[House Hearing, 111 Congress]
[From the U.S. Government Publishing Office]
IMPROVING CONSUMER FINANCIAL LITERACY
UNDER THE NEW REGULATORY SYSTEM
=======================================================================
HEARING
BEFORE THE
SUBCOMMITTEE ON FINANCIAL INSTITUTIONS
AND CONSUMER CREDIT
OF THE
COMMITTEE ON FINANCIAL SERVICES
U.S. HOUSE OF REPRESENTATIVES
ONE HUNDRED ELEVENTH CONGRESS
FIRST SESSION
__________
JUNE 25, 2009
__________
Printed for the use of the Committee on Financial Services
Serial No. 111-50
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52-407 WASHINGTON : 2009
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HOUSE COMMITTEE ON FINANCIAL SERVICES
BARNEY FRANK, Massachusetts, Chairman
PAUL E. KANJORSKI, Pennsylvania SPENCER BACHUS, Alabama
MAXINE WATERS, California MICHAEL N. CASTLE, Delaware
CAROLYN B. MALONEY, New York PETER T. KING, New York
LUIS V. GUTIERREZ, Illinois EDWARD R. ROYCE, California
NYDIA M. VELAZQUEZ, New York FRANK D. LUCAS, Oklahoma
MELVIN L. WATT, North Carolina RON PAUL, Texas
GARY L. ACKERMAN, New York DONALD A. MANZULLO, Illinois
BRAD SHERMAN, California WALTER B. JONES, Jr., North
GREGORY W. MEEKS, New York Carolina
DENNIS MOORE, Kansas JUDY BIGGERT, Illinois
MICHAEL E. CAPUANO, Massachusetts GARY G. MILLER, California
RUBEN HINOJOSA, Texas SHELLEY MOORE CAPITO, West
WM. LACY CLAY, Missouri Virginia
CAROLYN McCARTHY, New York JEB HENSARLING, Texas
JOE BACA, California SCOTT GARRETT, New Jersey
STEPHEN F. LYNCH, Massachusetts J. GRESHAM BARRETT, South Carolina
BRAD MILLER, North Carolina JIM GERLACH, Pennsylvania
DAVID SCOTT, Georgia RANDY NEUGEBAUER, Texas
AL GREEN, Texas TOM PRICE, Georgia
EMANUEL CLEAVER, Missouri PATRICK T. McHENRY, North Carolina
MELISSA L. BEAN, Illinois JOHN CAMPBELL, California
GWEN MOORE, Wisconsin ADAM PUTNAM, Florida
PAUL W. HODES, New Hampshire MICHELE BACHMANN, Minnesota
KEITH ELLISON, Minnesota THADDEUS G. McCOTTER, Michigan
RON KLEIN, Florida KEVIN McCARTHY, California
CHARLES A. WILSON, Ohio BILL POSEY, Florida
ED PERLMUTTER, Colorado LYNN JENKINS, Kansas
JOE DONNELLY, Indiana
BILL FOSTER, Illinois
ANDRE CARSON, Indiana
JACKIE SPEIER, California
TRAVIS CHILDERS, Mississippi
WALT MINNICK, Idaho
JOHN ADLER, New Jersey
MARY JO KILROY, Ohio
STEVE DRIEHAUS, Ohio
SUZANNE KOSMAS, Florida
ALAN GRAYSON, Florida
JIM HIMES, Connecticut
GARY PETERS, Michigan
DAN MAFFEI, New York
Jeanne M. Roslanowick, Staff Director and Chief Counsel
Subcommittee on Financial Institutions and Consumer Credit
LUIS V. GUTIERREZ, Illinois, Chairman
CAROLYN B. MALONEY, New York JEB HENSARLING, Texas
MELVIN L. WATT, North Carolina J. GRESHAM BARRETT, South Carolina
GARY L. ACKERMAN, New York MICHAEL N. CASTLE, Delaware
BRAD SHERMAN, California PETER T. KING, New York
DENNIS MOORE, Kansas EDWARD R. ROYCE, California
PAUL E. KANJORSKI, Pennsylvania WALTER B. JONES, Jr., North
MAXINE WATERS, California Carolina
RUBEN HINOJOSA, Texas SHELLEY MOORE CAPITO, West
CAROLYN McCARTHY, New York Virginia
JOE BACA, California SCOTT GARRETT, New Jersey
AL GREEN, Texas JIM GERLACH, Pennsylvania
WM. LACY CLAY, Missouri RANDY NEUGEBAUER, Texas
BRAD MILLER, North Carolina TOM PRICE, Georgia
DAVID SCOTT, Georgia PATRICK T. McHENRY, North Carolina
EMANUEL CLEAVER, Missouri JOHN CAMPBELL, California
MELISSA L. BEAN, Illinois KEVIN McCARTHY, California
PAUL W. HODES, New Hampshire KENNY MARCHANT, Texas
KEITH ELLISON, Minnesota CHRISTOPHER LEE, New York
RON KLEIN, Florida ERIK PAULSEN, Minnesota
CHARLES A. WILSON, Ohio LEONARD LANCE, New Jersey
GREGORY W. MEEKS, New York
BILL FOSTER, Illinois
ED PERLMUTTER, Colorado
JACKIE SPEIER, California
TRAVIS CHILDERS, Mississippi
WALT MINNICK, Idaho
C O N T E N T S
----------
Page
Hearing held on:
June 25, 2009................................................ 1
Appendix:
June 25, 2009................................................ 35
WITNESSES
Thursday, June 25, 2009
Diaz, Lautaro ``Lot,'' Vice President, Housing and Community
Development, National Council of La Raza (NCLR)................ 10
Gannon, John M., Senior Vice President, Office of Investor
Education, and President of the FINRA Investor Education
Foundation, The Financial Industry Regulatory Authority (FINRA) 17
Jones, Stephanie J., Executive Director, National Urban League
Policy Institute............................................... 13
Lauber, Gerald, Chief Senior Advisor, National Urban Alliance
(NUA).......................................................... 15
Levine, Laura, Executive Director, Jump$tart Coalition for
Personal Financial Literacy.................................... 8
Neiser, Brent A., Director of Strategic Programs and Alliances,
