Can Mary and Elizabeth remake the financial world for consumers?
Elizabeth Warren sought a consumer protection bureau.
Mary Schapiro of the S.E.C. has tried to help consumers.
They just might, if Elizabeth can get the job.
The women referred to are not the queens who, you may recall, did not get along too well. Their dispute ended badly for Mary.
Mary is Mary Schapiro, the chairwoman of the Securities and Exchange Commission, which this week moved to open up more price competition in the selling of mutual funds, and soon will deal with the issue of just how much responsibility a stock broker has to act in a client’s best interests.
Elizabeth is Elizabeth Warren, the Harvard law professor who dreamed up the idea for the Bureau of Consumer Financial Protection, which became law when President Obama signed the Dodd-Frank law this week.
Whether or not she is named to run the bureau may depend on how willing the president is to anger the banks yet again, and whether he is willing to risk a big confirmation battle in the Senate. There may be people less popular in bank boardrooms than Ms. Warren, but none come immediately to mind.
In making the decision, the president may want to keep in mind that those two organizations, the S.E.C. and the new bureau, will be largely responsible for the actions that will make the Dodd-Frank law visible to most Americans by the 2012 election.
Other provisions of the law — creation of a financial stability panel, a more transparent derivatives market, limits on bank risk-taking through proprietary trading, a new way to liquidate big banks — will be really noticed only if they fail and we get a new financial crisis. But the bureau and the commission could change the way financial products are sold and make it easier for those who are cheated to get compensation.
The bureau, more than most new agencies, is likely to be molded by its first boss.
While the average new agency is created by a law that gives it a bunch of duties no one had before, this agency is supposed to enforce laws long on the books that were enforced poorly, if at all, by the bank regulatory agencies. It will also establish new rules.
Never has the Biblical adage of “No man can serve two masters” been better proved than in bank regulation. The first duty of bank regulators is to protect the safety and soundness of banks, and it is easy to see why protecting consumers from hidden fees and unfair practices might seem to threaten bank profits and be contrary to the goal of healthy banks. To say the bank regulators neglected consumer protection is to be kind.
Logically, the belated discovery that financial consumer protection needs to be increased might have led to increased powers for the S.E.C., which was created to protect investors. But it stumbled badly in recent years, and that idea does not seem to have occurred to anyone.
Ms. Shapiro’s move this week was to do something that sounds just like what Ms. Warren would propose for banks: bring fees out into the open, so everyone can see them.
The S.E.C. proposed rules to change the cozy system that lets “no load” mutual funds charge sales fees, known in the business as 12b-1 fees, that are taken from an investor’s profits year after year. Under the proposal, the fees would be above board, and differing brokers selling funds could discount them if they chose to compete that way.
The commission will soon move to consider the issue of whether to require brokers to have a “fiduciary duty” to investors, meaning they would have to offer advice they believed to be in the customer’s best interest. Such consideration is required by the new law, and how far the commission goes could help to determine just how consumer-oriented it is.
The most notable enforcement case of Ms. Shapiro’s tenure can be read as an indication that she cares deeply about such issues.
Under current law, brokers serving retail investors are held to a limited standard requiring that investments be “suitable” to the buyer. But brokers for institutional investors have not faced even that minimal rule. That freed brokers to let clients view them as trusted advisers when pitching an investment. If and when the product blows up, the broker disclaims any responsibility for the bad investment decision made by the customer. The broker was simply a “counterparty” who took the other side of a trade that the customer wanted to do.
That essentially was Goldman Sachs’s defense when the commission filed suit against it over a disastrous mortgage-backed securities deal that Goldman sold without telling customers that it had been partly created by the firm that wanted to bet it would fail. Goldman’s settlement helps to establish a precedent that such sophistry must end.
Floyd Norris on whether Dell's settlement will serve as a deterrent, at nytimes.com/norris.
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