Since she emerged in the national spotlight as the spokesperson and developer of the Consumer Financial Protection Bureau (CFPB), Elizabeth Warren has been perceived as a political force to be reckoned with. After her potential candidacy to be director of the CFPB was soundly rejected by Republicans, Warren entered the political ring and defeated Scott Brown to be the next Senator for Massachusetts. Warren has drawn both intense criticism and glowing admiration. Rob Engstrom of the Chamber of Commerce reportedly stated before the election: “no other candidate in 2012 represents a greater threat to free enterprise than Professor Warren.”
Warren has developed a compelling campaign biography, emphasizing her connection with the day-to-day struggles of ordinary Americans. At the Democratic National Convention (and throughout her campaign speeches), Warren offered this summary of her background
“I grew up in a family on the ragged edge of the middle class. My daddy sold carpeting and ended up as a maintenance man. After he had a heart attack, my mom worked the phones at Sears so we could hang on to our house. My three brothers all served in the military. One was career. The second worked a good union job in construction. The third started a small business. Me, I was waiting tables at 13 and married at 19. I graduated from public schools and taught elementary school. I have a wonderful husband, two great children, and three beautiful grandchildren. And I’m grateful, down to my toes for every opportunity that America gave me.”
As compelling as this autobiography is for campaign purposes, it completely leaves out a significant part of her life: her decades-long academic career. Since the late 1970s, Warren has been a prominent academic, and a renowned expert in the field of bankruptcy law. Warren graduated from the University of Houston with a Bachelor of Science degree in 1970 and received her J.D. from Rutgers in 1976. From 1977-1987, Warren taught at Rutgers School of Law- Newark, the University of Houston Law Center, and the University of Texas School of Law. From 1987 to 1995, Warren was a tenured professor at the University of Pennsylvania Law School. In 1992, Warren worked at Harvard Law School as a visiting professor and in 1995, she received a permanent appointment to the faculty as the Leo Gottleib Professor of Law. Warren has taught in several areas of financial law, including bankruptcy, contracts, secured lending, payment systems, commercial paper, regulated industries, corporations, partnerships, and banking regulation.
Warren was first involved with politics as an advisor to a committee investigating bankruptcy reform. However, her vocal views about how to address the issue were largely ignored in the bankruptcy law that actually passed in 2005. In 2009, Warren took a hiatus from academia into the realm of public policy under the Obama administration. Warren was appointed Chair of the Congressional Oversight Panel (COP) as the Troubled Asset Relief Program (TARP) was being administered. In 2010, Warren was appointed by President Obama to serve as Special Advisor to the Secretary of the Treasury on the CFPB. She spearheaded the development of the new agency and established plans for its structure and purpose. However, due to her disagreements with Treasury Secretary Geithner and vocal opposition from the financial sector and Republican Senators, President Obama passed her over for the position of head of the CFPB.
Although Warren has underplayed her impressive academic credentials during her Senate campaign, her academic work is of interest in considering her next steps. Years before Warren was asked to set up the CFPB, she depicted the existing regulations for consumer financial products as deeply flawed and proposed a regulatory agency to provide oversight on these products. Warren’s work foreshadowed her vision of the CFPB, and may also be prescient of her vision on the Senate. Warren’s academic record also offers significant insight into her general philosophy and her core values, and into how they have developed over time.
In the early 1980s when she began her academic career as an assistant professor at the University of Houston College of Law, Warren wrote on public utility rates and regulatory lag. In 1980, Warren wrote “The Regulatory Lag Fallacy,” in which she attacked the idea that regulatory lag provided the primary incentive for utilities to be efficient.
Tax Accounting in Regulated Industries: Limitations on Rate Base
Exclusions, 31 Rutgers
L. Rev. 187 (1978).
After an early focus on regulated industries, Warren began writing about consumer bankruptcy in 1983. Since then, Warren has been writing extensively, and often primarily about bankruptcy. Even at the outset of her writings on bankruptcy, Warren characterized bankruptcy as a last-ditch safety net for consumers and an important barometer of economic conditions. Warren’s academic work has featured large empirical studies and consumer data, rather than the more theoretical models used by many of her colleagues.
