What’s working for Elizabeth Warren

Consumer protection advocate lends an ear to earn tentative support from community bankers.

     Elizabeth Warren’s effort to earn the support of community bankers appears to be working so far.

     Since being named special assistant to President Obama and interim director of the Consumer Financial Protection Bureau (CFPB) in September 2010, Warren and her staff have met with banking leaders in all 50 states. In fact, many state banking association executives in the upper Midwest say they have talked with or met with Warren more than once, and many have heard her speak at industry conferences.

     While listening to her speech at the Independent Community Bankers of America convention in San Diego, Daryll Lund was pleased to hear her echoing the points that bankers have made in their meetings with her.

     “I thought, ‘She’s getting it,’ ” said Lund, president and CEO of the Community Bankers of Wisconsin.

     Trying to convince bankers of the need for any additional regulation is a tough sell – but many industry veterans say that Warren, a Harvard Law School professor, has made a diligent effort to listen to their concerns. They’ve found her to be highly intelligent, engaging and articulate.

     Marshall MacKay, head of the Independent Community Bankers of Minnesota, has spoken with Warren four times.

     “Each time I was favorably impressed,” he said. “She is passionate about the bureau, she is genuine in her beliefs about what the bureau can accomplish, and she is sincere in wanting to understand community bankers and what their concerns and reservations are about the formation of the CFPB.”

     “She’s down to earth, approachable and very willing to listen,” said Rose Oswald Poels, interim chief executive of the Wisconsin Bankers Association. “She doesn’t want to overburden community banks, but I think the reality of what she can do to help along those lines remains to be seen.”

     Robert Just, president and CEO of Mound City Bank in Platteville, Wis., was one of two bankers who participated in a WBA meeting with Warren. “She’s truly a politician. You could not come away without liking her,” he said.

     Lund summarized sentiment in the industry as “healthy skepticism.” He added, “Maybe the term is ‘trust, but verify.’ ” 

     Raising objections

     Warren was a champion debater in high school in Oklahoma who “worried about money from the time I was a little kid,” she told Newsweek. She attended college on a debating scholarship and went on to Rutgers Law School, becoming an instructor there when she graduated. She arrived at Harvard Law School in 1995, where she began her study of the factors that led people to file for bankruptcy.

     Over time, she took on more of an advocacy role, and in 2005 she co-authored the first of two books with her daughter, Amelia Warren Tyagi. Both books became best sellers; The Two-Income Trap: Why Middle-Class Mothers & Fathers Are Going Broke, attracted significant media attention.

     In fall 2008, U.S. Senator Harry Reid asked her to chair the new Congressional Oversight Panel, charged with overseeing the Treasury’s Troubled Asset Relief Program.

     Warren has said that in the course of her research, she had envisioned a “financial product safety commission,” modeled after the Consumer Product Safety Commission. The Dodd-Frank Wall Street Reform and Consumer Protection Act, signed into law in July 2010, gave her that opportunity.

     Given her roles as “TARP watchdog” and “outspoken critic of consumer lending,” it is to her credit that bankers have reacted as positively to her visits.

     “Bankers expected to hear an anti-bank message from her, but instead what they have heard is a pro-market message and also a great deal of enthusiasm for community banks as opposed to large banks,” said Jo Ann Barefoot, co-chair of the bank consulting firm Treliant Risk Advisors and a former deputy comptroller at the Office of the Comptroller of the Currency. She now advises Warren and the CFPB on bank regulatory concerns, having first met her while both worked a Pew Charitable Trust study on credit card disclosures.

     However, not all bankers have found Warren disarming.

     In fall 2009, Nebraska Congressman Jeff Fortenberry arranged a conference call in which 30 Nebraska bankers participated. At that time, Warren urged bankers to support the Dodd-Frank legislation.

     “We came away with a distinct impression at that time that she had absolutely no appreciation or understanding of community banking,” said George Beattie, president and CEO of the Nebraska Bankers Association.

     “I can’t quote her exactly, but it was very close to, ‘You folks just don’t understand,’ ” he said.

     Mike Jacobson, president and CEO of NebraskaLand National Bank in North Platte, Neb., recalls that Warren touted the benefits of creating simpler products and disclosures that all banks could offer, which she believed would benefit community banks.

     He explained to Warren that the ability to tailor products to the customer was a community bank’s biggest asset and competitive advantage. “I said, what you’re trying to do is take away our greatest strength,” Jacobson said. “She said, ‘I completely disagree with that.’

     “When we raised any objections, her mind was made up and it was very clear her reason for calling us was to convince us to support her,” he continued.

     Both Beattie and Jacobson said they have not had another chance to talk with Warren. 

Cautious support

     The banking industry generally supports Warren’s primary objectives, which she has described in meetings as treating consumers fairly; simplifying financial disclosures and reducing banks’ regulatory burden; and leveling the playing field between community banks, too-big-to-fail banks and the “shadow banking” industry.

     “In terms of what the bureau is supposed to accomplish, those are all goals that our members generally endorse and embrace,” said David Schroeder, vice president-federal governmental relations for the Community Bankers Association of Illinois. “But as with any new regulator on the horizon, there is concern about a potential increase in the already crushing regulatory burden that community banks are feeling.”

