Prepared Remarks of Richard Cordray Director of the Consumer Financial Protection Bureau
Credit Union Advisory Council Meeting, Washington, D.C.
Welcome to this gathering of the Credit Union Advisory Council, and it is good to see all of you. We are here to talk about promoting financial education among consumers, especially younger ones, 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 they were appointed. We all thank Robin Romano for taking on the role as chair, and David Seely for agreeing to serve as vice chair. I look forward to continuing our helpful dialogue and to seeing what we can accomplish together.
As the Director of the Consumer Financial Protection Bureau, I have seen firsthand the important role that credit unions play in the lives of so many consumers and communities around the country. You take your responsibilities to your members very seriously, and many of you have been pacesetters as consumer educators. Your voice matters, and we want to hear from you.
In fact we formed this council to learn more about how credit unions operate day to day, and to hear about the current challenges you face along with your members. This helps us do better work. And we have learned from our conversations that we share many goals in common, most notably the goals of supporting consumers by providing fair treatment and excellent service.
Take financial education, for instance, as one particular focus. Many credit unions have shown a broad commitment to promoting financial literacy and financial capability in the classroom. They have done this though programs presented both online and on cable access television. Some offer much-needed credit counseling to lower-income members. In a variety of ways, credit unions arm consumers with the right tools to build their own financial capability to meet their individual and family needs. At the Consumer Bureau, 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 conducted by the Financial Industry Regulatory Authority, known as FINRA. This survey data gives a snapshot of the obstacles and opportunities that consumers face in their daily financial lives as they strive for longer-term financial goals. Today we want to share how the latest findings can inform and influence our work as we seek to strengthen the financial capability of all consumers.
We are pleased to say that this year’s survey shows we are moving in the right direction. Seven years after the first FINRA study was conducted, Americans on average are experiencing less financial stress and more satisfaction with their financial condition. We also find the FINRA study especially useful because it discusses financial well-being along the lines of research that we have done here at the Consumer Bureau. In our research, we heard from consumers and financial educators who identified four key elements of financial well-being. So now we are able to assess how we are doing on each of these four elements, based on the results of the survey data in the FINRA study.
On the first element, consumers have told us that their financial well-being depends on a sense of financial security that is provided by feeling in control of their finances, both day-to-day and month-to-month. The FINRA study found that people are generally feeling more financially secure, though almost half still reported some trouble in covering expenses and paying bills.
The second element looked at the ability to absorb an unexpected financial shock, and whether people have a safety net in place for emergencies. This year’s study showed that now, for the first time since its original publication in 2009, nearly half of Americans have an emergency fund they have set aside to cover three months of expenses.
The third element of financial well-being that consumers reported was a sense of being on track to meet their financial goals. This year, the FINRA study found that those who report working toward long-term goals are much more likely to be satisfied with their personal finances than those who are not doing so.
The fourth and final element of financial well-being consumers identified to us is the financial freedom to make choices that allow them to enjoy life in the moment. That could mean taking a vacation, for example, or going out to eat. We were encouraged at the number of people who answered the survey and said they are highly satisfied with their financial condition. That number has roughly doubled since 2009, and it now exceeds 30 percent.
So that is the good news. But the results also reveal that large swaths of our society continue to face financial difficulties. More than half of all respondents did not have three months of emergency savings. And more than a third said they likely would not have enough money to cover an unexpected expense of $2,000. Individuals from several groups, in particular, reported that their financial conditions are especially fragile. These include young people, women, African Americans, and Hispanics, as well as lower-income and less educated respondents.
Clearly, we have more to do to increase overall financial capability and well-being among all Americans, and we all play a part. As we continue to rise from the ashes of the financial crisis, we need to empower people to take more control of their economic lives. When more people have more financial capability, consumers and industry both benefit and our economy rests on stronger and more enduring foundations.
But financial education goes beyond just preaching the basics of financial literacy. It also means meeting people where they are – 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. It means starting early, by helping parents talk to their children about the importance of proper saving and spending habits. And it means giving young people access to the building blocks of financial capability in schools, through curricula that engages them to learn and understand.