National Endowment for Financial Education (NEFE).............. 19
Salisbury, Dallas L., President and CEO, Employee Benefit
Research Institute (EBRI)...................................... 11
APPENDIX
Prepared statements:
Hinojosa, Hon. Ruben......................................... 36
Diaz, Lautaro ``Lot''........................................ 45
Gannon, John M............................................... 52
Jones, Stephanie J........................................... 60
Lauber, Gerald............................................... 67
Levine, Laura................................................ 73
Neiser, Brent A.............................................. 78
Salisbury, Dallas L.......................................... 82
Additional Material Submitted for the Record
Hinojosa, Hon. Ruben:
GAO Testimony Before the Subcommittee on Oversight of
Government Management, the Federal Workforce, and the
District of Columbia, Committee on Homeland Security and
Governmental Affairs, U.S. Senate, entitled, ``Financial
Literacy and Education Commission, Progress Made in
Fostering Partnerships, but National Strategy Remains
Largely Descriptive Rather Than Strategic,'' dated April
29, 2009................................................... 126
Washington State Financial Literacy Work Group Final Report
entitled, ``Putting The Pieces Together,'' dated December
1, 2008.................................................... 146
IMPROVING CONSUMER FINANCIAL
LITERACY UNDER THE NEW
REGULATORY SYSTEM
----------
Thursday, June 25, 2009
U.S. House of Representatives,
Subcommittee on Financial Institutions
and Consumer Credit,
Committee on Financial Services,
Washington, D.C.
The subcommittee met, pursuant to notice, at 2 p.m., in
room 2128, Rayburn House Office Building, Hon. Luis V.
Gutierrez [chairman of the subcommittee] presiding. *(Chairman
Gutierrez was unable to preside at this hearing due to a
pressing commitment at the White House.)
Members present: Representatives Sherman, Hinojosa,
McCarthy of New York, Baca, Green, Scott, Cleaver; Hensarling,
Royce, Marchant, and Paulsen.
Mrs. McCarthy of New York. [presiding] Good afternoon
everybody.
We certainly appreciate everybody being here.
This hearing of the Subcommittee on Financial Institutions
and Consumer Credit will come to order. I want to thank
everybody and the witnesses for agreeing to appear before the
subcommittee today.
Today's hearing, entitled, ``Improving Consumer Financial
Literacy Under the New Regulatory System,'' will examine the
continuing need for financial literacy, with a particular focus
on the role of consumer financial literacy under the
President's newly proposed regulatory framework.
Among the issues that will be addressed here: how the
consumer-friendly plain-language products proposed under the
regulatory reconstruction plan will be created and regulated;
the efficiency of previous Federal financial literacy efforts;
and which agency should have primacy over financial literacy
efforts going forward under the new plan.
We will be limiting our opening statements to 15 minutes
per side. But without objection, the hearing record will be
held open for all members' opening statements to be made a part
of the record.
I now recognize Mr. Hensarling for 5 minutes.
Mr. Hensarling. Thank you, Madam Chairwoman.
I very much appreciate this hearing being called.
I do believe that financial literacy is a very important
subject, one that Members on both sides of the aisle have
championed in the past, so it continues to be a very laudable
goal for our Nation to improve the financial literacy of our
fellow citizens.
And, in fact, although I cannot do the quote justice, I
will paraphrase something that one of our Founding Fathers,
Thomas Jefferson, once said, and that is, if we disagree with
how our fellow citizens exercise their discretion, the remedy
is not to take it from them but to help inform their
discretion.
My apologies to any Jeffersonian scholars in the audience.
I know that was not a literal quote, but that is essentially
the paraphrase. And so, in some respects, although I appreciate
the hearing, I am curious why we are having the hearing. I am
curious because, as I look at the underlying legislation that
would create the Financial Product Safety Commission, our
colleague Mr. Delahunt's bill, which roughly parallels what the
Obama Administration has furthered, I essentially see a rather
draconian effort that allows an unelected body of bureaucrats
to essentially decide that if they subjectively believe that a
consumer financial product is ``unfair,'' if they subjectively
believe that a consumer financial product is ``anti-consumer,''
they can ban it, just ban it from the market.