     At a CBAI meeting with Warren in February, Roger Lehmann, president and CEO of The Harvard State Bank, held up a stack of mortgage documentation several inches thick to illustrate the impact of regulatory burden on bankers and consumers. He then held up a one-page promissory note and a single-page trust deed from purchasing his home decades ago.

     “She was very honest in saying that if all that the bureau does is pile new regulations on the old, it would be a failure,” Schroeder said.

     In addition to describing the increasing difficulty and cost of regulatory compliance, bankers have also raised concerns about GSE reform, the potential for more limited access to the secondary market, and the need for accurate rule writing to prevent unintended consequences.

     The need to focus on largely unregulated non-bank financial service providers was a primary topic of discussion at Warren’s meetings with bankers.

     “Professor Warren’s focus is going to be, according to her, on the non-bank financial services area, such as mortgage brokers, and accurate disclosures – hopefully without creating another level of regulation and compliance burden,” said Donald Hole, executive vice president and CEO of the Community Bankers of Iowa.

     “One of the things that she references is that there are 8,000 depository institutions that are already regulated in this country. But then you’ve got 80,000 other financial services providers who are unregulated. The challenge of the bureau is going to be, how do you get your arms around all these unregulated entities? They were the ones causing the problems and the financial crisis,” said Lund of the Community Bankers of Wisconsin.

     “She said that we were not in her crosshairs, that she was interested in reining in some of the practices of the shadow banking entities and some of the larger banks. As a community banker that’s what I want to hear,” said Greg Ohlendorf, president and CEO of First Community Bank in Beacher, Ill.

       “If we don’t comply and we don’t do a good job in that area, our communities will punish us. We don’t need a regulator to punish us,” he continued. “We’re very aware of doing the right thing for the customer, which is what the community banking model is built on.”

     S. Joe DeHaven, president and CEO of the Indiana Bankers Association, said that Warren is saying all the right things. But, he says, “I’ve raised a couple of kids, and I always used to tell them, ‘Don’t tell me what you’re going to do – tell me what you’ve done.’ A bucket load of promises isn’t worth very much, and right now that’s what we have.” 

Waiting and wondering

     For now, the industry is watching to see whether President Obama will make a recess appointment to name Warren the director of the CFPB. In May, the House Financial Services subcommittee approved three bills that would replace the director with a five-member bipartisan commission, give a council of regulators more power to veto CFPB rulemaking, and delay the transfer of the agency’s powers until a director is nominated by the president and confirmed by the Senate. Senate Republicans have promised to block any nominee unless there are major changes to the CFPB.

     Midwestern bankers clearly support the idea of a commission rather than a single leader – which they pointed out was not due to a lack of support for Warren, but rather, the idea that a single person would have unprecedented control of a regulatory agency with relatively little oversight.

     Bankers also worry about continuity.

     “Professor Warren could turn out to be the most perfect person to ever run an agency, but she won’t run it forever,” said Ohlendorf. “She is not the CFPB; the CFPB is an entity created as a result of the whole Wall Street crisis.”

     Some bankers, such as Jacobson from Nebraska, cite the fact that Warren’s knowledge of the industry is still largely theoretical, and that she doesn’t have direct experience in banking or business.

     According to news sources, other mentions for the director job include Michael Barr, assistant Treasury secretary, and Gene Kimmelman, the Justice Department’s chief counsel for competition policy and a former Consumers Union lobbyist.

     Barefoot, who started her career working for the Senate Banking Committee, points out that if the President makes an interim appointment, it will expire at the end of the Congressional session. If he were to lose the election, he would lose the benefit of having the appointee serve a full five-year term, as Warren would if she were to win Senate confirmation.

     “It’s possible that some grand bargain is being hammered out that includes agency appointments as well,” Barefoot said. “There is fear at the sheer power of the agency and its director, no matter how able the person is. It’s going to be tremendously interesting political theater.”

     Until a director, or commission, is in place, industry leaders have braced themselves for continued uncertainty.

     “We know that the bureau’s rules and regulations, when finalized, will be enforced by prudential regulators but we haven’t seen draft one, really. We know that there will be a lot of effort put toward financial education, but we don’t know to what extent that is going to involved outreach by the banking industry,” said Roger Beverage, president and CEO of the Oklahoma Bankers Association.

     Nebraska’s Beattie has kept his state legislators informed on the challenges posed by Dodd-Frank and the CFPB. “The best thing would have been to put the consumer responsibilities with the prudential regulators, but that’s not the world we live in today, so how do we make lemonade out of lemons?” he said.  

Sidebar: Vale is community bank liaison

     Many bankers and state banking association executives have become acquainted with Elizabeth Vale, assistant director for community banks and credit unions at the Consumer Financial Protection Bureau.

     Vale formerly worked as a managing director and portfolio strategist at Morgan Stanley, as a community banker and as a congressional aide.

     She has traveled around the country with Warren to introduce herself to community bankers and encourage their input on current and future projects. An effort already under way is “Know Before You Owe,” a project to combine the Truth in Lending disclosure and the Good Faith Estimate into a single, simpler mortgage disclosure form. (To receive updates on this project, go to www.consumerfinance.gov/knowbeforeyouowe/.)

     Vale and members of the bureau staff are available to speak with bankers’ groups. She may be reached at elizabeth.vale@treasury.gov.

Fredrikson & Byron Law