Elizabeth Warren: Washington watchdog intends to protect investors’ interests

Much to the chagrin of bankers and conservative lawmakers, Elizabeth Warren is laying the foundation for a consumer protection bureau that would be unlikely to look benignly upon financial service providers.

It’s tough for her supporters to dispel fears that Ms. Warren will stack the regulatory deck against companies when she has publicly condemned the industry’s treatment of customers.

“Wall Street CEOs have thrown away customer trust like so much worthless trash,” she wrote in a Wall Street Journal Op-Ed while she was helping Congress investigate the banking bailouts a year ago.

Although Ms. Warren has led the policy process that led to the creation of the Consumer Financial Protection Bureau, President Barack Obama didn’t appoint Ms. Warren director, because he feared that she would not be confirmed by the Senate. Instead, she was appointed a special adviser to Treasury Secretary Timothy Geithner with authority to oversee the startup process, including the naming of a director.

Mr. Geithner has said the bureau will be up and running, with a full-time director, by July.

Creation of the agency itself was a lightning rod for Republicans during congressional debate over the Dodd-Frank financial re-form legislation. Republicans who will be part of the GOP majority that takes over the House in January have vowed to modify the part of the law that creates the agency, demanding more oversight from Congress.

“It has a very broad rulemaking authority over an entire industry, with really not a lot of accountability,” said Rep. Randy Neugebauer, R-Texas, a member of the House Financial Services Committee.

The new consumer protection agency has the task of monitoring consumer financial markets and will concentrate on mortgages, credit cards and student loans. It won’t extend its jurisdiction to areas involving investment advisers or insurance agents, according to Assistant Treasury Secretary Michael Barr.

The agency will take over the consumer protection role now overseen by seven different federal agencies under 19 laws.

“She has a challenge,” said Reid Cramer, a director with the New America Foundation, a Washington think tank. “Essentially, [Ms.] Warren is creating a bureaucracy and agency from scratch and she needs to attract talented people and give them a mission and marching orders.”

The legislation directs the agency to ensure that consumers have timely and understandable information, and it provides regulators with a lot of power, he said. “But it doesn’t dictate how that power is to be used, and that puts a lot of the challenge in doing this work.”

The financial industry has complained that meeting requirements of such an agency could strangle profits. It will spend much of 2011 figuring out how the agency’s regulations will affect business.

“There certainly was a lot of hyperbole and heat leading up to the passage of reform, but now there’s an interest for all parties to turn down the heat and engage in dialogue,” Mr. Cramer said.

Two issues the agency likely will take up as it begins to focus on consumer problems are payday lending and prepaid debit cards, he said. It is expected to establish offices for financial education and consumer complaints, among others.

— Liz Skinner