WASHINGTON (Reuters) - The goal of the new U.S. consumer protection agency should be to make financial products easier to understand rather than to restrict specific business practices through regulations, President Barack Obama’s top consumer adviser said on Thursday.
Elizabeth Warren argued that companies and their lawyers can find ways around government prohibitions, but making financial products such as mortgages and credit cards easier to understand will empower consumers.
“Regulations should be about making sure that customers have the information they need to make the decisions that are right for them,” Warren said in remarks prepared for delivery at a meeting of the Consumer Federation of America.
Warren acknowledged there is skepticism about how effective disclosure of information can be in aiding consumers, but said the goal of the new agency should be clarity.
“No customer should be asked to take out a loan without knowing the costs or the risks of the deal,” she said.
Obama tapped Warren in September to help set up the Consumer Financial Protection Bureau, which was established by the new financial reform law and is scheduled to officially launch in July.
The financial industry, particularly banks, vehemently opposed the bureau’s creation, arguing it will stifle the innovation of new products and strangle profits through overregulation. Republicans, who will control the House of Representatives next year, have promised to thoroughly review the bureau’s activities and attempt to restrict its power by trying, among other things, to limit its budget.
Warren has been making the rounds since September to try to sell the public on the bureau while also attempting to ease industry fears that the new agency will rely heavily on prohibitive regulations.
“The problem is that thou-shall-not rules do not fundamentally change the credit markets,” Warren told the Consumer Federation of America, which is a major booster of the agency.
Instead, she said, the bureau should push to make products easier to understand so consumers know the terms of contracts and can compare what different companies are offering.
Warren pointed to a recent law seeking to rein in abuses in the credit card industry as evidence that restrictive rules can be circumvented.
“Right now, there are a lot of lawyers who are working overtime to figure out how to render the CARD Act rules ineffective,” she said.
Reporting by Dave Clarke, Editing by Lisa Von Ahn