In a speech today on changes to the financial regulatory system, President Barack Obama ’91 proposed the creation of a new government agency, the Financial Product Safety Commission, to help consumers obtain financial products and services without being subjected to predatory or deceptive financial practices. The proposed watchdog agency is the brainchild of Harvard Law School Professor Elizabeth Warren.
“We are proposing a new and powerful agency charged with just one job: looking out for ordinary consumers. This is essential, for this crisis was not just the result of decisions made by the mightiest of financial firms; it was also the result of decisions made by ordinary Americans to open credit cards, take out home loans, and take on other financial obligations,” said Obama.
Warren, who is currently the chairwoman of the influential Congressional Oversight Panel (COP) monitoring the Treasury’s economic rescue plan, conceived the idea of the commission, which is modeled after the Consumer Product Safety Commission, several years ago.
The proposed commission will have the power to set standards so that companies compete by offering innovative products. Consumers will be provided information that is simple, transparent, and accurate and will educate consumers on the responsible use of financial products and services. The agency will be responsible for identifying and banning practices that undermine sound markets, and will coordinate enforcement with other federal and state regulators.
Senators Richard Durbin of Illinois and Charles Schumer ’74 of New York introduced the measure in March in the Senate (S. 566 is the Senate version; H.R. 1705 is the House bill).
Warren co-wrote an essay, “Protect Financial Consumers,” that appeared in the November 7, 2008, issue of Harper’s Magazine. “Go into any appliance store in America and look for a toaster with a one-in-five chance of exploding. You won’t find one,” she wrote. “But at any mortgage brokerage in the country it has been possible to purchase a loan with a one-in-five foreclosure rate, and the broker doesn’t even have to tell you the odds.”
Warren co-wrote the essay, and her 2003 book “The Two-Income Trap: Why Middle-Class Mothers and Fathers Are Going Broke,” with her daughter, Amelia Warren Tyagi. She discussed the need for oversight of financial products and services in an October panel at HLS on the turmoil in financial markets.
On June 9, Warren testified before the Joint Economic Committee at a hearing titled “TARP Accountability and Oversight: Measuring the Strength of Financial Institutions.” She testified about the government stress test evaluations of financial institutions, the impact of the results on restoring market confidence, and the panel’s current oversight activities as they relate to the TARP program.
In March, Warren appeared on NPR’s “Fresh Air” to discuss the rate of home foreclosures in the United States. A report issued March 6 by the Congressional Oversight Panel warns that the foreclosure rate is so large it threatens the entire economy.
Charged with reporting to Congress on the Treasury’s use of the $700 billion approved by Congress for the Troubled Asset Relief Program (TARP), the Committee has issued two reports, both sharply critical of the Treasury Department at the end of the Bush Administration.
Warren was recently profile in Time Magazine in an article titled “Elizabeth Warren: Riding Herd on the Bailout.” The magazine also recently named Warren one of 100 most influential people. Her work with COP was also recently profiled in the Harvard Law Bulletin.