The Obama administration will tap Elizabeth Warren, a Harvard law professor and long-time critic of finance industry lending practices, to set up a new US regulator charged with cleaning up the banking industry.
The decision by the White House represents a defeat for Wall Street, which lobbied vigorously against Ms Warren's appointment to oversee an agency that she proposed in 2007 and which will have sweeping powers to impose "plain English" rules for financial products and ban dangerous lending practices.
The Consumer Financial Protection Bureau was created as part of the Wall Street reform legislation that passed Congress in July, and consumer advocates and unions had pushed for Ms Warren to be named as its first chairman. That is not the title she is being given, however, as the White House calculated her appointment would be held up by Republicans in Congress.
Instead, she will be named a special adviser to President Barack Obama and to Treasury Secretary Tim Geithner, and given responsibility for setting up the agency, appointing staff and setting its early agenda. It was not clear if there would be a time limit on the role, and Ms Warren's supporters said they hoped she would eventually move into the vacant chairmanship in a less polarised political atmosphere.
The 61-year-old professor is among American academia's foremost experts on consumer lending practices, having studied the causes and effects of personal bankruptcies throughout her career.
In the paper in which she first proposed setting up a dedicated consumer protection agency, she argued that financial products should be treated the same way as other consumer purchases. You would not be allowed to sell a toaster that had a one-in-five chance of exploding, she wrote, so why should lenders build a business model that relied on one in five people breaching the obscure terms in the small print of their loans or credit card agreements, triggering large penalties.
Having failed to stop the creation of the Consumer Financial Protection Bureau, Wall Street lobbyists turned to briefing against Ms Warren personally, saying she had little experience of running a big bureaucracy. In the high-stakes atmosphere, the White House repeatedly put off a decision about who to appoint to run the agency.
The compromise plan to avoid Senate confirmation hearings was hatched over weeks of conversations between administration officials and Ms Warren, and the proposal generated criticism yesterday, even before its official announcement.
Richard Hunt, president of the Consumer Bankers Association in Arlington, Virginia, said any consumer protection head, "interim or otherwise", should be confirmed by Congress.
"This agency must begin its mission with full credibility and confidence from our domestic and international markets and consumers. Circumventing this process is an ill-advised first step," he said.Reuse content