Elizabeth Warren may run the new bureau.

 There is little debate that the financial reform bill President Barack Obama signed on Wednesday includes the most ambitious consumer-friendly initiative in decades. The question is: Will the new Bureau of Consumer Financial Protection matter to you? 

The law creating the bureau includes very few new regulations to protect consumers. Instead, you can think of the Consumer Financial Protection Act of 2010 as a massive government "reorg." Thousands of regulators from nearly a dozen government agencies will be uprooted and moved to this new bureau, and it will have a new executive drawn from outside their ranks. 

 Management – in this case, Congress – has decided that the regulators were ineffective during the past 10 years, and that a shakeup was needed.  But reorgs can go one of two ways: They can reinvigorate a sleepy organization or they can make a bigger mess. 

You won't care much about the management structure of bank regulators, however.  So here's a look at how this reorg will directly impact you, the consumer, and how that might ultimately determine the bureau's success or failure.

The most noticeable change will be the creation of a toll-free telephone number and Web site where angry consumers can vent their complaints and supposedly apply for redress. Given the number of consumers who complain to Red Tape that they have nowhere to turn when wronged, that's no small thing. Until now, consumers with a gripe had to hunt around for the right agency (The OCC? The FDIC? The FTC?), find the right Web site or phone number, then locate the right form. The new complaint hotline will be a major upgrade. It won't appear for at least several months, however. The legislation gives the agency roughly 18 months to get up and running.

A database of these complaints will also be created and studied for trends, giving the bureau an opportunity to quickly spot new bank shenanigans -- such as new hidden fees -- and quickly react. For example, if the bureau existed several years ago, it might have ruled that over-the-limit credit card fees were unfair and improper within a few months of their emergence.  Instead, Congress passed a law banning these fees, but only after nearly five years of hand-wringing.

The key word, of course, is opportunity. On the day of the agency's creation, there is no telling how effective and bold it will be when actually confronting financial companies.  That will largely depend upon the political power invested in the yet-to-be-appointed director of the agency, who is likely to become a prominent public figure. 

Any rule created by the bureau can be vetoed by a newly formed Financial Stability Oversight Council, which will almost certainly clash with the consumer bureau on regular basis.  A popular consumer agency head with a bully pulpit could beat back this veto power; a government bureaucrat who gets tepid support from Congress and the White House could easily be vetoed to death.

The bureau is part of the larger financial reform legislation, which won approval in the U.S. Senate by the narrowest of margins and already is the subject of repeal threats from Republicans. Sen. Richard Shelby, R-Ala., criticized creation of the new consumer bureau as a "political favor" for "community organizer groups and liberal activists."

"While a consumer protection agency may sound like a good idea, the way it is constructed in this bill will slow economic growth and kill jobs by imposing massive new regulatory burdens on businesses," he said.  The American Banking Association has long predicted that the new consumer agency will undermine consumer choice, competition and access to credit.

My colleague John Schoen provided a long list of potential pitfalls in the larger financial reform package, which also has been criticized by former Clinton administration economic advisor Robert Reich as "a mountain of paper and a molehill of reform."  Chief among critics' complaints: The legislation does nothing to reform mortgage giants Fannie Mae and Freddie Mac, which were major contributors to the financial meltdown.

But consumer groups universally hailed creation of the new consumer protection bureau, saying it could make a real difference in people's lives.

"I'm confident that if Congress appoints a strong director, that the tools the agency was given are good," said Ed Mierzwinski, director of the Public Interest Research Group in Washington, D.C.

The bureau will be housed within the Federal Reserve, albeit with a separate budget and independent executive. The arrangement appears designed to create a tension that might serve as a check-and-balance system, though it also might ultimately torpedo the agency's influence. The choice of director could make all the difference. 

That's where the next drama will arise.

Elizabeth Warren, who has been a contributor to Red Tape columns for years, is the leading candidate to head the agency.  She wrote its blueprint in 2007, and has been promoted by Rep. Barney Frank, D-Mass., one author of the new law.  

But her high public profile, including many well-publicized spats with Treasury Secretary Timothy Geithner, could be a hindrance. It could also lead to a testy Senate confirmation hearing.  Sen. Christopher Dodd, D-Conn., a co-author of the law, mused aloud about whether or not Warren is "confirmable" on National Public Radio earlier this week.

"There's a serious question about that," he said.

