If President Obama appoints Elizabeth Warren to run the Bureau of Consumer Financial Protection, at least some parts of the financial industry are likely to fight her nomination. But which ones? One way to answer that question is to go through the 2005 book, All Your Worth, she co-wrote with her daughter. It’s a financial advice book, but it also singles out three groups for particular scorn. And it’s not hard to imagine those groups would be among those most opposed to her nomination.
Here they are:
1. Credit Card Companies:
Warren advised her readers to stay away from credit cards. But her criticism of credit-card companies cuts deeper:
Your credit card company wants something to go wrong in your life. Why? Because that’s when they make the most money! That’s when the interest piles on, the late fees and over-the-limit charges balloon, and the bank racks up big profits from your troubles. If something goes wrong, that monster can eat everything you have. The credit card companies don’t want you to know it, but debt is dangerous stuff.
Meanwhile, the credit card companies have already spent a lot of money flexing their muscle on Capitol Hill. Disclosure forms show that Bank of America, one of the nation’s largest credit-card issuers, has spent over $2 million lobbying in 2010. JP Morgan Chase: $3 million. Citigroup, parent company of Citibank? Almost $2.8 million. And the payment-processing companies got in on the game too. Visa has already spent over $2.6 million this year on lobbying. Mastercard was good for more than $3 million. The companies’ PACs have handed out hundreds of thousands of dollars more. Visa and Mastercard don’t make money from credit-card loans directly, but they earn money every time someone uses a credit card. A decline in their popularity would be bad for business.
Not all of this money was spent battling the creation of the new financial protection bureau, of course. But some of it was. And if Obama decides to put Warren in charge, it’s a safe bet they’ll battle some more.
2. Commercial Banks and Retailers That Make Loans:
Warren encourages readers to do their best to pay their debts, but she also reminds them that bankruptcy is a way out when debt becomes overwhelming. And to prove that it’s a legitimate alternative, morally as well as legally, she notes that businesses facing lots of debt frequently avail themselves of the option:
Still not convinced of the morality of bankruptcy? Consider this: Businesses file for bankruptcy all the time. Indeed, sophisticated business people chat about bankruptcy as “financial reorganization” and a “litigation strategy.” In other words, they look at bankruptcy as just another tool for smart business management. Do you imagine the CEO of United Airlines and the president of Kmart were racked with guilt when they took their companies to the bankruptcy courts? We doubt it. They did what they thought best for their shareholders and customers. If that meant that some creditors ended up with the short end of the stick, then so be it. They saw it as simply a smart business decision. And when your survival is on the line, so should you.
The BCFP’s mandate doesn’t directly touch on bankruptcy—the bureau’s primary mission centers on loans made to consumers. But that doesn’t mean Warren won’t remind people of their options.
The bureau will include an Office of Financial Education, “which shall be responsible for developing and implementing initiatives intended to educate and empower consumers to make better informed financial decisions.” It will also increase access to financial counseling and “activities intended to improve the financial situation of the consumer.” For those in the direst of financial straits, bankruptcy certainly fits that description.
Then there’s Warren herself. She’s an expert on bankruptcy, and she isn’t afraid to start a fight. She’s unlikely to be quiet on any discussions of bankruptcy, even if the issue isn’t directly within her purview.
And that’s unlikely to make lenders happy, since bankruptcy reduces or eliminates the obligations people have to lenders. That’s why the Chamber of Commerce pushed hard in 2005 to have the law tightened. In Warren, they would meet a powerful counterforce.
The financial-education office is also bad news for companies, like most payday-lending outfits, that prey on their customers’ ignorance. The bureau’s second objective is to ensure “consumers are protected from unfair, deceptive, or abusive acts and practices and from discrimination” And combating predatory businesses is a mission Warren would revel in, if her book is any guide.
She writes with righteous indignation of “credit counseling” companies that are “run by crooks who have set up bogus nonprofit shells.” She warns “debt consolidators can leave you worse off than if you’d never called them.” And she lumps paycheck advances into the category of “steal-from-tomorrow debt,” along with department-store credit cards and pawnshop loans.
It remains to be seen just how hard these groups would actually fight. (As Noam wrote last week, the banks might figure Warren’s confirmation is inevitable—or that the likely alternatives are no better.) But they’d obviously have a tough adversary in Warren—which is why, by the way, she makes such an appealing choice for the job.