically been entrapped and died, and millions of defective cribs had been recalled, the actions of this commission to ensure the swift movement to market of only safer cribs undoubtedly was justified.” Commissioner Nancy Nord disagreed in the Times and said, “We rushed the standard out without doing the hard work upfront to understand the impact of regulation.”

As a rejoinder to Commisioner Nord’s skepticism, three families who lost babies in cribs that proved unsafe wrote poignantly, “You can’t tell the safety of a crib by looking at it, and you certainly can’t maintain it is safe because it met weak industry standards in place prior to 2010.” The new safety standards should address their well-founded concerns.

Finally, in the story on meat safety, one manufacturer and one retailer, Beef Products Inc. and Costco, are testing for six different strains of E. coli that food safety advocates have wanted for years. The Department of Agriculture has a proposal to require this type of testing but unfortunately, it has dragged its feet. This is a breakthrough consumer protection. Hats off to both companies for their leadership in putting consumer safety first. E. coli poisoning can cause serious illness in victims and is totally preventable with a “hold and test” policy that doesn’t ship the products until the testing on every batch is back and is found not dangerous to consumers.

All three pieces prove once again that there is room for stronger consumer protections in food safety, product safety, especially where children are involved, and in financial transactions for consumers.

Obama appointment of Warren welcome

By Sally Greenberg, NCL Executive Director
The National Consumers League issued a statement this weekend applauding President Obama’s appointment of Elizabeth Warren as interim director of the Consumer Financial Protection Bureau (CFPB). Warren’s name is all over this job; the concept behind the CFPB was Warren’s, and she’s been a vocal consumer advocate who long ago recognized that consumers were being unfairly saddled with staggering fines and fees due to fine print in legal documents that few could understand.

I remember hearing her speak at the Consumer Federation of America’s Financial Services conference two years ago, when she was advocating for the creation of a CFPB. Warren explained that just as there is a Consumer PRODUCT Safety Commission to protect against dangerous TVs or toasters, there ought to be a Consumer Financial Protection Agency to protect against dangerous financial products. Warren analogized further: just as consumers aren’t expected to look at the wiring diagram in the manual that comes with the TV or toaster to find the defect, nor should they be expected to read through 30+ pages of fine print to find the tricks and traps that await them when they sign credit card, mortgage, cell phone, or any other consumer contract. Her analogy was as compelling then as it is today, and Warren ultimately won the day with her arguments. Congress established the framework for the agency in the recently passed financial reform legislation, and Warren will be the first head, albeit an interim post for her.

New York Times consumer columnist Ron Lieber asked Warren what her priorities would be, and she thanked him for asking but said at this early stage, “I can’t say anything about anything.” So Lieber designed his own to-do list for Warren and I think it’s a good one.

  1. Student loan reporting to the student’s college or university.
  2. Requiring colleges to publish the rate of default disclosure on student loans, this is particularly needed for the many for-profit schools where students take out huge loans and end up with a degree that prove useless in finding a job and they default on their student loans but the for-profit schools keep the tuition money.
  3. Free unlimited access to credit scores.
  4. Requiring lenders, landlords, and employers to disclose which credit scores or reports they intend to check
  5. More 45-day warnings. Give consumers 45-day warnings before lowering their credit limit – right now, cards are required to warn before increasing your interest rate or annual fee or other charge under the new bill. Adding the warnings about lowering credit is something the new bureau could do.

I’m a big Elizabeth Warren fan – I sent her an email note over the summer as I was having dinner outside Boston with a group of women friends who had just unanimously agreed that the President should appoint her. She responded in kind that this was almost better than a presidential appointment. Warren may be blunt, but she’s also charming, and that will go a long way. American consumers are fortunate, indeed, to have someone of Elizabeth Warren’s stature, integrity, commitment and diplomatic skills at the helm of the CFPB.

Financial reform a ‘victory for the little guy’

By Sally Greenberg, NCL Executive Director

President Obama’s speech at the Ronald Reagan Building yesterday, where he signed the financial reform legislation, hit on all the right points. “This is the strongest consumer financial protection bill in history,” the President stated. He said that firms should compete on “price and quality, not on tricks and traps.” He asked whether anyone had experienced signing a sheaf of papers while closing a mortgage or student loan, not ever sure of all the fees and penalties hidden inside the documents we sign. “That will all change because of this bill.”

Representing NCL at this historic even, I felt the buzz in the room as Senators and Representatives milled about, rubbing elbows with consumer advocates, housing, labor, and civil rights advocates on a momentous occasion. Congressman Barney Frank (D-MA) and Senator Chris Dodd (D-CT), chairs of the committees in the House and Senate, along with Harvard Law Professor Elizabeth Warren were instrumental in the bill’s passage.

My consumer colleagues are rightfully taking great pride in getting this bill over the finish line and signed into law. NCL joined the group Americans for Financial Reform, the powerful alliance that became a driving force in the bill’s ultimate passage. With only 60 votes in the Senate – so not one to spare to meet the minimum required for Senate passage – and only three Republican Senators joining the Democratic majority to pass the bill, the Senate bill was a squeaker! (The House passed the bill several months ago).

Average Americans will reap the benefits of this bill if it has the impact that we hope for: we will have a consumer financial protection agency whose main focus will be – for the first time – the rights and protections of consumers when dealing with financial transactions. This bill is a victory for the little guy over the big banks and credit card companies, a blow to those who would perpetrate mortgage fraud and impose outrageous fees and penalties on unsuspecting consumers. A new day has dawned for financial reform and consumers have cause, at last, to celebrate.

Elizabeth Warren’s Financial Services Product Safety Commission Proposal

by Sally Greenberg, NCL Executive Director

Can a faulty toaster be compared with a faulty credit card? Several weeks ago at the Consumer Federation of America’s annual gathering on financial services, I heard Harvard Law Professor Elizabeth Warren speak on just this topic. Warren, who wrote an article for Harvard Magazine called “Making Credit Safer: The Case for Regulation,” is recommending a radical new system for protecting consumers from credit card and other debts that are dangerous to their financial health. The new regime would be the financial equivalent of the Consumer Product Safety Commission – the independent federal agency that regulates the safety of 15,000 consumer products all of us use daily. Warren would call the new agency the “financial services product safety commission.”

Continue reading