Q&A with Eric L. Johnson: Bureau of Consumer Financial Protection to form in July

The announcement will have a significant impact on the way business is conducted in Oklahoma in the form of increased uncertainty about upcoming compliance and regulatory changes and increased costs of those changes.

Q: Treasury Secretary Timothy Geithner recently announced a designated transfer date for establishing the Bureau of Consumer Financial Protection under the Dodd-Frank Wall Street Reform and Consumer Protection Act. What does that mean and how will this change the way business is currently conducted in Oklahoma?

A: It means that on July 21, 2011, the consumer financial protection powers of the federal banking agencies, the Housing and Urban Development and the Federal Trade Commission will be consolidated and transferred to a new uber-Bureau of Consumer Financial Protection. From that date forward, the bureau will have full authority to proscribe rules and issue orders under any federal consumer financial law. The announcement will have a significant impact on the way business is conducted in Oklahoma in the form of increased uncertainty about upcoming compliance and regulatory changes and increased costs of those changes.

Q: President Barack Obama recently appointed Harvard law professor and native Oklahoman Elizabeth Warren as his "assistant" and "Special Advisor to the Secretary of the Treasury." Why did some find this a controversial appointment and should businesses be concerned?

A: Warren's appointment was controversial because President Obama was able to completely circumvent the Senate confirmation process. Warren will have substantial oversight over the bureau's creation for the next 12-18 months, but won't have to undergo a potentially lengthy and difficult Senate confirmation process. Businesses should be very concerned because the formation of the bureau, its new rules and new powers will be constructed by a person who hasn't been confirmed by the Senate.

Q: Elizabeth Warren has suggested that consumers should be able to read their credit card agreements within a few minutes and immediately understand them. Is that a reasonable goal? Why or why not?

A: I agree that a consumer should be able to read his/her credit card agreement within a few minutes. In fact, new rules require credit card companies to provide a one-page summary of the agreement with the application and the card. However, whether a consumer can comprehend those terms is too subjective and not an ascertainable goal. A recent study of the readability of credit card agreements found that the average credit card agreement is written at the 12th-grade reading level, while the average adult reads at the ninth-grade level. It's unreasonable to hold a lender accountable for a consumer's inability to understand the credit terms.

Q: What will Geithner and Warren focus on improving first, and what are the short-term and long-term implications for businesses?

A: In addition to trying to improve credit card disclosures, I fully anticipate Geithner and Warren will put priority on trying to improve and consolidate mortgage disclosure forms. The short-term implications for lenders include additional uncertainty about the upcoming disclosure changes and the disincentive to create new financial products. The long-term implications for lenders include more changes in its form documents, processes and increased legal, compliance and regulatory costs associated with the upcoming changes.