It is not even a Federal preemption. It is essentially a
layer of regulation and regulators that is poured on top of the
present regulatory structure. And as I read the statute that
was presented, again, by our colleague yesterday in our full
committee hearing, it also encompasses the goal of having these
regulators create ``plain vanilla'' products.
You know, it is laudable if people want vanilla, but some
people want strawberry, some people want chocolate, and some
people want the 32 flavors of Baskin-Robbins. Typically, in a
competitive market, the competitive market is going to produce
what the people want. That is kind of one of the basic tenets
of capitalism. And so, again, I wish our fellow citizens would
indeed be--that we could help achieve and figure out a coherent
strategy and plan to achieve a greater level of financial
literacy, but I don't know if it is going to be needed if this
legislation becomes law.
I mean, after all, you really don't need to know how to
read if your nanny reads you all your material at the end of
each evening. And, in fact, if your nanny prevents you from
putting your hands on any piece of literature, you are
foreclosed from being able to read.
And so now we are going to have an unelected group of
bureaucrats who ultimately can decide what mortgages we have,
what bank accounts we can open, and whether or not we will even
be trusted with a credit card.
And given that there is an entire new level of criminal and
civil penalties that can be applied for those who produce
subjectively unfair products or subjectively anti-consumer
products, functionally no product is going to come to market
that isn't pre-cleared by this unelected group of bureaucrats.
And so, on the one hand, maybe only plain vanilla products
will be available on the market. I am not sure how financially
literate one needs to be. If you are only offered one flavor of
ice cream, I suppose all you need to read on the board is
vanilla. There is nothing else to read.
And so, again, we have these philosopher-kings who will
decide what is best for us, philosopher-kings whom I feel quite
confident are not familiar with the Rodriguez family of
Mesquite, Texas, that I have the opportunity of representing in
Congress. My guess is they don't know exactly what precise bank
account will help that family the most.
My guess is that this unelected group of bureaucrats will
be unacquainted with the Laird family of Athens, Texas, and
they probably don't know what mortgage product is going to be
best for their homeownership dreams in America.
My guess is they probably are not well acquainted with the
Shane family of Kaufman County, Texas, whom I represent in
Congress. And my guess is they really shouldn't decide whether
or not Kenneth Shane and his wife can use a credit card to help
finance their American dream.
Part of our challenge clearly is ineffective disclosure. We
all agree on that. But most of the disclosure, I mean, it is
kind of like Pogo. We have met the enemy, and it is us. We are
the ones who require it. When you disclose everything, you end
up disclosing nothing. And so we should work to have effective
disclosures written in English, not voluminous disclosures
written in legalese.
So, again, I appreciate calling the hearing. I hope it
proves to be a useful hearing. But ultimately, if the
President's initiative is passed, it is all for naught.
With that, Mr. Chairman, I yield back the balance of my
time.
Mr. Hinojosa. [presiding] Thank you, Ranking Member
Hensarling.
I am glad to be able to make my statement. And I want to
welcome the witnesses to today's hearing. I especially want to
commend Chairman Luis Gutierrez for holding it.
Today's hearing on financial literacy is important to all
of us in Congress, for today's witnesses, to all of you
attending this hearing in person, via live webcast, or archived
webcast, and really, each and every resident in the United
States, but especially for our children and the generations to
come.
I ask that those of you with financial literacy programs
understand that we have a limited amount of time and space for
everyone to testify today. But I believe that we have put
together a comprehensive panel of witnesses, and I personally
welcome any statements you might make for submission in today's
record.
I am wearing several hats today. I am a member of this
subcommittee. I am a co-Founder and co-Chair of the Financial
and Economic Literacy Caucus, alongside my good friend and
colleague from Illinois, Congresswoman Judy Biggert, and her
dedicated staff, Nicole Austin and Zach Cikanek. I am chairman
of the Subcommittee on Higher Education, and I am chairman of
the Congressional Hispanic Caucus Task Force on Education. I am
a consumer, just like all of you here today, and most
important, I am a father. I have five children and six
grandchildren. So financial literacy is extremely important to
my family and to millions and millions of families throughout
our country.
What we do here today, the actions we take during the 111th
Congress, and the steps that the States take to graduate
financially literate students are all of the utmost importance.
We need to improve the financial literacy rates of all
residents throughout the United States, and I believe that
today we might find some of the tools necessary to accomplish
this goal which most definitely will include revamping the
Financial Literacy and Education Commission and selecting one
agency to have primacy over financial literacy efforts going
forward under the new Financial Services regulatory plan
proposed by President Obama.
With that, I yield back the remainder of my time, and I
want to recognize Mr. Paulsen for 3 minutes.
Mr. Paulsen. Thank you, Mr. Chairman. I appreciate it.
I also strongly believe that we must increase the financial
literacy of our citizens. This is a basic life skill that,
unfortunately, many in our country truly lack. This is really a
family and a financial security issue.
