Reuters Money

President Barack Obama named Elizabeth Warren to a special advisory role on Friday in an effort to get a new U.S. Consumer Financial Protection Bureau up and running. In this new post, the president is expected to rely on Warren’s expertise to launch the consumer agency while avoiding a heated Senate confirmation process.

The Consumer Financial Protection Bureau will regulate mortgages, credit cards and other financial goods and services such as cash checking shops.

What should be Warren’s first order of business? Here is a manifesto from consumer experts and advocates:

David Arkush, director of Public Citizen’s Congress Watch division

The top priorities must be to hire outstanding, dedicated staff and to set important precedents, both legal and what one might call cultural. By cultural, I mean things like independence from other agencies and from industry, a no-nonsense attitude that cuts through industry shenanigans, and a strong commitment to serving American consumers above all else — an attitude that should guide all the agency’s decisions and actions.

On the substance, there are so many problems in consumer lending, and so many that are high priorities, that it would be difficult to list them all.  The agency certainly has its work cut out.

Some of the highest early priorities should be:

• Cleaning up the mortgage markets. Eliminate unsafe and predatory mortgage lending practices.
• Enforcing new laws that stop unfair practices by the banks and credit card issuers, like the CARD Act and the overdraft rule. This means not just stopping outright violations, but also policing attempts to evade the law, like the banks’ current aggressive campaigns to lure consumers to “opt in” to so-called overdraft “protection.”  It also means requiring simpler, clearer contracts and disclosures of terms, and watching closely for new tricks and traps as they arise.
• Stopping predatory debt collection practices. This industry is rife with abuses.  Debt collectors use a wide range of abusive tactics, sometimes even to collect debts that are illegal to collect.
• End forced arbitration. Nearly every consumer lender puts a clause in the standard-form contract saying that the consumer can never sue the company, for anything.  Instead, consumers must take any disputes to private, secretive arbitrations that are dominated by industry.  The arbitrators depend on industry for their income, they are under no obligation to follow the law or even teir own rules, and there is virtually no appeal to a public court, no matter how mistaken, unlawful, or unfair their decisions.  Companies use forced arbitration both as a shield that basically grants themselves immunity from accountability in court when they break the law and harm consumers, and as a sword to use when hounding consumers aggressively for debts (including debts that are illegal to collect).

Mary Ann Campbell, spokeswoman for IndexCreditCards.com

As you work to make financial institutions more responsible, please keep us informed with your ideas on how we can also work with and motivate consumers to accept their personal responsibilities as well.  This improved financial environment can strengthen the financial security of our lives, our families, our communities, and our nation.

• Please address bringing business and professional credit cards under the same rules as consumer cards.

• Payday lending loans are also a pitfall that needs to be addressed.

• Enjoy this ability to structure long needed improvements in our financial systems.

Gail Cunningham, spokeswoman, National Foundation for Credit Counseling

The highest priority of the Consumer Financial Protection Bureau should be around financial education and training because the best consumer protection in the financial arena is to have educated consumers who understand the services and products that are being offered and who are empowered and able to make informed financial decisions.

That alone will do more to protect consumers from “predatory” practices than any amount of regulation of the financial sector by the Consumer Financial Protection Bureau.

Curtis Arnold, founder, CardRatings.com

We would love for Warren to immediately tackle some of the big loop holes that still remain despite the CARD Act having been fully implemented now. Some of these loopholes are so big you could drive an 18-wheeler through them.

For example, business — or so called “professional credit cards” — are still the “Wild West” and offer very little consumer protection. This needs to be changed ASAP!

One other thing that needs to be eliminated are reinstatment fees that have sprung up out of nowhere since about the time that the CARD Act was signed into law. (Strange coincidence, I suppose.)

If you are late on your account, the fees are levied and your reward points that you have worked hard to earn are basically “held hostage” until you pay the fee.

