Prepared Remarks of CFPB Director Richard Cordray to the Community Bank Advisory Council
I welcome our Community Bank Advisory Council and we are happy to see all of you. Today we will talk about promoting financial education among consumers, especially young people, and about our new proposed rule on debt collection. I look forward to hearing your thoughts and concerns as we discuss these and other issues.
I especially want to welcome our newest members, joining us for the first time since their appointment in August. Thank you David Reiling for taking the chair, and Angela Beilke for serving as vice chair. Together we have had good discussion and sharing of perspectives and I look forward to what we can accomplish together today and in the future.
As the Bureau’s Director, I have witnessed the vital role community banks play in the lives of the consumers and neighborhoods you serve. You are serious about the responsibilities you feel to your customers and your communities. You are very engaged in financial education programs. Because you are on the front lines of these issues, we want to hear from you.
In fact we formed this council to learn more about how community banks operate day to day, and to hear about the challenges you are facing. This information helps us do our work better, and no doubt the same will be true of our discussions today.
Financial education is an issue of great importance to the Consumer Bureau. Right now, we are just completing what we have called our “Back to School” month. Millions of young people, including my high-school-age twins, have been settling into new class schedules, homework, and after-school activities. Others who recently finished school have begun for the first time to navigate a financial marketplace that calls on them to make increasingly complex decisions.
From your daily experiences with your customers, you know the difficulties faced by those who lack a solid foundation of financial know-how and decision-making skills. As a country, we need to be frank about how far we have fallen short of the mark here. We simply have not made enough effort in our schools to succeed in the important task of teaching our young people how to handle their personal finances.
Studies show that nearly 90 percent of parents and teachers believe financial education should be taught in schools, but only 17 states require high school students to take a personal finance course in order to graduate. A recent study found that students who had taken a personal finance course had better credit scores and less chance of delinquency later on, as compared to students from states with less emphasis on financial education.
Developing financial capability in young people is not simply a matter of talking dollars and cents. A few weeks ago we released a report entitled, “Building Blocks to Help Youth Achieve Financial Capability.” The report presents a new evidence-based developmental framework and recommendations to help consumers build financial capability. These building blocks begin in early childhood with a focus on promoting “executive function,” the sense of self-control that supports future orientation, perseverance, and planning abilities. Consumers will later rely on these abilities to set financial goals, save for the future, and stick to a budget. During the pre-teen years, the next building block is to help children begin to develop financial habits and norms. At this stage, children begin to gain a sense of what is normal or appropriate in terms of spending, saving, and other financial matters. These habits and norms will shape decisional short-cuts that they will go on to use to make routine financial choices. Finally, as students approach maturity during their teen years, they begin to have more direct experiences with the financial world. That may involve working at their first job, or buying a car.
These experiences provide increased opportunities to improve their financial knowledge and decision-making skills. During this developmental stage, financial education programs should help teens improve their financial knowledge and analytical skills. Above all, our report confirms that financial capability is not just about book learning and mastering financial information, but also requires a broader set of attributes and abilities that are developed throughout childhood and youth.
Along with the report, we released a “personal finance pedagogy,” which is a resource to help educators teach financial lessons that improve financial capability. A core element is a teaching tool called the personal finance wheel. It points teachers to techniques and strategies that will help young people gain the necessary skills at different stages in their development.
This is the same framework that underpins our “Money as You Grow” web page we introduced in March, which has resources to aid parents and caregivers when they talk to their kids about financial matters. “Money as You Grow” has activities for each age group, from children as young as three years old to teenagers and young adults. They include interactive ways to help young people develop the money skills and habits they need for a better financial future.
Our latest chapter of this initiative is our Book Club, a collection of nine books aimed at children ages 4 to 10. We plan to add a new book each month that parents and caregivers can read with their children and learn in a creative and positive way about money management. They can talk about money concepts through the stories and characters they find in these books.
All are popular children’s books, and all are easily accessible in libraries, at bookstores, and online. Our Book Club selections reflect ideas important to both childhood development and building financial capability. For example, “Alexander, Who Used to be Rich Last Sunday,” tells how he makes mistakes with his money and learns the importance of self-control to save up to buy what he really wants. Discussion guides for each of the nine books are free and can be downloaded from the website. They offer guidance about what questions to ask and what activities can be used to reinforce the lessons learned about financial capability.
But financial education involves more than just working with our young people. It also means reaching out to people at work and in their communities with the information and support they need, when they need it, in ways they can understand and act on. In this vein, I applaud the efforts of community banks to promote financial capability throughout the community. Many of you offer instruction – both in the schools and in the community – on subjects such as budgeting, savings, lending, building credit, and preventing fraud. Some of you engage in outreach in languages other than English to reach parts of the community that might otherwise be shut out from these important programs and information. We want to learn more about how these efforts and many others are helping to boost America’s financial IQ.
One way we try to assess these issues is through the National Financial Capability Study, which is an annual survey of the American people’s financial wherewithal. The Financial Industry Regulatory Authority, known as FINRA, conducts this study as a snapshot of the obstacles and opportunities consumers face in their daily financial lives. This year’s edition has some good news. Seven years after the first FINRA study was conducted, Americans on average report less financial stress and more satisfaction with their financial condition.
