Credit Card Solution

Credit card regulator appointed

One of the provisions of the financial restructuring legislation that was passed earlier this year was the authorization of a Bureau of Consumer Financial Protection, which was intended to have wide ranging regulatory powers over credit cards, mortgages and other financial products aimed at consumers.

On Friday, President Obama made a Rose Garden announcement of Elizabeth Warren, who–reporting directly both to him and to Treasury Secretary Timothy F. Geithner–would take the lead in setting up the new bureau. Warren is the Leo Gottlieb Professor of Law at Harvard and a consumer campaigner who’s as despised by Wall Street and the right as she is feted by progressives on the left. As The Washington Post put it in an editorial yesterday, “…her dim view of the banking industry is fully reciprocated.”

The President didn’t nominate Warren as the bureau’s first director, largely because many thought that Senate Republicans would have filibustered her appointment. However, some believe that she’s still in the running for the job, and that the White House calculates that she stands a better chance of being confirmed down the line if she can show a record of success in her new role of setting up the organization.

Credit card regulation enters new phase?

Yesterday, The San Francisco Chronicle identified three reasons why banks are so vehemently opposed to Warren being given a key role in future credit card regulation. In general terms, these were:

1. Warren is an acknowledged expert in consumer bankruptcies, and well understands the “tricks and traps” (as she calls them) that some credit card companies try to bury in the small print of their card agreements. The new bureau has been empowered to write new, legally-binding standards for contracts that could further restrict issuers’ abilities to impose penalties and to hike credit card rates.
2. Warren is a doughty campaigner, who won’t shy away from closing loopholes, no matter how powerful the interests lined up against her are.
3. Warren is an outsider in both Washington and Wall Street terms, and is less likely to be susceptible to lobbying than others. If she shapes the bureau’s mission, it may be difficult to change its ethos when she moves on.

Credit cards and Warren–some quotes

Credit card companies are right to point to Warren’s naked partisanship. Last year, on HBO’s “Real Time with Bill Maher” (a comedian whose followers include a vanishingly small number of bank CEOs), she talked about credit cards being a “David and Goliath story,” and went on to describe the current situation as “…a totally broken market that makes a few people very rich, and robs the rest.”

That can only be described as partisan, although some would say that it may also be accurate. Indeed, even President Obama called her “one of the country’s fiercest advocates.”

Credit card companies and bridge building

Saturday, Bloomberg reported that Warren had spent part of her first day reaching out to banks and credit card companies, possibly in order to build some bridges, and create some bipartisanship. She refused to name those she had spoken to, but Citigroup, Inc. (the people behind Citi Credit Cards) acknowledged that a call had taken place between her and its CEO, Vikram Pandit.

A Citi spokesperson told Bloomberg that the two:

…had a good conversation when they spoke on the phone today. Citi is very focused on helping consumers in our country, and Vikram looks forward to working with Ms. Warren as she guides the development of this important new agency.

In reality, Warren is likely to need the cooperation of the banks if she is to meet her goals, and it may well be that her ability to work with Wall Street could prove as decisive to her success as her undoubted passion and intelligence.

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