John Ulzheimer, president of consumer education at Credit.com

Step 1: Strengthen the CARD Act. There are too many loopholes and it will likely go down as one of the worst consumer protection laws ever if it isn’t addressed.  The biggest loophole is the fact that small business credit cards are not covered by the act.  And, credit card issuers are starting to ramp up their prospecting efforts with those types of cards.

Step 2: Address debt settlement company practices sooner rather than later.  I always tell people when it’s dark outside the rats and roaches come out to play.  The debt settlement vermin are aggressively pursuing debtors with magical tales of 50 percent settlements when the reality is that most settlement offers are rejected, leaving the consumer deeper in debt and often on the wrong side of a collection lawsuit.  A bankruptcy is better for a heavily indebted consumer than settlement.

Step 3: Housing Assistance Modifcation is a disaster, plain and simple.  Consumers are waiting six to nine months just to find out their loan modification applications are being denied.  Now they’re thousands of dollars past due, at the direction of the mortgage lender mind you,  and are having to catch up to avoid foreclosure proceedings.

It takes 15 minutes to determine whether or not someone qualifies for a loan modification and “backlog” isn’t an excuse when they were the ones who fired most of their mortgage staff in the first place.  The loan modification requirements should be standardized and fully disclosed so that consumers can save the time of applying if there’s no chance of an approved modification.

Keith Gumbinger, vice president of HSH.com

Consider the changing secondary market landscape. Talk to the industry and other regulators to find out what went wrong before any changes to Fannie Mae and Freddie Mac are proposed (still in the works and sure to be a topic of discussion). The system worked fine for many, many years, but got derailed somehow. Was it affordable housing mandates? Was it trying to garner market share? Was it just a belief that nothing could ever go wrong, so why plan for it?

We need a strong, effective, private secondary mortgage market, and the new agency rules certain to come will need to dovetail into them. Too many rules will prevent, rather than enhance, access to credit.

Consider streamlining and simplifying mortgage documents and disclosures. These have been implicated as contributors to the mortgage market mess… too many complicated documents read by too few borrowers and glossed-over by too many originators. This issue has been studied for years, and only minor tweaks have come (such as this year’s new good faith estimate, which is OK, but not great).  Simplicity and clarity are the hallmarks of good disclosure.

Engage the mortgage industry in the rule-making process. Productive engagement makes for better rulemaking. While “innovation” in mortgage lending didn’t work out well for a number of homeowners, there are folks for whom it did work out, and well in some cases.

Instead of pointing fingers and punishing folks, lets see if we can find the products and processes which did work out, and not simply exclude certain classes of borrower/types of mortgages etc from the market.  A proposal floated at one point earlier this year called for lenders to offer only “plain vanilla” mortgages, and probably at the same rates and terms, too. This stifles needed innovation in lending, and to the extent that any audience is excluded or deterred from buying a home, the market will continue to be stagnant.

Beverly Harzog, co-author The Complete Idiot’s Guide to Person-to-Person Lending

As a consumer advocate, I always root for any solution that can improve the credit lives of consumers. The Consumer Financial Protection Bureau will serve the role of “watchdog” at a time when consumers really need it. The objective, of course, should be to protect people from unfair practices and deceptive lenders. But ultimately, the goal should also be to educate consumers so they can make informed decisions and protect themselves.

The CARD Act made a lot of headway, but there are many loopholes to close. I’d like to see the Bureau look into the language in the CARD Act and determine if it needs to be made stronger in some areas. For instance, some card issuers are still using language that sounds an awful lot like universal default. I’d also like to see more transparency when it comes to penalty APRs and what triggers it. With penalty APRs averaging 29.99 percent, it’s vital to educate the consumer so they can avoid getting trapped in a high rate.

Having said that, it’s a fine line between helping consumers get out of debt and going too far with legislation. A combination of legislation and consumer education is what’s needed from this new bureau. If done well, this combination could empower consumers.

I hope when it comes to decision-making, that this bureau won’t get bogged down in layers of politics. Hopefully, the politicians will rise above the politics and do what’s right for consumers.