What concerns me is that nowhere in the Administration's
proposal that we have now begun hearings on are the words
``financial literacy'' mentioned. The plan doesn't do anything
to encourage individuals, from what I can see, to empower
themselves or help people better understand personal finance
and the decisions that they have to make on a daily basis.
Instead, what I see is that, is one of my chief concerns,
that it actually takes away the ability of individual choice
and decisions from individuals. And rather than seeking to
increase financial literacy, the underlying legislation creates
this panel that potentially will take away choices from
consumers out of a fear that things will be too complicated for
them to understand. In other words, someone else is going to
make decisions about what is best for you. And I think that is
the wrong approach.
Congress should not be taking away choices from the
American people. Congress shouldn't be stifling innovation at a
time when we need innovation. Instead, I think Congress should
be helping these individuals understand what options are
available so that they can make the right decisions for
themselves. And I sincerely hope that this committee can work
in a bipartisan way to improve upon the Administration's
proposal as we go forward in crafting really some commonsense
legislation that is needed to make sure that ultimately we are
empowering all Americans to make sound and educated judgements
with regard to their own personal finances.
And I yield back.
Mr. Hinojosa. Thank you.
I, at this time, wish to recognize Congressman Green for 3
minutes.
Mr. Green. Thank you, Mr. Chairman.
I thank Chairman Gutierrez for his assistance with this as
well.
Mr. Chairman, generally speaking, financial success is
directly proportional to financial literacy. People who
understand financial products can make good decisions about the
products that they have to negotiate. I think that this hearing
is exceedingly important because it will give us an opportunity
to examine the means by which we can, not only improve the
products themselves by way of conveying what they are about to
the public, but also, it helps us to understand where best to
have this type of assistance located. We can have it in many
different places, or we can have it in one place. I think that
this is the type of hearing where we can get the intelligence
necessary to make some decision as to where the actual delivery
mechanism is located.
I am exceedingly excited about this, and I look forward to
our being able to develop the plain language that Americans
would like to have so that they can understand and, to be quite
candid with you, so that I can understand. I have had the good
fortune to get a decent education in this country. And I can
tell you that when I read some of my credit card materials, I
am tempted to call a lawyer. I happen to have a law degree, but
I haven't found that it has been of great benefit to me on some
occasions, and went so far as to talk to my friend, who is a
lawyer, who reminded me that he, too, has problems.
So I am looking forward to our working together to come up
with the kind of language that people can understand that makes
a lot of sense and deciding where we should have the agency, or
which agency is most appropriate to help us with this line of
products.
I thank you, Mr. Chairman, and I yield back.
Mr. Hinojosa. Thank you.
At this time, I would like to recognize Congressman
Marchant for 4 minutes.
Mr. Marchant. Thank you, Mr. Chairman.
After reviewing last night all of the testimony that we
will be given today, I am struck that all of your testimony
seems to be directed towards a system that I think Mr.
Hensarling has already pointed out is most likely not to be in
place this time next year.
In fact, with the current--the legislation that we just
passed in the last few months, two pieces of legislation about
credit cards, and the President has signed one of those pieces
of legislation, significantly limiting the terms and conditions
of credit cards and simplifying the credit card system; and
taking into consideration that probably 80 percent of all home
loans are made now through either FHA, VA, Fannie Mae, or
Freddie Mac, and all of those documents are promulgated through
HUD and through government agencies already; it seems to me
that your task in the future may be trying to figure out how
you can work with those Federal agencies, this new Financial
Consumer Protection Agency, how you can work with them to try
to help them promulgate all of these loan forms and all of the
loan documents that each and every banker and lender in America
will most likely have to go and get their loan papers approved
and everything they do, and make sure that promulgation of
documents is done through that agency.
So it may simplify your job if you can, if you think you
can trust this new financial consumer agency to draft the
documents to where everyone who reads them will have no
problem. So I think my questions today, Mr. Chairman, are going
to be directed in that direction, and ask you what your opinion
is of that agency and how you plan on interfacing with that
agency.
Thank you.
Mr. Hinojosa. Thank you.
I would like to ask Congressman Cleaver to take 3 minutes,
please.
Mr. Cleaver. Thank you, Mr. Chairman.
I appreciate very much the hearing. I am very much
concerned about the issue of financial literacy. The purpose of
this hearing is to discuss plain-language initiatives and
financial literacy promotion. Both of these subjects are
extremely important to me. And I have advocated in our hearings
over the years for plain language.
In fact, in the 2006 GAO report, ``Increased Complexity in
Rates and Fees Heightens Need For More Effective Disclosure to
Consumers,'' is I think a bold and accurate statement about
what is needed. Some credit card disclosure statements, and I
think all of you are familiar with this, are written in 27th
grade language. That is 12 years of high school and 12 years of
college and 3 years of graduate school.
And this sort of deliberate and sometimes deceptive way of
presenting credit card information is at worst appalling and
despicable, and at best, just plain arrogant. Plain-language
regulations could go far to help eliminate these misleading and
confusing practices.