Two other names have surfaced as possible candidates: Michael Barr, a Geithner assistant at Treasury, and Eugene Kimmelman, who spent years lobbying for the Consumers Union and now works at the Justice Department.

The decision will be a serious commitment. The bureau director will enjoy a five-year term, meaning whoever leads the agency will nearly outlast the winner of next presidential election in 2012.

While the director could become a prominent political figure, the job will require a lot of dirty detail work.  Congress left the job of writing new rules concerning mortgage disclosures, credit card fees and a host of other contentious issues to the bureau, and in some cases, other regulators. The decision has led to criticism that the process will open up new round of ferocious industry lobbying.

That's why it's so hard to really offer an opinion about the potential effectiveness of the agency, and why its head is so important. The devil will be in the details.

What the agency can do
But there are plenty of specifics in the 430-page bill creating the new bureau that are worth mentioning. Perhaps most important: The bureau will have the authority to fine bad actors, up to $1 million per incident.  Enforcement is always the key to regulating. It's easy to argue that the new agency is not really a new regulator but a new chance at setting up effective enforcement, because in many cases the bureau is merely assuming other regulators' duties -- and thousands of their employees.

In some cases, the enforcement power is new and has the potential to change the game.  For example, the Federal Trade Commission, with only a few exceptions, cannot levy fines. It can only file lawsuits and ask a court to "disgorge" bad actors of ill-gotten gains.  Significant fines -- and even the threat of significant fines -- will be an important tool for the new bureau.

Still, the ability to issue fines is no guarantee that enforcement will be swift and consistent. Mierzwinski said he'll be watching the enforcement issue as a litmus test for the bureau's effectiveness.

"The bureau has enforcement power, but will it have an enforcement will? That will depends on people in the bureau," he said. "During the Bush administration, Congress let regulators get away with falling asleep. Congress must follow through with effective oversight for this to work."

A Civil Penalty Fund also will be established that can be used to compensate consumers who've been wronged by a financial company. That could address a long-standing frustration consumers have had when they complain to bank regulators -- that there is rarely any redress or satisfaction. It could also provide financial incentive for participation in the agency's complaint database.

Many notorious industries, which until now often skated below federal authority, will come under the potentially watchful eye of the bureau, such as payday lenders, tax preparation firms (when they provide refund anticipation loans) and other "non-bank banks."

The new bureau is directed to immediately study the impact of binding arbitration agreements, which force consumers to surrender their rights to trial-by-jury through fine print in many common contracts. It also calls for studies of the student loan industry, reverse mortgages and  the allegedly wide variance between credit scores sold to consumers and those used by lenders to make credit decisions.

The law puts consumers one step closer to obtaining a right to see their all-important credit score. Consumers who are denied a loan or are otherwise harmed by a low score will get to see the score used in the financial decision, as part of what is now called a "notice of adverse action." All other consumers must still pay to see their credit scores, however.

The legislation also calls for creation of an Office of Financial Education, an office of Financial Protection for Older Americans to help fight elder scams and an office of Service Member Affairs, to study the particular impact of unfair financial terms on members of the U.S. military.

What the agency can't do
There are plenty of things the agency can't do, however.  For one, it can't impose a usury limit, a simple protection consumer advocates called for when discussion of the agency began two years ago.  That means credit card rates can still exceed 30 percent in some cases.

And most significantly, the agency cannot regulate auto sales or auto dealers, even if they are acting as banks and lending money to car buyers.  This "carve-out" has drawn the most criticism, and does reek like a gift to auto makers.  But the law creating the bureau gives the Federal Trade Commission streamlined rule-writing authority to regulate car loans, which eases that blow a bit.

In most cases, the bureau's enforcement authority extends only to the nation's largest banks, or the so-called non-bank banks, such as payday lenders. The bureau's rules will apply to smaller banks and credit unions, but those rules can only be enforced by those institutions' current regulators. This is a fairly significant potential pitfall, as about 8,000 financial institutions fall outside the bureau's enforcement arm.

And of course, it can't do anything that might be deemed as threatening to the "safety and soundness" of banks or the banking industry. This is the grand loophole. The Financial Stability Oversight Council will include the chairman of the Federal Reserve and other top regulators.  While the bureau's director will be a member of the council, a two-thirds vote of the body is all that will be needed to squelch any new rule written by the bureau.  During Fed meetings, other Fed governors rarely vote out of line with the chairman, so in practical terms, any future Fed chair can probably spike new bureau rules.  At a minimum, expect some very public spats between the Fed and the consumer bureau.