In 1983, Warren wrote “Limiting Access to Bankruptcy Discharge: An Analysis of the Creditors’ Data,” in which she attacked a 1981 study developed by the Krannert Graduate School of Management at Purdue University (“the Purdue study”).
In 1986, Warren joined with the Consumer Bankruptcy Project, along with Teresa Sullivan and Jay Westbrook, two colleagues who would become long-term collaborators. The Consumer Bankruptcy Project analyzed the data of consumer bankruptcy to determine what forces were pushing people into bankruptcy. The conclusions of the group’s reports often clash with other studies.
Throughout her career, Warren has enjoyed sparring with other academics and politicians on fundamental bankruptcy policy issues. She has embraced a format of point-by-point analysis and direct responses in several articles. In 1987, Warren published “Bankruptcy Policy” as part of her ongoing vigorous debate with Professor Douglas Baird.
“Mine is not an entertaining (or, I suspect, popular) position for an academic. I cannot claim that bankruptcy, at its heart, is an intellectual construct or that I can reason to a meaningful conclusion by doing nothing more than thinking hard about logical consequences derived from a handful of untested assumptions. I would like to endorse something that requires only library time and yellow legal pads to uncover ideal solutions to legal problems. The trouble is that I can’t do it.
But I don’t think Baird can do it either. The certainty of Baird’s position is a fiction…”
Warren’s statement reflects her view that a discussion about bankruptcy policy cannot fit neatly into the box of theory, but necessarily needs to consider the world beyond academia. Warren goes on to make a more general criticism of academia:
- “But if we academics take ourselves seriously, we should put single-issue theories into a somewhat less exalted position in order to minimize the harm we can do. And we should get about the business of asking harder questions, looking for better evidence, and approximating better answers.”
This suggests Warren’s dissatisfaction with the ivory tower approach to financial policy and may have led Warren to become increasingly engaged with public policy as a way to integrate the real-world implications of her financial theories.
In 1998, Warren argued in “The Bankruptcy Crisis” that the argument for sweeping changes in bankruptcy law to make it harder to file for bankruptcy was not justified. In the article, Warren blasted the credit industry and questioned the validity of data produced by industry experts to suggest that 40% of the debtors could pay some of their debt, and thus they were abusing the bankruptcy system.
In 2002, Warren published “Financial Collapse and Class Status: Who Goes Bankrupt?” in which she analyzed a sample of the 1.5 million families who had filed bankruptcy and found that “families in bankruptcy share many of the same educational, occupational, and home buying experiences as other middle-class Americans. Their deep financial distress suggests a growing reason for concern about these families, who make up the heart of America.”
Warren has been very involved throughout her career- often on the losing side- in the debates surrounding bankruptcy reform. She spoke out against sweeping bankruptcy reform that would make it harder for consumers to file for bankruptcy. Throughout the debates over bankruptcy reform that raged from the 1990s until 2005, Warren reiterated her belief that bankruptcy was a product of external forces, rather than consumer irresponsibility and fought a bankruptcy system that would give creditors more of an advantage over debtors. In 2001, Warren authored a letter to the Senate Banking Committee opposing the business provisions of the existing Bankruptcy Reform Act. In the letter, Warren stated that the bill would be the “first piece of federal legislation in history that actively discriminates against small businesses and denies them protection available to large businesses.”
The overarching problem with this bill is that time and the American economy have passed it by. It was drafted never mind by whom eight years ago. Even if it had been a flawless piece of legislation then, and it surely was not, the events of the past eight years have dramatically changed the economic and social environment in which you must consider this bill….
This Congress wants to set a new moral tone. Do it with the bankruptcy bill. Don’t press “one-size-fits-all-and-they-are-all-bad” judgments on the very good and the very bad. Spend the time to make the hard decisions. Leave discretion with the bankruptcy judges to evaluate these families. Based on the Harvard medical study and other research, I think you will find that most debtors are filing for bankruptcy not because they had too many Rolex watches and Gameboys, but because they had no choice.
