After months of speculation and more than a week of fevered media coverage on the topic, President Obama formally picked Elizabeth Warren on Friday as assistant to the president and special advisor to Treasury Secretary Tim Geithner in charge of creating the Consumer Financial Protection Bureau.
The move side-steps a potentially bruising Senate confirmation fight and allows Warren to immediately begin work getting the agency up and running.
In a statement at the White House, Obama said poor lending disclosures and financial fine print helped cause the financial crisis. He praised Warren as the perfect person to lead the effort to improve disclosures and crack down on abusive lending practices.
"Never again will folks be confused or misled by the pages of barely understandable fine print that you find in agreements for credit cards, mortgages, and student loans," Obama said. "Getting this agency off the ground will be an enormously important task… and that task is something I've asked Elizabeth to take on. Secretary Geithner and I agree Elizabeth is the best person to stand this agency up."
Obama said Warren would have direct access to himself and Geithner, and oversee all aspects of setting up the new agency, including hiring staff and determining its priorities.
But he signaled that he did not intend to nominate Warren as the agency's first director. Instead, Obama said the Harvard professor would help choose that person.
American Banker first reported Monday that the administration was considering an interim appointment for Warren rather than subjecting her to the lengthy Senate nomination process.
Warren, a Harvard professor who first came up with the idea of a consumer protection agency, has been the subject of an intense lobbying campaign by consumer and liberal groups.
Several lawmakers, including House Financial Services Committee Chairman Barney Frank, have endorsed the push, writing letters to Obama urging him to nominate her.
It is also unclear how the move will sit with lawmakers. In a press release, Frank praised the appointment.
"I would like to offer three congratulations," Frank said. "First, I would like to congratulate the President for making this great appointment. Second, I offer my congratulations to Elizabeth Warren, both for the work that she did to create the agency and for the fact that she will now have the opportunity to make it function as it was intended. And third, I would like to congratulate American consumers, because nothing could be better news for them in terms of being protected in financial matters like home mortgages, bank accounts, and credit cards."
But Republicans sounded objections, saying Obama was avoiding proper procedure.
"To pay off their political allies, the administration will subvert the Senate confirmation process, curtailing the very transparency and accountability they claim to demand in their financial regulation," Rep. Spencer Bachus, the lead GOP member of the House Financial Services Committee, said in a press release. "Senate confirmation of this appointee was not an afterthought. This position and the need to have the director fully examined in the confirmation process was debated and the will of Congress was clearly expressed in the legislation."
Senate Banking Committee Chairman Chris Dodd has also expressed concerns with the appointment. Before it was official, he said appointing an interim CFPB director was a "mistake," that could damage the agency, and warned of a possible Senate backlash.
In a press release after Obama's announcement, Dodd congratulated Warren on the appointment, but said it was critical to nominate a CFPB director soon.
"It is crucial that President Obama move swiftly to nominate a director of the Consumer Financial Protection Bureau to be considered by the Senate, as the law requires," Dodd said. "Until a director is at the helm, this new bureau will not have the teeth that it needs to put strong protections in place, and could leave the entire bureau in jeopardy."
Warren first mentioned the idea of a consumer agency in 2007 in an article entitled "Unsafe at Any Rate," in which she argued it was unfair for consumers to receive multiple protections from faulty toasters but not from lending products. She proposed a Financial Product Safety Commission.
"No one expects every customer to become an engineer to buy a toaster that doesn't burst into flames, or analyze complex diagrams to buy an infant car seat that doesn't collapse on impact," Warren wrote. "By the same reasoning, no customer should be forced to read the fine print in 30-plus-page credit card contracts to determine whether the company claims it can seize property paid for with the credit card or raise the interest rate by more than 20 points if the customer gets into a dispute with the water company."
She said , "a Financial Product Safety Commission could eliminate some of the most egregious tricks and traps in the credit industry. And for every family who avoids a trap or doesn't get caught by a trick, that's regulation that works."
Obama included her idea as the centerpiece of his Dodd-Frank regulatory reform law. Since the law's enactment in July, speculation has flared about why Obama hadn't picked Warren sooner. She met with White House advisor David Axelrod in August and had a separate meeting with President Obama on Sept. 6.
Adding to rumors of her impending appointment, Harvard told students in August that Warren would not return in the fall to teach her scheduled classes.
Warren was a vocal salesman of the bureau and even attended Obama's signing of the Dodd-Frank law.
But concerns over whether she is confirmable by the Senate have grown since the law passed. Recently, Dodd openly doubted she could win the requisite 60 votes for the nomination.
"If the administration goes through an eight-month debate over who is going to run this, you are going to do damage before you start," Dodd said in an American Banker interview. "You need to have a good-quality individual, and if [Warren] can be confirmed, then step up and do it. I just think it's a problem, but I could be wrong."
