Director of the Consumer Financial Protection Bureau
White House Financial Summit
May 10, 2012
Thank you for having me here today. Engagement on consumer financial issues is important to this country. Each one of us, whether from the public, private, or nonprofit sector, should have certain goals in common: a strong and vibrant financial system; the ability to earn and maintain the public’s trust and confidence; fidelity to the highest standards of business ethics; excellent customer service; and a competitive economy that works for Americans in both the short term and the long term.
During my years in state and local government, I became deeply engaged in consumer finance issues. I saw good people struggling with debt they could not afford. Sometimes they made bad decisions they came to regret. Sometimes an unexpected event – like a loved one getting sick or a family member losing a job – overwhelmed even their most careful planning. Still other times, I saw unscrupulous businesses that obscured loan terms or engaged in outright fraud.
Many people struggle to understand financial matters, which leads them into trouble or makes their problems worse. At the Consumer Financial Protection Bureau, we are uniquely positioned to address these issues by helping to bridge the ever-widening gap between people’s actual financial capability and the increasingly complex financial decisions they have to make.
We are deeply committed to a vision of an America where everyone is financially educated. But the challenges that confront us in achieving this goal are complex, varied, and significant. To face them, we must start where all good education starts – with our children.
Education builds on work already done by others – by previous generations, previous schools of thought, even previous civilizations. People learn various things – it may be a bit of information, or a personal experience, or a concept. These things get shared and recorded. And then they can be passed on to others as building blocks.
These building blocks form a foundation of practical and theoretical knowledge that becomes more substantial over time. What would it be like if every generation had to learn mathematics from scratch? Even just the concept of numbers would be baffling enough. Or imagine if we knew nothing of biology or chemistry and tried to teach ourselves anew every twenty years or so.
I raise this point because, in our society, financial education typically seems to be an outlier. Rather than educating our young people, we condemn them to making the same mistakes others made before them in the “school of hard knocks,” which of course is no “school” at all. When we do not teach children about personal finance – about managing household budgets or making informed decisions about larger investments in an education or a home – we force them to learn it largely and perhaps entirely on their own, if at all.
When Congress and the President created the Consumer Bureau, they made sure to establish the Office of Financial Education to address these issues. Of course, the Bureau is still in its infancy and so we will be seeking input from practitioners and the public, including many of the experts here today, about how to improve financial education. What works and what does not still seems to be a bit of an unknown at this point. We need to figure that out, and strategize on how best to implement effective methods of financial education.
What we do know is that Americans now have some of the highest personal debt levels in the history of our country. We know that too many Americans live beyond their means. We know that young Americans are less likely to be financially capable than older Americans. We know that two out of three households have no rainy day fund for unexpected setbacks We also know that the people in this room are actively trying to tackle these issues in your communities and we look forward to learning from you.
We envision a world where people understand budgets, savings, investments, and credit. We want to see integrated curricula in our schools – where the benefits of compound interest are understood in math class; where economic costs and risks are taught in social studies class; where an essay in English class explains how we can take control of our financial lives to achieve our goals. We all need to know why we have bank accounts, why we keep track of checking account balances, why we should check our credit reports regularly.
Above all, people need to know that there are a few big moments in their lives where they will confront specific decisions with potentially massive consequences, such as taking out a mortgage or a student loan. Do you go to school here or there? Do you buy this house or that one? How much debt do you take on? Do you understand the consequences? At what age do you start saving for retirement? These crucial decisions have huge ripple effects in your life, lasting for years. These are significant occasions where you can make a terrible decision in the moment by focusing on the wrong things or failing to gather enough information. At a minimum, people need to understand which decisions are the most important ones, not to treat them casually, and to get help when they need it.
To provide consumers with more of the information they need to make sound financial decisions, we recently launched “Ask CFPB” as an interactive, user-friendly database of questions frequently asked by consumers. We enlisted Bureau experts to answers these questions in plain language. We want consumers to have a trusted place to go for clear, unbiased information. Many questions so far are focused on credit cards and mortgages, and we have specific sections for servicemembers, students, and older Americans. Come and tell us what else we should be covering at www.consumerfinance.gov.
Our political order is consciously organized around a free market economy based on individual decision-making and personal responsibility. In this society, being an effective citizen is about much more than knowing how to vote or that the government has three branches. It also is about being able to acquire the know-how and the capacity to manage your affairs and make the most of your opportunities.
There are two ways to close the gap between the actual financial capability of consumers and the increasingly complex set of financial decisions they must be able to make. One way is to better inform consumers; another way is to bring more transparency and accountability to the financial markets. If we can bring financial decisions down to a level where they are more accessible, by making choices clearer and simpler, then we close the gap. You should not need a law degree to read a bank or credit card contract. We are advocating for greater transparency in the financial markets not to dumb things down, but to take overly complicated products and make them reasonably accessible to normal human beings.
At the Consumer Bureau, we are doing this with our signature “Know Before You Owe Mortgages” project to simplify and streamline the application forms and closing documents for mortgages. We also are showing how this can be done with our sample credit card agreement. On student loans, we first produced a sample “Financial Aid Shopping Sheet” for students and then followed up with our “Financial Aid Comparison Shopper,” an online tool that can be used to estimate the costs of higher education by measuring schools side by side. Each of these tools provides greater transparency, assists with comparison shopping, and eases decision-making for consumers.
We also understand that sometimes people need special help, so we have established a complaint system on our website and through a hotline. Consumers can send us a complaint about your mortgage, credit card, bank account, and the like. Our consumer response specialists will follow up on their concerns and seek to get them resolved.
Our goal is to give people the confidence and peace of mind that the financial world is not booby-trapped with pitfalls that will ruin their lives. We want information to be more accessible to people, and through this, enhance consumer’s abilities to make wise financial decisions for themselves and their families. By bringing these results closer together, we will bolster financial capability in this country.
We are glad to work with all who share these convictions, and to join you in this worthy cause.