When I teach Bible study, I always teach that, in the
Bible, the main thing is the plain thing, and the plain thing
is the main thing. And it would be, I think, appropriate if we
adopted a similar policy as it relates to what we incorporate
into insurance--I am sorry, into our credit card statements and
frankly, even into mortgage documents.
Plain language can lead to the watering down of ideas also,
which can also create some problems as well. And for this
reason, I have just introduced H.R. 3037, to create a pilot
program for financial literacy. I will incorporate into this
program a pilot project for 10 school districts across the
country. These projects would receive Federal funding to help
them educate and train the teachers in order to integrate
financial literacy into the curricula of grades K through 12.
And this pilot program is just one step toward ensuring that
all students in all school districts will be able to
participate in similar programs in their schools.
And finally, Mr. Chairman, if you look at the crisis that
we have found ourselves in today, it doesn't take a Ph.D. to
realize that we have a public that, in many instances, just did
not understand what they were getting into when they
participated in these exotic mortgages. And so I think the
thing we need to let people know is that what you don't owe
won't hurt you.
Mr. Hinojosa. Thank you.
At this time, I would like to call on Congressman Royce for
1 minute.
Mr. Royce. Thank you, Mr. Chairman.
I think financial literacy here is key. I think, in my
view, I am a little afraid that one of the reasons we are here
today is because of the overreliance on the government to
determine what is best for consumers. And I think a lot of
consumers looked at this and said, well, if the government says
it is okay, then it must be. And I think this flawed line of
thinking led millions of consumers to get involved in subprime
and Alt-A loans. They, after all, had that government support.
And I think a similarly faulty line of thinking led
investors in institutions around the world to embrace financial
derivatives based on the U.S. housing market. Why? Well, the
government-supported rating agencies rated these products
Triple-A. So what could the problem be?
And there was a belief that the rating agencies and Federal
regulators knew something that everyone else did not know. And
clearly, they didn't know the problem. But there was a reliance
on the government, and in fact, in many instances, they were
responsible for the development and proliferation of these
products.
According to a former Federal Reserve official, CRA
regulations led to the development of subprime loans, and the
proliferation of subprime and Alt-A loans was in itself enabled
through low-income housing goals that were placed on Fannie Mae
and Freddie Mac by their regulators and by Congress.
So, clearly, the belief in an all-knowing regulator is
flawed. And instead of attempting to address this problem
through increasing the regulatory presence over the industry,
which will exacerbate the belief that the government does know
best, we should be encouraging an educated, knowledgeable
consumer and investor base that makes sound financial decisions
for themselves and their families; hence, the importance of
financial literacy and the importance of disclosure.
Thank you, Mr. Chairman.
Mr. Hinojosa. Thank you, Congressman Royce.
I want to announce that the House has begun the voting. I
am going to ask that the technicians put that work that is
going on in the House of Representatives on the screens so that
you can see the progress that we are making. But we have seven
amendments to vote on, plus the eighth, which is final passage.
We anticipate that it is going to take 1 hour. So I am going to
recess to allow all members to participate. And we will
reconvene in 1 hour.
I am looking forward to the testimony of these witnesses. I
think that it is going to be very informative and something
that we are going to be very proud of in getting into the
record.
With that, we stand in recess.
[recess]
Mrs. McCarthy of New York. [presiding] Let me apologize.
Unfortunately, we are running through a whole bunch of votes,
and we are going to have more votes in probably less than an
hour. I am fairly fast, to say the least, so we are going to go
on, get all your testimony in, so that we don't have to have
another recess, if that is all right with everybody.
First, I would like to introduce the witnesses from
today's panel:
Ms. Laura Levine, executive director, Jump$tart Coalition
for Personal Financial Literacy; Mr. Lot Diaz, vice president,
community development, National Coalition of La Raza; Mr.
Dallas Salisbury, president and CEO, Employee Benefit Research
Institute; Mr. Brent Neiser, director of strategic programs and
alliances, National Endowment for Financial Education.
I am sorry, I skipped one; Mr. John Gannon, senior vice
president, Office of Investor Education, and president of the
Financial Industry Regulatory Authority, Investor Education
Foundation. That is a mouthful.
And Dr. Gerald Lauber, chief senior advisor, National Urban
Alliance.
I would like to certainly extend a warm welcome to Dr.
Lauber. He is the chief advisor and a board member of the
National Urban Alliance. He brings an extensive background to
the position, including academic, technology, and corporate
experience in New York schools and was a first responder at
Ground Zero.
Mr. Green. Madam Chairwoman, did we cover the Urban League?
Ms. Jones?
Mrs. McCarthy of New York. I'm sorry. They didn't give it
to me. Stephanie Jones is the executive director of the
National Urban League Policy Institute, a position she has held
since the year 2005. Prior to coming to the Urban League, she
was chief counsel for Senator John Edwards.
Welcome to all of you, and thank you.
Let me explain the lighting system. You will each get 5
minutes. The yellow light means you have a minute left. We will
ask you to try to finish off your sentence or thought at that
particular time.