Consumers are feeling better able to absorb an unexpected financial shock, although almost half still report some trouble in covering expenses and paying bills. For the first time since its initial publication in 2009, nearly half of Americans have an emergency fund set aside to cover three months of expenses. And the number of people who said they are highly satisfied with their financial condition has roughly doubled since 2009, and now stands at more than 30 percent.
That is encouraging news. But the results also reveal that large swaths of our society continue to face financial difficulties. More than half said they did not have three months of emergency savings. And more than a third said they could not cover an unexpected expense of $2,000. People in certain groups reported that their financial conditions are especially fragile. These include young people, women, African-Americans, and Hispanics.
If we are going to increase overall financial capability and well-being among all Americans, we all need to play a part. As we continue to move beyond the financial crisis, we need to empower people to take more control over their economic lives. As more people develop greater financial capability, our economy will gain a stronger and more enduring foundation that benefits us all.
So we would like your input on all of these issues. Tell us how we can work more effectively with community banks to foster financial capability in our young people. Help us get the word out through your banks and your networks, and help us find ways to get your banks and other community banks to employ our financial educational resources. We see community banks, like libraries, as natural partners in this work. We should try harder to make progress together to help people improve this crucial aspect of their lives. We look forward to doing that with you.
The other topic that we want to discuss today reflects the kinds of problems that arise when consumers lack financial capability and are unable effectively to manage the ways and means of their lives. That topic is the Consumer Bureau’s new proposal to overhaul the debt collection market. The main law that governs debt collectors and protects consumers is the Fair Debt Collection Practices Act, which was enacted in 1977. That was almost forty years ago. No agency has ever had the ability to update the law by issuing supporting regulations – until now. We now have the authority and the responsibility to do so, and that is the task at hand.
In July, we announced that we have a proposal under consideration to update federal standards on debt collection. It takes into account rapid changes in technology, and would help clear up decades of conflicting court rulings. Under our proposal, debt collectors would need to have more, and more reliable, information about the debt before they collect. They would have to limit their attempts to make contact, clearly disclose details about the debt, and make it easier to dispute the debt. When responding to disputes, they would not be able to pursue collection without sufficient evidence. These conditions and restrictions would apply as well if the debt is sold or transferred. Our goal is to bring more accuracy and accountability to a market that desperately needs it. We are in the early stages of weighing different aspects of this proposal and hearing comments, so this is a good time to be having this conversation.
Debt collection generates more complaints to the Consumer Bureau than any other financial product or service. That has been true at all levels of government, federal as well as state, around the country, since well before we came along. We have heard complaints about collectors seeking to collect debt from the wrong consumer, for the wrong amount, or that could not legally be enforced. When consumers are contacted by collectors for debt they do not recognize, they often do not know where to turn. Some feel pressure to resolve the debt without a clear understanding of their rights. Some pay a debt they think is wrong, just to get the collector off their back. Other times, consumers spend significant time and money trying to dispute the debt, often in the face of unnecessary obstacles, simply because they have not carried all their personal records with them through all the years of their lives.
According to the preliminary results of a survey we conducted, about one out of three consumers has been contacted by a creditor or collector trying to collect a debt within the past year. That is some 70 million consumers. Many reported that they were being pursued on multiple debts – between two and four debts for most of these consumers. And fully one-third of the consumers contacted about a debt in the last year said they believed the collector was trying to collect the wrong amount.
Debt collection is a multi-billion dollar industry, with more than 6,000 debt collection firms in the United States. Some are given inaccurate or incomplete information when they are hired or when they purchase debt to collect. They may also add errors of their own through sloppy procedures that compound the harm to consumers. All of this generates problems and disputes, and it can drive up costs to collectors, which hurts the industry as a whole. When an account is sold or moved, the information that transfers may benefit only the collector, not the consumer, which creates still more problems.
The proposal we have under consideration right now would overhaul the entire process from the moment third-party collectors first receive their debt portfolios to their very last efforts to collect. The proposal also covers many debt buyers, and as part of our work in this area we plan to address issues with first-party debt creditors on a separate track. We held a field hearing on these issues in Sacramento, California, and convened a Small Business Review Panel to gather feedback. And we will continue to seek counsel from consumer groups, the public, industry, and other stakeholders as we proceed with the rulemaking process.
This is not our first foray into the debt collection marketplace. In October 2012, we issued a rule establishing our supervisory authority over nonbank debt collectors with more than $10 million annually in consumer debt collection receipts. This covers some 175 debt collectors accounting for more than 60 percent of this market, and it was the first time the federal government had ever asserted supervisory authority over debt collectors. We also have enforcement authority, which we share with the Federal Trade Commission and state attorneys general, and we consistently work together in a group effort to police unlawful practices in the industry. Both on our own and with these partners, we have ordered companies to halt violations of federal law and make them refund hundreds of millions of dollars they had unlawfully collected from consumers. All of that experience creates a strong foundation for us now to proceed with our rulemaking to reform the debt collection market.
Debt can overwhelm people and leave them feeling helpless and powerless as they try to fend off harassing debt collectors. By cleaning up the integrity of this process, we can resolve many issues before they become problems. And with better financial education for our young people, we can head off some of these issues in the first place by putting them on a surer path toward financial security. So thank you all, and I look forward to our discussion today.
The Consumer Financial Protection Bureau (CFPB) is a 21st century agency that helps consumer finance markets work by making rules more effective, by consistently and fairly enforcing those rules, and by empowering consumers to take more control over their economic lives. For more information, visit www.consumerfinance.gov.