Consumer Financial Protection Bureau, a Democracy Idea, Opens Today

“It is impossible to buy a toaster that has a one-in-five chance of bursting into flames and burning down your house,” wrote Elizabeth Warren in the Summer 2007 issue of Democracy. “But it is possible to refinance an existing home with a mortgage that has the same one-in-five chance of putting the family out on the street.” In that essay, near the onset of the global financial crisis, Warren proposed a government agency that would be tasked with overseeing the financial products offered to consumers by banks and other credit agencies. Today, four years later, Warren’s Consumer Financial Protection Bureau will officially open for business, marking the start of a new era in financial transparency and safety.

The Bureau will have a threefold mission of protecting consumers, educating them about finance, and analyzing their borrowing habits. As part of the first category, for instance, it has already begun to accept complaints about credit-card policies, just one part of its larger goal of restricting predatory lending practices. The CFPB is also working to simplify mortgage disclosure forms and, as a part of the Federal Reserve, will also monitor and examine banks.

Earlier this week, President Obama nominated former Ohio Attorney General Richard Cordray to lead the agency pending Senate confirmation. Warren, however, has been the driving force behind the agency since she first called for its creation in Democracy’s pages. A professor at Harvard Law School, Warren wrote that she was concerned about the proliferation of financial products too complex for consumers to understand:

Families’ troubles are compounded by substantial changes in the credit market that have made debt instruments far riskier for consumers than they were a generation ago. The effective deregulation of interest rates, coupled with innovations in credit charges…have turned ordinary credit transactions into devilishly complex financial undertakings. Aggressive marketing, almost nonexistent in the 1970s, compounds the difficulty, shaping consumer demand in unexpected and costly directions. And yet consumer capacity-measured both by available time and expertise-has not expanded to meet the demands of a changing credit marketplace. Instead, consumers sign on to credit products with only a vague understanding of the terms.

In an interview with ABC News’s Jake Tapper on Monday, Warren was proud that the agency she had first proposed in her Democracy essay had finally materialized into official policy. “Of all the ideas that get published in… journals like that,” she said, “not so many make it into law.”