With that, Ms. Levine.
STATEMENT OF LAURA LEVINE, EXECUTIVE DIRECTOR, JUMP$TART
COALITION FOR PERSONAL FINANCIAL LITERACY
Ms. Levine. Thank you, Representative McCarthy, and members
of the subcommittee.
Good afternoon. Thank you for this opportunity to speak
with you today.
My name is Laura Levine, and I am the executive director of
the Jump$tart Coalition for Personal Financial Literacy, a
nonprofit organization based here in Washington, D.C.
Jump$tart is a coalition of about 180 companies, such as
Visa and Charles Schwab, and organizations like NEFE, EBRE, and
FINRA, as well as Federal agencies which share a commitment to
advance financial literacy among students in kindergarten
through college. Jump$tart is also a network of 48 affiliated
State coalitions.
The Coalition was founded in 1995 by a small group of
organizations that recognized the need to educate students
about personal finance, as well as the importance of meeting
this need through a collaborative effort. Jump$tart does not
conduct financial education itself or create financial
education resources; rather, its role is to support and promote
individual and collective efforts to educate young people about
money management.
As the committee considers the importance of financial
literacy within the regulatory system, Jump$tart encourages you
to keep in mind the difference between educating and informing
adult consumers and providing standards-based tested personal
finance education for students in kindergarten through high
school. Any widespread effort to require personal finance
education at that level must be coordinated by or with the
Department of Education, as well as the State Departments of
Education and the various appropriate educational organizations
at the State, local, and national levels.
Jump$tart believes that financial literacy is an important
element of consumer protection, and even with better regulation
designed to protect consumers and more readable disclosures
that most consumers can easily understand, an adequate level of
financial literacy would give most consumers comfort,
confidence, and the ability to make decisions most advantageous
to their specific needs.
But today, many young people are not adequately prepared to
handle the growing variety and complexity of financial products
and services or to make wise decisions in managing their own
money.
In 1997, the Jump$tart Coalition launched its first survey
of financial literacy among high school students. The survey
was conducted again in 2000 and has been repeated biannually
since. Nationally, the average score on the test portion of the
survey has ranged from 48.3 percent and, unfortunately, that
was the most recent survey in 2008, to a high of 57 percent,
which still could be called a failing grade.
In each of the surveys, participants were 12th grade
students recruited from randomly selected public high schools.
It is important to note that the Jump$tart survey is intended
as a general measure of the level of financial literacy among
high school students and is not designed to be an assessment of
the effectiveness of specific financial education curricula,
and therefore, we should not conclude that the low scores
reflect that financial education is ineffective.
Rather, the consistently disappointing results over more
than a decade of research do seem to indicate the need for more
and better financial education.
In 2008, Jump$tart also surveyed college students for the
first time. Given the same test questions, college students on
average answered 62.2 percent of the questions correctly,
substantially better than their high school counterparts. But,
unfortunately, college graduates are still a relatively small
segment of our total population.
Jump$tart believes that personal finance must be included
in the education of all students during the kindergarten
through high school years to provide young people with the
knowledge and skills they need to make smart financial
decisions. Some positive strides have been made in financial
education in recent years.
Jump$tart has identified three States, Missouri, Tennessee
and Utah, that currently require all students to take and pass
a one-semester course devoted to personal finance in order to
graduate from high school. And another 18 States require some
personal finance content to be incorporated into the other
subject matter.
I think it is important to note that personal finance
education is taking place in schools across the country,
whether or not the State or local jurisdiction requires it. We
believe that personal finance education needs to be introduced
early in the elementary school years while students are forming
their behaviors and beliefs, and we believe that effective
financial education in the middle grades could help troubled or
unmotivated students make the connection between staying in
school and their lifelong income-earning potential, possibly
changing the path of would-be dropouts.
Thank you for the opportunity to speak with you today. And
as you start to shape the future of the regulatory atmosphere
for financial institutions, I urge you to keep the financial
literacy of our Nation's students in mind, too. More and not
less personal finance education is needed, and we need to have
a long-term nationwide strategy in place to ensure that this
education is available to all students.
Thank you.
[The prepared statement of Ms. Levine can be found on page
73 of the appendix.]
Mr. Hinojosa. [presiding] Thank you, Ms. Levine.
At this time, I would like to recognize Mr. Diaz.
STATEMENT OF LAUTARO ``LOT'' DIAZ, VICE PRESIDENT, COMMUNITY
DEVELOPMENT, NATIONAL COUNCIL OF LA RAZA (NCLR)
Mr. Diaz. Good afternoon. My name is Lot Diaz, and I am
vice president for housing and community development at the
National Council of La Raza.
NCLR is the largest Hispanic civil rights organization in
the United States dedicated to improving the opportunities for
Hispanic Americans.
I would like to thank Chairman Gutierrez and Ranking Member
Hensarling for inviting us to share our views.
I would also like to thank Congressman Hinojosa for his
leadership in the area of financial literacy.
In my remarks today, I will lay out a strategy for using
national financial counseling programs as a glue to hold major
asset-building programs together.