You have a choice. It’s a choice that you’re making for the American people. Adopt new bankruptcy legislation. Establish a means test that targets abuse. But do not enact a proposal written to address myth and mirage more than reality. Do not enact a proposal written for 1997 when the problems of the American corporate economy in 2007 deserve far more attention and the problems of the American middle class can no longer be ignored.
Overwhelmingly, American families file for bankruptcy because they have been driven there largely by medical and economic catastrophe not because they want to go there. Your legislation should respect that harsh reality and the families who face it.”
The Bankruptcy Abuse Prevention and Consumer Protection Act (BAPCPA) also provided a stringent “means test” to apply to consumers in order for them to be determined to be eligible. The purpose of the means test was to reduce bankruptcy fraud and prevent people from filing for bankruptcy if they had the means to pay off any portion of their debt. In her testimony to the Senate Banking Committee, Warren bashed the test methodology created by the bill:
The means test in this bill, Section 102, has been one of its most controversial provisions. Proponents like to say that the means test will put pressure only on the families that can afford to repay. And yet, the bill has 217 sections that run for 239 pages. The means test aside, virtually every consumer provision aims in the same direction. The bill increases the cost of bankruptcy protection for every family, regardless of income or the cause of financial crisis, and it decreases the protection of bankruptcy for every family, regardless of income or the cause of the financial crisis.
There are provisions that will make Chapter 13 impossible for many of the debtors who would file today, provisions that make it easier than ever to abuse the unlimited homestead provisions in some states and yet at the same time hurt people with more modest homesteads in those same states. Other provisions will compromise the privacy of millions of families by putting their entire tax returns in the court files and potentially on the Internet, making them easy prey for identity thieves. Women trying to collect alimony or child support will more often be forced to compete with credit card companies that can have more of their debts declared non-dischargeable. All these provisions apply whether a person earns $20,000 a year or $200,000 a year.
But the means test as written has another, more basic problem: It treats all families alike. It assumes that everyone is in bankruptcy for the same reason too much unnecessary spending. A family driven to bankruptcy by the increased costs of caring for an elderly parent with Alzheimer’s disease is treated the same as someone who maxed out his credit cards at a casino. A person who had a heart attack is treated the same as someone who had a spending spree at the shopping mall. A mother who works two jobs and who cannot manage the prescription drugs needed for a child with diabetes is treated the same as someone who charged a bunch of credit cards with only a vague intent to repay. A person cheated by a sub-prime mortgage lender and lied to by a credit counseling agency is treated the same as a person who gamed the system in every possible way.
In 2005, the Bush administration approved the BAPCPA, over Warren’s opposition. The passage of the bill marked a significant loss for Warren. Interestingly, in 2005, Senator Barack Obama made a speech strongly in opposition of BAPCPA, stating:
“…this bill would take us from a system where judges weed out the abusers from the honest to a system where all the honest are presumed to be abusers. Where declaring Chapter 7 bankruptcy is made prohibitively expensive for people who already have suffered financial devastation. With this bill, it doesn’t matter if you ran up your debt on a trip to Vegas or a trip to the Emergency Room, you’re still treated the same under the law and you still face the possibility that you’ll never get the chance to start over.”
Obama cited Warren’s study for the proposition that most people who declare bankruptcy do so as a result of bad luck or medical problems rather than because they are trying to abuse the system. Ultimately, Senator Obama and Professor Warren were unsuccessful in halting the tide towards bankruptcy reform.
In Fall 2005, just before the regulations were scheduled to go into effect, Warren wrote a short article for the Federal Reserve Bank of Boston, entitled “Natural Disasters and Bankruptcy: A Perspective.”
, Boston Federal Reserve Communities & Banking (2005), available at http://www.bos.frb.org/commdev/c&b/2005/fall/disaster.pdf.
