NAFCU’s Comments to CFPB on Financial Education
October 31, 2012
Office of the Executive Secretary
Consumer Financial Protection Bureau
1700 G St., NW
Washington, DC 20552
RE: Docket No. CFPB–2012–0030
Dear Ms. Jackson:
On behalf of the National Association of Federal Credit Unions (NAFCU), the only trade association that exclusively represents federal credit unions, I write to you regarding the Consumer Financial Protection Bureau’s (CFPB) Office of Financial Education request for information on effective financial education.
As you are aware, credit unions are not-for-profit, member-owned financial institutions. This structure, as well as over one-hundred years of espousing a member-first philosophy, fosters a culture that prioritizes the well-being of members. As a result, and not surprisingly, credit unions have long been on the cutting edge of financial education. In fact, credit unions are generally highly regarded both by the public and government for providing quality financial education to their members and potential members. In addition to the not-for-profit cooperative culture, a financially educated membership helps credit unions to generally offer lower rates on loans and higher savings rates than other financial institutions because such membership defaults and risk rates are correspondingly lower than other financial institutions.
Many credit unions engage in financial education initiatives in their communities and offer such services to persons in their field of membership. Credit unions take extra measures to ensure that their members are financially educated, and are receiving information that will help them accomplish their individual goals. Many members of credit unions receive financial education that is specific to their individual needs, not only enhancing the financial knowledge of the individual but also helping to establish relationships that allow the credit union to become familiar with members’ individual needs and financial literacy. In many instances, the credit union is able to provide individually-tailored education.
While credit unions already do engage in a significant amount of financial education, efforts to educate consumers should continue. NAFCU acknowledges and applauds the CFPB for taking a proactive role in addressing the issue of financial literacy and education. We provide the following responses to your specific inquiries.
Consumers’ Most Common Financial Decision-Making Challenges
Frequently, credit unions find that the most common financial decision-making challenges involve consumers not having a strong understanding of core financial concepts. Understanding core financial concepts is necessary to make informed decisions about one’s financial future. Common challenges include: the lack of understanding of how interest rates work; the importance of creating budgets; and, why short and long-term goals are needed to ensure financial success. When consumers do not have a strong understanding of core financial concepts, questions can neither be easily explained nor easily understood.
In addition to core financial concepts, credit unions find that many consumers do not adequately understand credit scores and credit reporting. Increasingly, consumers are relying on information they obtain on their credit scores from unreliable sources on the internet and are surprised that the score that credit unions obtain are frequently different. In these scenarios, it is typical for consumers to become confused because they do not understand how their score was calculated and why the credit union’s calculation is different.
The CFPB should engage in activities and institute programs that encourage schools to provide financial education to children that instills important financial principles and encourages understanding of core financial concepts. The more consumers understand core financial concepts, the more likely they will act in ways that are not counterproductive to their own financial future, are more likely to ask for help, and are more likely to take responsibility for their financial position. Consequently, consumers will less likely fall prey to predatory and unscrupulous actors. NAFCU believes the CFPB should make financial education a top priority.
Common Habits, Attitudes or Practices
NAFCU member credit unions report that habits, attitudes or practices vary depending on current economic conditions. For instance, a consumer’s spending impulsivity tends to change as the economy contracts and expands. However, when removing economic conditions, credit unions find that consumers’ habits, attitudes and practices are strongly impacted by their knowledge of core financial concepts, and the method consumers get their financial information.
Effectively Disseminating Financial Literacy to Help Consumers
There are several ways the CFPB can effectively disseminate financial literacy and educational resources that will help consumers build the necessary skills to achieve good financial outcomes. First, the CFPB should put forth effort and resources to assist schools by providing financial literacy and educational resources that are tailored to children available on the agency’s website. In fact, the agency should dedicate a section of its website to financial education and make resources available in at least English and Spanish. Additionally, the agency should provide multiple forums, such as symposiums, for credit unions and other entities that prioritize financial education to share their knowledge and resources.
Second, the CFPB should also focus its attention to educating the public against using predatory and unscrupulous lenders. Predatory lenders continue to wreak havoc in people’s lives, but the CFPB has yet to use its vast powers to curb their practices, let alone stop them from ruining people’s lives. CFPB action in this regard will undoubtedly help consumers understand the dangers of payday lenders and other predatory lenders.
Education Tools Designed to Help Consumers Improve Financial Decision Making
Many credit unions across our nation provide seminars on financial education at local libraries, schools and businesses that help consumers and members understand different savings or lending options. In addition, many credit unions place online tools such as calculators on their websites for their members and the community to use. Some credit unions have gone above and beyond to help consumers improve their own financial decision making mechanisms by purchasing educational materials for young students and giving them to schools for use in the classroom. For example, one credit union in particular purchased 17,000 financial workbooks and distributed them to fifth-grade students in the central Illinois area.
NAFCU appreciates the opportunity to comment. Should you have any questions, please feel free to contact me at email@example.com or (703) 842-2268.
Regulatory Affairs Counsel