There are a number of Federal programs, like housing
counseling, individual development accounts, and the VITA
initiative that aim to increase asset ownership among low- and
moderate-income families. However, none of them offer a
targeted strategy for improving the choices of financial
consumers and advancing them to more sophisticated products and
transactions.
In 1997, NCLR created a counseling network that today
consists of 51 community-based counseling providers that will
this year provide counseling education to over 40,000 families.
Also in 2005, NCLR released a report which found that most
financial education programs did not have the impact of helping
Hispanic families obtain assets. We have learned that one-on-
one counseling to low-income families is a meaningful and
effective tool for building financial knowledge and sustainable
wealth.
While one goal of the Administration's proposed Consumer
Finance Protection Agency would be to streamline financial
literacy and education efforts, we believe a bolder, more
targeted approach is necessary to achieve a shared goal, the
shared goal of changing consumer choices and behavior.
A successful national counseling program should include
elements like in-person, one-on-one service, provide advice on
a wide range of financial services, and deliver services
through community-based organizations currently providing asset
programs.
As Congress considers regulatory reform, it must also
consider how to improve the efforts of Federal agencies to
educate financial consumers. Several proposed reforms, like
additional disclosure, will curb deceptive practices. However,
these reforms will not necessarily improve the daily financial
decisions of families or ensure that these decisions set them
on a path to build true financial security.
Many times, improving families' financial decisions
requires tailored guidance from a professional who can take
into consideration the totality of the family's circumstances
and goals. In fact, this is a mainstream approach taken by
families with the means to do so. They seek advice from a
professional financial planner or investment advisor.
One NHN member, the Resurrection Project in Chicago,
provides a model that brings these large wealth-building
programs together through financial counseling. TRP is a
certified housing counseling agency which provides free tax
preparation, financial counseling, and other services. A
typical client meets with a counselor individually to determine
their financial status. A counselor reviews the client's credit
report, budget, and financial goals.
On average, 80 percent of the Resurrection Project's
clients are not ready to purchase a home and likely need to
work through other financial barriers before pursuing
homeownership. In some cases, homeownership may not be the
right choice. Together, the client and the counselor establish
an action plan that would address credit repair, plan savings
accounts, financial dictation and available tax programs. As
the family works through their action plans, they continue to
meet with the counselor, who helps them tackle basic and
complex financial issues.
Organizations like the Resurrection Project run into
several barriers implementing this model due to the structure
of the current system. As stated earlier, financial counseling
is not a federally funded stand-alone service. They are also
limited in size and scope of the current Federal programs.
A national financial counseling program would allow
counselors to move families through asset-building programs to
create a real opportunity for families to make fruitful
financial choices.
NCLR applauds the Administration's and Congress' efforts to
modernize our financial regulatory system. We urge you not to
lose sight of the long-time bipartisan goal of improving
families' understanding and choices in financial matters.
A national financial counseling program would offer
meaningful tailored financial advice, link existing asset
programs, and improve the relationship between underserved
communities and the banking sector.
In conclusion, NCLR recommends that: Congress establish a
national financial counseling program; they expand programs
that help families obtain assets; and finally, they create new
incentives for low-income families.
Thank you.
[The prepared statement of Mr. Diaz can be found on page 45
of the appendix.]
Mr. Hinojosa. Thank you, Mr. Diaz.
And now, I would like to recognize Mr. Salisbury.
STATEMENT OF DALLAS L. SALISBURY, PRESIDENT AND CEO, EMPLOYEE
BENEFIT RESEARCH INSTITUTE (EBRI)
Mr. Salisbury. Mr. Chairman, members of the committee, it
is a pleasure to be here. I thank you for the invitation to
testify today.
My employer since 1978, the Employee Benefit Research
Institute, I would note, does not lobby or take positions for
or against proposals. And my full submission for the record
includes a significant amount of survey data and financial
literacy status information as dealing with the full
description.
The letter you sent me, however, inviting me to testify
asked four specific questions that actually call for the
statement of positions, and in that sense, I would want to
stress that my statements from this point forward are my own
personal views and not those of my employer.
First, as a consumer of financial services, my reaction is
positive to the creation of an independent consumer financial
protection agency if, and I would stress this, the consumer is
a dominant presence on the board and in advisory council
positions.
For example, deep experience in financial services, in
quotation marks, should be interpreted broadly enough to
include lifetime consumers of financial services, not just
individuals working for the financial services industry. I
would personally prefer regulation and protection by an entity
that is not governed by the regulated or, as stated on page 29
of the President's document, captured by the regulated, a
problem found in recent years at the regional Federal Reserve
banks, the Federal Reserve, and other existing regulatory
agencies.
As a consumer, I currently see no such independent
regulator, which if properly implemented, the CFPA could
become. If the consumer is not dominant at CFPA, however, I
would stress that the agency would likely be a waste of time,
money, and effort and would only serve to mislead the public
into thinking that they will be protected.