After BAPCPA went into effect, Warren continued to speak out over what she perceived to be the continued flaws of the bill and participated in extensive analysis of what the actual effects of the bill were on debtors. In 2008, Warren and several co-authors analyzed the effects of BAPCPA after three years of operation as part of a Consumer Bankruptcy Project study entitled “Did Bankruptcy Reform Fail? An Empirical Study of Consumer Debtors.” The conclusion of the study was that the number of families seeking bankruptcy relief declined after BAPCPA went into effect, but that this was because the barriers in the law prevented families who needed bankruptcy relief from meeting the criteria to file. The study found that the means test, which Warren had specifically criticized in her Senate testimony, had the effect of “blocking out hundreds of thousands of struggling families indiscriminately, regardless of their individual income circumstances.”
The “Did Bankruptcy Reform Fail?” report was the subject of a scathing attack by Professor Rafael I. Pardo.
Warren’s scholarship approaches bankruptcy as a way to gauge the economic progress of what she characterizes as vulnerable groups, including women, the elderly, and minorities. Warren’s scholarship has focused on reasons why bankruptcy disproportionately affects certain groups and who benefits from maintaining the current system. In 2009, Warren wrote “The Increasing Vulnerability of Older Americans: Evidence from the Bankruptcy Court,” in which she and her co-authors analyzed bankruptcy filing data from 2007 against earlier data and found that “the average age for filing bankruptcy has increased, and the rate of bankruptcy filings among those ages sixty-five and older has more than doubled since 1991.”
Biden must be delighted with his starring role in the [National Organization for Women’s] Annual Report and with the halo effect that suggests that he is one public official politically active women can trust. Of course, not all of Senator Biden’s legislative agenda is reflected in the Annual Report. Missing, for example, is a picture of Senator Biden standing shoulder to shoulder with the CEOs of the credit industry, cosponsoring legislation to increase restrictions on consumer and small business bankruptcy. His energetic work on behalf of the credit card companies has earned him the affection of the banking industry and protected him from any well-funded challengers for his Senate seat. This important part of Senator Biden’s legislative work also appears to be missing from his Web site and publicity releases. Like his support for the Violence Against Women Act, Senator Biden’s efforts on behalf of the credit industry to increase restrictions on bankruptcy bear particular relevance to NOW Legal Defense and Education Fund’s annual report. The annual report focuses on economic and social issues that will affect women and establishes the organization’s legislative agenda. The group that will be most affected by the changes in the bankruptcy legislation Senator Biden so forcefully supports will be women, particularly women heads of household who are supporting children. Indeed, women are now the largest demographic group in bankruptcy, outnumbering men by about 150,000 per year.
Of course, Warren’s comments on Biden are especially interesting given their current positions. Warren’s harsh criticism of Biden continues into the article, and she uses Biden as a symbol of the dangers of a single-issue mentality, which separates social issues from commercial issues. Warren finds women’s groups too willing to separate social issues from other issues and discussed the need for advocates concerned about women’s issues to also have a grounding in financial institutions:
It is not possible to remain ignorant of business and commercial law and become an effective advocate for social issues. Anyone attempting significant social change without a thorough grounding in business and commercial law is handicapped. To accomplish real change in many areas, advocates will need to understand the causation, implementation, and collection issues that deeply implicate business practices and commercial laws. If few students interested in women’s issues train themselves in commercial areas, the effects of the commercial laws will not be diminished, but there will be few effective advocates around to influence those policy outcomes.
Although Warren wrote primarily on the negative effects of BAPCPA on consumer bankruptcy, she also discussed her perception of its negative effects on small businesses. In a web post on the Credit Slips blog in 2008, Warren stated
“giving creditors so much power that businesses that could have been reorganized will end up liquidating makes no business sense for anyone. Congress was enthusiastic about dismantling some key Chapter 11 protections in boom times. When those amendments are tested in hard times, they seem much less attractive.”
