Seven Takeaways for Banks from Warren's New Memoir

WASHINGTON — In a move that will surprise no one, Sen. Elizabeth Warren pulls no punches calling out bankers and Washington insiders in her just-released memoir.

The book, A Fighting Chance, hit bookstores on Tuesday. It details the Massachusetts lawmaker's dramatic rise from humble Oklahoma roots to bookish Harvard law professor to liberal juggernaut, highlighting her work crafting and then spearheading the Consumer Financial Protection Bureau along the way.

Below are seven takeaways for the financial services industry, including key insights into the political wrangling involved in getting the CFPB off the ground and becoming one of the most powerful women in Washington.

Selling Barney on the CFPB

Tucked away among the many up-close-and-personal anecdotes Warren shares with readers is a revealing account of how she sold Rep. Barney Frank, D-Mass., the then-chairman of the House Financial Services Committee, on making her nascent idea for a consumer financial protection agency a top priority during negotiations over the Dodd-Frank legislation.

She describes a key encounter in April 2009 in Frank's kitchen in Newton, Mass., in his apartment complex of "modest, two-story brick buildings."

Frank was initially focused on getting the more complicated bank regulations out of the way first, according to Warren's telling.

"Financial reform was already too complicated, and he was worried the consumer agency might have to wait. In the fight for any financial reform, we would be up against an army of lobbyists, and he thought it might make more sense to take them on one issue at a time. If we tried to push through everything at once, we could lose it all," the book says. "So he would start with the bank regulations that obviously needed fixing, focusing on the rules covering derivatives, capital reserve requirements, and so forth."

But Warren persisted, noting that she was concerned about dropping the consumer agency for the same reason.

"I was sure the lobbyists would fight tooth and nail against the new agency, and I worried that if the rest of the reform package made it through first, no one would feel any great urgency about continuing to battle the lobbyists. We had to make this agency a priority. I figured this was our moment: now or never," she writes.

To sway the irascible, long-time lawmaker (while "wedged up against Barney Frank's refrigerator"), Warren ultimately opted for storytelling. She relayed insights from her family following the Great Depression: "I don't think my grandparents knew anyone who owned stocks or other investments. For them, the Depression had nothing to do with Wall Street and the stock market crash. It was about local bank failures and families losing their savings and their farms."

"My grandmother had never been very political, and she sure didn't follow high finance," Warren said. "But decades later, she was still repeating her line that she knew two things about Franklin Roosevelt: He made it safe to put money in banks and — she always paused here and smiled — he did a lot of other good things."

Warren says Frank was sold on the spot after the two-minute pitch, which centered on a strategy of doing something "simple" that "people can see," and, more importantly, understand.

"Yes, derivatives and credit default swaps were huge problems. He was totally right about that," she writes. "But for a lot of people, those were just words that fly by in news reports. On the other hand, a mortgage broker who lies about the terms of a mortgage he sells to a homeowner — that's something everyone understands. Hidden fees on a credit card bill — that's a problem millions of people had been living with for a long time. Fine print and confusing legalese — everyone had signed loans that were loaded with it."

Bid for a recess appointment

After the creation of the CFPB by the Dodd-Frank reform law, Warren was tasked to help put the agency together.

It's well known that Republicans strongly opposed a potential Warren nomination to head the CFPB permanently, and that consumer advocates and others called on President Obama to use his recess appointment powers to name her to the position. But what hasn't been discussed is that Warren herself floated the idea to the White House, though it was quickly vetoed.

"According to the president's team, the Republicans in the Senate were still adamantly opposed to me. Worse, the Republicans would never even let the issue come to a vote, so there was no way I could get confirmed. So I tried a different tack: If I can't get confirmed, would the president consider appointing me during a congressional recess?" Warren writes. "The tenure of a recess appointment is limited by law, but it could give me up to two years in the job of director while we established the agency's course."

The Obama administration declined, because "the president wanted a director to be confirmed through the proper channels," Warren writes.

The irony is likely not lost on the Massachusetts Democrat. Her successor at the agency, Richard Cordray, ended up facing his own protracted confirmation battle, including a controversial recess appointment in January 2012. (He was confirmed by Senate vote in the summer of 2013 after Senate Majority Leader Harry Reid convened a landmark rule change on the votes needed for executive branch and judicial nominees, except those to the Supreme Court.)

Indeed, Obama initially told Warren he had a plan to ensure a director's confirmation: he would agree to drop Warren as a contender for director if Republicans would drop filibuster threats and vote for a different nominee.

But Warren was skeptical.

"I pressed the president: Was he sure he could lock in this deal?" Warren writes. "Along with everyone else, I had read the letter from the Republicans, and it sounded like they were in no mood for compromise. The president told me not to worry; he was pretty confident they could work out the deal. They just needed a nominee who wasn't me."

In the end, however, Obama never struck an agreement.

"It turned out there was no deal after all," Warren writes.

Banks' "worst nightmare"

One of the biggest arguments banks have had with the CFPB is the agency's collection — and publication — of consumer complaints.

Bankers argue that it's not fair to publish unverified accusations about the institution.

But in her book, Warren spends considerable time emphasizing why the agency's consumer complaint database was a vital part of its mission.

During the early days of the CFPB, she tried to devise a system in which complaints didn't just sit there unread by the government. The difficulty, she says, was that "no one has the resources to conduct an investigation to conduct an investigation every time a consumer has a problem."

But by taking complaints on-line and then publishing them, along with an account of response-time by the banks involved and whether the complaint was successfully resolved, it put the onus on institutions to act quickly.

