Elizabeth Warren: Lenders, Be Afraid

by: Tom Brown

Elizabeth Warren talks to the L.A. Times:

Is disclosure your priority?

No, it's clarity. Disclosure has come to be a dirty word. Disclosure has become like shrubbery, a dense thicket of words that are a good place to hide tricks and traps. Clarity is about emphasizing the key pieces of information that someone needs to know: price, risk, easy comparison of other products.

Many in the financial industry strongly opposed creation of this agency. Should they be afraid of this agency?

It depends on their current business model. If they make money from tricks and traps, they will have a problem. But if they want to provide services to the customer that are valuable in a straight-up, apples-to-apples comparison, they will do great with the new agency. [Emph. added]

Translation: lenders should be very afraid! Disclosure may be a dirty word among the new class of forward-thinking regulators Warren means to pack the CFPB with, but that doesn’t mean lenders are now suddenly exempt from all the disclosure requirements the government has heaped on them over the years.

Only now, all that disclosure won’t save lenders from the wrath of the CFPB. Warren, remember, wants the the agency to regulate via a “principles-based” approach rather than the “rules-based” one followed by other financial regulators. That means that, in practice, her regulators will determine after the fact, based on how they interpret the principles they themselves put forward, which products “provide services to the customer that are valuable.” Lenders won’t have any rules to refer to ahead of time for guidance.

Helpful! My prediction: the level of after-the-fact gotcha-ism from the CFPB will be extraordinarily high. Lenders are going to learn to be gun-shy about lending to “America’s families” in no time. The result will be a constriction of credit, especially to the individuals and small businesses that need it most. How that will help spur economic growth (or help strengthen the banking system, for that matter) is beyond me.

This is an administration that has already shown itself to be no friend of business. Elizabeth Warren is going to fit right in.