Warren’s scholarship and her political advocacy related to bankruptcy reform has been extremely aware of and extremely hostile to the bankruptcy regime currently in place. She had an inside view into the process that gave rise to the BAPCPA regime and she has studied the effects of the law extensively. Given President Obama’s early resistance to BAPCPA, his administration could be open to loosening bankruptcy regulations and resisting a stringent application of the means tests to all bankruptcy filers, particularly in light of the Hurricane Sandy disaster that could put more families in the Northeast into bankruptcy. However, seven years in, a long-term re-hauling of BAPCPA is not at the top of any politician’s stated priority list. If Senator-elect Warren maintains the position on bankruptcy reform and the need to protect consumers rather than creditors in the process, she could get involved in amendments to or a wider re-hauling of BAPCPA. Warren’s work reveals a fundamental disagreement with the BAPCPA bankruptcy regime and a perspective that the bill unfairly disadvantages debtors.
Perception of Consumers and the Middle-Class
Throughout her work, Warren has defended the American consumer against suggestions of financial irresponsibility, instead arguing that their financial distress is caused by external factors rather than personal choices. Warren singles out the “over-consumption myth,” that American consumers struggle with debt because they consume more. This position has been taken by several prominent economists and think tanks. For example, the Center for Economic Development and Business Research (CEDBR) cited a study by Professor Ning Zhu that “bankrupt households spend similar amounts on residence and automobile expenditures as the control households do, despite their much lower earning power. Durable consumption makes up a much higher fraction of total household income for bankrupt households.” The CEDBR concluded that “over-consumption makes households financially over-stretched and more susceptible to adverse events, consequently leading to bankruptcy.”
“There is no evidence of any ‘epidemic’ in overspending—certainly nothing that could explain a 255 percent increase in the foreclosure rate, a 430 percent increase in the bankruptcy rolls, and a 570 percent increase in credit card debt. A growing number of families are in terrible financial trouble, but no matter how many times the accusation is hurled, Prada and HBO are not the reason.”
Instead, Warren found that rising mortgage costs had exploded, meaning that in order to afford a home, it would take two working people to afford the mortgage.
Warren has warned in several books and articles that middle-class families are headed into a crisis situation as a result of the existing financial system. This theme has also run throughout Warren’s campaign. The thesis of much of Warren’s writing from 2004-2007 is summarized by this passage in her 2006 Harvard Magazine article, “The Middle Class on the Precipice,”
Every day, middle-class families carry higher risks that a job loss or a medical problem will push them over the edge. Although plenty of families make it, a growing number who worked just as hard and followed the rules just as carefully find themselves in a financial nightmare. The security of middle-class life has disappeared. The new reality is millions of families whose grip on the good life can be shaken loose in an instant.
Warren’s writings could easily fit into one of her campaign speeches. Warren focused on the problems of the middle-class from the lens of bankruptcy, but she pointed to several public policy considerations that could stem from the issue.
Writings on Regulation: Foreshadowing the CFPB
Warren’s proposal for the CFPB was a practical realization of years of academic advocacy. The genesis of Warren’s idea is visible even in her works from the 1990s and early 2000s. For example, in a September 3, 2000 interview
“The next time the economy contracts we will see the disastrous effect of allowing 125 percent debt-consolidation mortgages and allowing lenders to charge rates of interest that were illegal just 20 years ago. Bankruptcies will explode and we will all pay the price for this folly.”
Even at this point, Warren had a strong opinion about lack of regulation of consumer finance products, and predicted that one possible effect of these high interest loans would be to push people into bankruptcy. However, Warren had not yet formulated a specific regulatory solution for the problem she described.
In 2007, Warren wrote a short article, “Unsafe at Any Rate,” in which she compared the rigorous regulatory system in place for consumer goods against the lack of regulation for consumer financial products. Warren stated:
“Just as the Consumer Product Safety Commission (CPSC) protects buyers of goods and supports a competitive market, we need the same for consumers of financial products—a new regulatory regime, and even a new regulatory body, to protect consumers who use credit cards, home mortgages, car loans, and a host of other products.”
In 2008, Warren co-wrote an article with Oren Bar-Gill entitled “Making Credit Safer,” in which she argued that “the current regulatory regime has systematically failed to provide meaningful safety regulations.”
