Though the Consumer Financial Protection Bureau (CFPB) has jurisdiction over a wide range of financial products, Elizabeth Warren is making credit cards her top priority.
Warren, the administration official in charge of setting up the new agency, said she wants to revamp card disclosures in order to make them easier to understand, as well as eliminating all hidden costs and fees. In many ways, she said, the effort is symbolic of the agency itself.
"Credit cards can help point to an overall philosophy for the agency," Warren said in an interview. "The main principle is to make credit markets work for families. What does it take to be able to do that? A family should be able to see the price, see the risk and make apples-to-apples comparisons among products."
Warren has already reached out to several chief executive officers of credit card companies. In one meeting, a CEO said he was unable to offer a cheaper credit card product because a competitor's more expensive card disguised its costs with back-end fees.
Such practices should end, Warren said.
"Too often, the fine print obscures the real price," she said. "The result is that products are less competitive because the customer doesn't see the price on the front end, doesn't understand the risks associated with the product and can't compare products to each other because the real costs are so buried."
Warren's first concern is to eliminate the fine print in card disclosures. The only information the card companies need to convey is about up-front fees, interest rates, penalties and reward programs, she said.
"Right now, a lot of Americans feel their banks can't be trusted, and they see credit cards and most transactions with their bank as potentially dangerous transactions," she said. "I want to be able to stand with credit card issuers in front of a new product and say, in effect: 'This is a safer product, you can see up-front the price and the risk, and you can make easy comparisons among products.' If we can get there, the bankers will become partners in finance again; they are not the enemy."
Bankers fear this push will inevitably lead to less innovation within the financial system. The Obama administration initially proposed the creation of "plain-vanilla" products as part of regulatory reform, but this provision was dropped by Congress. Industry representatives are concerned that the CFPB could place enough restrictions on new products so that a de facto "plain-vanilla" requirement would be imposed.
But Warren insists that this is not her plan.
"The industry itself can design business models around the variables and around the other parts of offering a credit product — customer service, price, cool iPhone apps — there are a lot of ways to compete for customers and a lot of parts in that product," she said. "The point is not to force anyone not to offer any particular product; it's to make what they are offering transparent."
Previous efforts to simplify card disclosures have largely fallen short. The Federal Reserve tried to simplify disclosures through its Regulation Z, which enforces the Truth in Lending Act. After a three-year review, the central bank proposed rules aimed at helping borrowers understand risks and penalties in their credit card accounts. The proposal was completed in 2008 and took effect in July.
The rule, the central bank's first card disclosure overhaul since 1981, amended the so-called Schumer box, a summary table provided at application or solicitation to explain the details of credit card plans. The Fed created a one-page summary box for consumers when they receive their cards.
Many credit card companies have gone further, with additional pages of disclosure filled with legal jargon. For example, JPMorgan Chase's Chase Bank has a five-page disclosure; Discover Financial Services's bank subsidiary has an 11-page disclosure, and Bank of America, a 12-page agreement.
Warren said there is no need for this fine print.
"Fine print, regardless of what's in it, changes the customer's experience," she said. "Customers notice that nothing good ever seems to come out of the fine print. The experience of the fine print is, at best, 'Maybe I won't get bitten,' and, at worst, 'This is going to cost me a lot of money and aggravation.' "
To be sure, Warren is examining other areas as well, including mortgage disclosures and getting the agency up and running. As part of the latter process, she has been meeting with bankers for the past two months. She said she has noticed divided concerns from the industry.
Community bankers are more worried about potential compliance burdens, she said, and large-bank CEOs are focused on competitive interests, including creating a level playing field for consumer credit.
Though bankers mostly opposed the creation of the new agency, Warren said her meetings have been cordial. Some executives have concluded that the CFPB can actually help them, she said.
"A couple of CEOs in particular have been very concerned about their banks' reputation and that their customers see them as dangerous," Warren said. "They see the possibility of regulatory partnership as a way to begin to repair broken trust between customers and banks, and they see that as essential for the long-term health of the industry. So they see this as not only helpful in how we market to our consumers now but [also as a way to] improve the environment over the long term."