"What if we also made the complaint data public?" she asks. "And not just a little bit public , but public in a way that would expose exactly how consumers were getting cheated? A lot of people thought the idea was nuts. After all, the big banks would hate this. It would be their worst nightmare come to life: we'd be taking their dirty laundry and airing it in public."

Warren articulates what has also become a driving force behind the CFPB's work: it will go where the complaints demonstrate it should head.

"Which lenders and which products were generating the most complaints?" she asks. "The American people would tell us directly. They could be our eyes and ears, and we could focus our resources wherever their complaints led us. The hotline also gave us an opportunity to lay down a marker : We intended to build this agency out in the open. No cozy deals behind closed doors. This would be the people's agency, and we took transparency seriously."

Irked by influence

Unsurprisingly, Warren repeatedly raises concerns about the close ties between bankers and those in Washington, exemplified in one telling of a dinner event she attended that was hosted by the Financial Services Roundtable.

"I was amazed by how many tables in the huge ballroom had at least one senator or representative sitting with the CEOs," she says.

She added: "I don't remember exactly which senators and representatives were there that night, but I do recall being surprised by who was there and how long they stayed. I'd been to a few Washington dinners by this point — mostly dinners honoring consumer advocates — and sometimes a member of Congress made a quick in-and-out appearance. But I'd never seen anything like this. All those tables and all those lawmakers. Two hours of dinner and conversation. That's a lot of access."

Warren added that she was seated next to Jamie Dimon, chief executive of JPMorgan Chase, whom she'd never met in person before.

Her description of the popular banker is less than flattering. He "did most of the talking" over dinner. He complained "loudly" about "how painful it was for him to be a Democrat when the Democrats were trying to regulate the banks" all the while detailing "his many, many conversations with the president," she reports.

Going toe-to-toe with Hensarling

Warren first came to Washington as a member of the Congressional Oversight Panel to the Troubled Asset Relief Program, a watchdog over the government's bank bailouts, serving alongside several other appointees, including Rep. Jeb Hensarling, R-Texas, who now serves as chairman of the House Financial Services Committee.

The two butted heads from almost the start. The Massachusetts Democrat describes in detail her first in-person meeting with the conservative lawmaker, which revolved around how the committee would allocate its oversight funds. She had recently been voted chairman of the COP, so would be responsible for making those kinds of decisions.

"After giving me a big smile, Hensarling dived right in. He said something along the lines of ‘I want to know your plans for dividing up the budget,'" Warren writes, noting he assumed the funds would be divided up along party lines.

But she pushed back hard on the proposal, drawing Hensarling's ire. 

"I told him that I felt strongly about one thing: There's no money for one side versus the other," she added. "This shouldn't be a my-party-your-party exercise. We should work together with one nonpartisan staff."

The two continued to spar over the allocation of resources and staff going forward, though the Texas lawmaker ultimately endorsed several of the TARP oversight reports down the road.

"I was glad to have his vote from time to time," Warren writes.

On being a woman in finance

A recurring theme throughout the book is Warren's concerns over the boy's club nature of the Washington policy scene.

She describes a Time magazine photo shoot in spring of 2010 with Sheila Bair, chairman of the Federal Deposit Insurance Corp., and Mary Schapiro, head of the Securities and Exchange Commission.

"And I suspect each of us felt that the cover story raised a question we'd all thought about, even if we didn't dwell on it: Given that women were so conspicuously absent from the ranks of top executives in high finance, how was it that three women had ended up in leadership positions when it came time for the badly needed cleanup?" Warren writes.

Later, as pushback mounted on her serving as head of the CFPB, Warren observes that a White House advisor even suggested she could potentially become the agency's "cheerleader" instead.

"Would I agree to be a part-time advisor to the new agency? What about becoming the agency's new public spokesperson while someone else made the real decisions?" she writes. "One of the president's advisors even suggested that someone else be named director, while I could serve as ‘cheerleader' for the new agency. I assume that was meant as a metaphor , but I had to wonder: Cheerleader? Would the same suggestion have been made to a man in my position? I did not rush out to buy pom-poms."

The issue even continued to haunt her into her eventual Senate campaign.

"In those early months in the race, reporters would sometimes ask me a variation of the question 'What's it like to run as a woman?' I always smiled mildly, but I hated the question. I was pretty sure no one asked Scott Brown how it felt to run as a man," Warren writes.

She added: "Still, I knew the subtext. No woman had ever been elected senator or governor in Massachusetts — and a lot of people thought no woman could be elected senator or governor. The Woman Question delivered a not-so-subtle message: Don't kid yourself, girlie. Big-time politics is a boys' game."

"Alice in Crazyland"

One of the strangest stints that Warren experienced while running the CFPB was her testimony on May 24, 2011 in front of the House oversight subcommittee. The hearing was meant to focus on issues facing the CFPB, but quickly devolved into personal attacks on Warren.

Oddly, the key dispute came down to an argument over when the hearing was supposed to adjourn. Warren believed it was meant to end at 2:15 p.m., but Rep. Patrick McHenry, the subcommittee's chairman, said it was supposed to last longer. When the two tangled over the issue, McHenry accused Warren of lying. (You can see Warren's shocked response in this video.)

The video of the event went viral, sparking a backlash on McHenry's Facebook page.

Looking back, Warren says regrets the episode, but it was informative.

"I was surprised that so many people paid attention to the incident , and I felt a little embarrassed," she says. "In retrospect, I should have just stayed for as long as he wanted to make me sit there. But the whole thing — from the first attack to the YouTube moment — made me feel like Alice in Crazyland."