(1) ex ante regulation rather than ex post judicial scrutiny; (2) regulation by an administrative agency with a broad mandate, rather than by specifically targeted piecemeal legislation; and (3) entrusting the authority over consumer credit products to a single, highly motivated federal regulator, such that the same regulation applies to all similar products, regardless of the identity of the lender.”
Warren finally got a chance to put her vision into practice when the Dodd-Frank Act created a consumer finance agency. Warren was appointed by President Obama to serve as Special Advisor to the Secretary of the Treasury on the CFPB. According to Warren’s March 16, 2011 testimony to Congress:
By law, the CFPB is obligated: 1) to ensure that consumers have timely and understandable information to make responsible decisions about financial transactions; 2) to protect consumers from unfair, deceptive, and abusive acts or practices, and from discrimination; 3) to reduce outdated, unnecessary, or overly burdensome regulations; 4) to promote fair competition by enforcing the federal consumer financial laws consistently; and 5) to advance markets for consumer financial products and services that operate transparently and efficiently to facilitate access and innovation.
Warren’s July 18, 2011 report on building the CFPB states that the agency’s vision is
“A consumer finance market place: where customers can see prices and risks up front and where they can easily make product comparison; in which no one can build a business model around unfair, deceptive, or abusive practices; that works for American consumers, responsible providers, and the economy as a whole.”
Warren never saw the agency to fruition…
Although Warren has focused on bankruptcy, and more recently on financial regulation, she has touched on several other issues throughout her career.
Although Warren’s statements about reining in corporations and preventing misbehavior were a major focus of her Senate campaign, this topic has not been an explicit highlight of her academic career, but rather an occasional theme running through her works. In 2000, Warren pointed to the flexibility of the American corporation as a cause of consumer vulnerability and therefore an indirect cause of bankruptcy. She stated:
“The American economy has benefited from agile companies that can quickly shed or add workers, often on a contract basis without fringe benefits such as health insurance. But this agility for companies brought vulnerability for workers, through interrupted employment and medical bills not covered by insurance.”
Warren’s work on the financial distress caused by health care costs has been influential and highly controversial. Warren published several articles analyzing the role of medical costs in pushing people towards personal bankruptcy and concluded that medical-related financial distress occurred in a significant number of bankruptcies. This led her to conclude that a lack of affordable health care was a contributing factor in the increasing number of personal bankruptcies.
In 2007, Warren, along with Sandy Baum and Ganesh Sitaraman, proposed a “Service Pays” plan as a solution to the student loan debt issues facing college students. They published two articles: “Service Pays: Creating Opportunities by Linking College with Public Service”
As Senator Warren takes her seat on the Banking Committee, her academic work and her early attempts to influence legislative policy in the bankruptcy arena will color her perspective and may shape her future actions. Warren’s attempts to influence the revised bankruptcy structure failed with the passage of BAPCPA in 2005. Her experience on the losing side of an issue that she strongly advocated for may have given her an understanding of the pitfalls of the legislative process. Warren’s academic work reveals a commitment to a particular societal understanding in which the average consumer has been repeatedly victimized by a variety of external forces. Warren views the increased financial distress of the average middle-class family as a phenomenon directly tied to some of the conduct of various sectors of the financial industry. Warren’s academic career has been characterized by the embrace of empirical evidence over pure corporate theory, and by a relentless energy in publication of her views. Warren has been open to collaboration and has worked closely with the same group of scholars including Jay Lawrence Westbrook, Teresa A. Sullivan, and Lynn LoPucki. The other members of this group are all still in academic positions throughout the country and continue to collaborate on consumer finance topics. The future scholarship of Warren’s past collaborators may have an impact on the topics she is aware of as she serves on the Senate. Warren has repeatedly chosen to directly engage her academic critics by publishing strong counter-point pieces defending her theories. Warren’s academic career offers insight into her ideas, as developed over a long period of time, and also into her working style, response to being attacked, and general productivity. These factors will make Warren a force to be reckoned with on the Banking Committee, and one with a clearly developed and comprehensive financial philosophy.