Organizations and policy leaders like you are in position to help shape priorities and strategies to help the next generation achieve financial capability, and the Consumer Bureau now has new tools at the ready. They can help you refine existing programs and financial education resources, develop and test new strategies, and make better decisions to target resources on advancing financial education. With this being “Back to School” month, we have some upcoming events of note, including a “Reality Fair” financial education event in Dallas with the Credit Union of Dallas on September 7, with a financial education town hall afterward; the FinEx convention here at our Washington office the next day on the 8th; and the launch of a Spanish language website for the Money as You Grow initiative and the release of a related parent guide around the middle of the month. And we will soon have still more to report on new and improved approaches to educating our young people on financial matters, so stay tuned.
During this meeting, we would like your input on these and other issues that are raised in our joint work on financial education. We want to know how we can work more effectively with the Council and other credit unions to foster youth financial capability. We ask you to share your ideas on how we can get the word out through credit unions and their networks, and how we can encourage more credit unions to utilize our financial educational resources without having to reinvent the wheel. We see credit unions, like libraries, as effective partners in this work and we want to know how we can make progress together to help people improve this crucial aspect of their lives.
When people have the tools and resources they need to make informed financial decisions, it means they have more security as consumers. The FINRA study on financial capability tells us that our collective efforts to educate and empower consumers are working, and we need to stay the course and expand our activity to reach more Americans. We look forward to our continued work with all of you to his area, to help more consumers reach their personal financial goals.
Another important topic to continue to discuss with you is our new proposal to overhaul the debt collection market. Federal law already prohibits debt collectors from harassing, oppressing, or abusing consumers. The main law that governs the industry and protects consumers is the Fair Debt Collection Practices Act, which was enacted in 1977, almost forty years ago. In 2010, the Dodd-Frank Wall Street Reform and Consumer Protection Act revised that law, making the Bureau the first agency with the power to issue substantive rules under the statute.
In July, we announced that we have a proposal under consideration that would update federal standards on debt collection, consistent with changes in technology and to help clear up decades of court rulings that have disagreed with one another in various respects. Under our proposal, debt collectors would need to have more, and more reliable, information about the debt before they collect. As they are collecting, 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 at the early stages of considering different aspects of this proposal, which is a good time to be discussing it.
Debt collection, in fact, generates more complaints to the Consumer Bureau than any other financial product or service. The same has long been true at all levels of government, federal as well as state, around the country. We have fielded complaints about collectors seeking to collect debt from the wrong consumer, for the wrong amount, or that could not legally be enforced. And 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 had been contacted by a creditor or collector trying to collect a debt within the past year. That is roughly 70 million consumers, a figure of special concern in the wake of the damage done by the financial crisis. Many consumers who were contacted report that they were being pursued on multiple debts – between two and four debts for most of these consumers, as noted in our report of preliminary results. And fully one-third of the consumers who had been contacted about a debt in the last year reported that they believed the collector was trying to collect the wrong amount.
Debt collection is a multi-billion dollar industry, with estimates of over 6,000 debt collection firms in the United States. Some of these firms are given inaccurate or incomplete information when they are hired or when they purchase debt to collect. They also may add errors of their own through sloppy procedures, and they may compound the harm to consumers by failing to provide sufficient information during the collection process. That leads to more disputes and problems during collections, and it is a recipe for consumer harm. These factors also drive up costs to collectors, which hurts the industry as a whole. When an account is sold or moved, the information that transfers may only be the information that benefits the collector, rather than information that benefits the consumer. That creates further problems as well.
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 on those debts. 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. Last month we held a field hearing on these issues in Sacramento, California, and last week we convened a Small Business Review Panel to gather feedback from small industry players. While we digest that feedback, we will continue to seek input from the public, consumer groups, 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. Ever since we opened our doors, we have worked together in a group effort to police unlawful practices in the industry. Both on our own and with these partners, the Consumer Bureau has exercised its authority to order 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.
Ogden Nash wrote much light-hearted verse, but not always with light-hearted messages. As he accurately noted, “Some debts are fun when you are acquiring them, but none are fun when you set about retiring them.” Debt can overwhelm people and leave them feeling helpless and powerless in trying 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.