WASHINGTON — The head of the congressional oversight panel examining the $700 billion rescue package said Friday the U.S. needs to focus on product-based, not rules-based, regulation of the financial industry in order to better protect consumers and restore confidence.
Elizabeth Warren, an outspoken consumer advocate and Harvard Law School professor, compared the current moment to the period following the collapse of Enron Corp. That event lead to the passage of the landmark Sarbanes-Oxley legislation, Warren said, and the current financial crisis represents a similar "regulatory moment."
"There was a moment when the lobbyists had to recede," Warren said at a Consumer Federation of America conference in Washington.
Warren, who is heading a four-person panel to oversee Treasury's implementation of the financial rescue plan, said a similar sentiment exists now that advocates must take advantage of an order to better insulate consumers from predatory financial products. The key, she said, is to move the focus of federal financial regulation away from the type of firm offering credit cards and loans, and to the instruments themselves.
"This is about basic safety," Warren said, contrasting the protections consumers receive on toys and other goods to the absence of such oversight over credit.
Warren has proposed a financial products safety commission that would focus on specific financial products; anyone issuing a loan, credit card or other instrument would have to "meet basic standards."
"The product itself should not be the source of the danger," Warren said.
She also exhorted the consumer advocates present to take advantage of the recent electoral victories by Democrats and the prevailing public sentiment to enact substantive reforms to the regulation of financial services.
"We're not a group that's going to keep our strong lobbying presence in Washington for a long period of time," she acknowledged.
Separately, Warren said after her speech that the Tarp congressional oversight panel is still drafting its first report, which it is expected to provide to Congress on Dec. 10. Warren said the report gets longer every day but suggested that it will not contain concrete recommendations for Treasury. Instead, Warren said "it's question time now" and said she hoped to compile data to make such recommendations in the future.