Second, the plain-language financial products proposed need
to be what my grandmother termed, and the ranking member
termed, plain vanilla. For example, a 20 percent down, 30-year
fixed-rate mortgage with clearly specified closing costs and
that can be paid off with no penalties; or a 3-year fixed-rate
car loan that can be paid off any time without the complexity
of the Rule of 78 that I got tripped up by in 1972 personally,
in spite of thinking that I am an informed consumer; or a
charge or credit card that tells you any and all fees in
advance and cannot change fees without giving you notice that
the opportunity to cancel is present and giving you a prorated
refund for any annual card fee.
Research has found that individuals make the same choices
with a 1-page disclosure as with multiple pages of fine print;
thus, they require one plain English summary page with all key
facts in addition to more detailed disclosure.
Third, the President's Advisory Council on Financial
Literacy has proven to be a worthy effort. It has also provided
direct input to the Treasury and to the Financial Literacy
Education Commission.
Long-term value, however, will depend upon some
formalization of the role of the White House and some level of
dedicated funding and staffing. The current approach of heavily
depending upon those appointed to donate time, money, and other
resources or to raise them from others, leads to potential
conflicts of interest and confusion of roles.
Related to FLEC, I find, regrettably, that I am in
agreement with the critical review by the Government
Accountability Office that, as currently structured, FLEC has
not met the legislated objectives. The Administration may
already contemplate integration of FLEC into CFPA, but if it is
not focused on this issue, the Administration and the Congress
should do so as details of CFPA are developed.
Fourth, and finally, as your request letter notes, the
President's document states the CFPA should review and
streamline existing financial literacy and education
initiatives government-wide. Based upon my work on savings and
retirement issues since joining the Labor Department in 1975,
giving one agency the absolute responsibility for direction of
all Executive Branch activities in the area of financial
literacy and education could possibly add needed coordination
and consistency. But that would only occur if the leadership of
the agency was committed to the issue and to the approach set
out in the legislation.
Over my 34 years of working on this issue, I have watched
multiple agency programs and priorities and financial education
shift dramatically as political leadership changes. This is not
just the case when party control changes, but occurs within a
party even with new staff changes. Thus, the role being set out
for CFPA may or may not add value in this area, depending upon
the specificity of the legislation, the attitudes and
priorities of the director, and adequate staff and budget
resources provided for funding.
Assurance that most of those appointed to the board and
advisory committee with ``deep experience in financial
services'' are there as individual financial services
consumers, not as financial services industry representatives,
would make success more likely. Needed technical expertise can
be hired. But policy direction from the appointed leadership
and advisors will determine ultimate results.
I look forward to working with your committee and all
others on these important issues. Financial literacy on issues
as simple as understanding compound interest would be
essential, even if there are plain-vanilla products.
Thank you.
[The prepared statement of Mr. Salisbury can be found on
page 82 of the appendix.]
Mr. Hinojosa. Thank you, Mr. Salisbury.
Now, I would like to call on Ms. Jones.
STATEMENT OF STEPHANIE J. JONES, EXECUTIVE DIRECTOR, NATIONAL
URBAN LEAGUE POLICY INSTITUTE
Ms. Jones. Thank you, Chairman Hinojosa.
I thank the subcommittee for this opportunity to testify
today. I am Stephanie J. Jones, executive director of the
National Urban League Policy Institute.
Based upon our long experience providing frontline
financial education and housing counseling services in Urban
League affiliate programs throughout the country, the National
Urban League has developed considerable experience and insight
on this issue. We are glad to offer our recommendations, which
I will briefly outline now but are presented in greater detail
in my written testimony.
In this whole process, our overarching concern is the
consumer, and we feel very strongly that the new regulatory
framework must include inherent checks and balances that
guarantee the advancement of the five consumer protection
objectives. And those objectives are: consumer financial
services markets operate fairly and efficiently; consumers have
the information they need to make responsible financial
decisions; consumers are protected from abuse, unfairness,
deception and discrimination; traditionally underserved
consumers and communities have access to lending, investment,
and financial services; and national community-based
organizations, such as the National Urban League, the National
Council of La Raza, and others that have demonstrated
effectiveness in reaching underserved minority communities, be
included as full partners in any consumer protection effort.
We are pleased that this committee is focusing on financial
literacy today. This is a critical aspect of this issue, and it
is a top priority for the National Urban League. But we can't
forget that while financial literacy is important, the
fundamental problem at the heart of today's foreclosure crisis
was not the inadequacy of the disclosures or the financial
literacy of the borrowers. Rather, it was that lenders should
not have made loans that they knew borrowers would be unable to
sustain without refinancing. Therefore, to effectively protect
consumers, it is critical that the regulatory system monitor
and address market incentives that encourage loan originators
to push risky or unsuitable loan products, and must also
include independent, redundant back-up systems that provide
layers of protection against financial excess.
And as you know, financial literacy is at the core of the
Urban League's mission to empower African Americans to attain
economic self-sufficiency. The rationale for our emphasis on
financial literacy is buttressed by some startling data, as
revealed in our annual, ``State of Black America'' report.
Among other things, we have found that African Americans'
economic standing is 57 percent that of White Americans, and
that the median net wealth of African Americans is $10,000
versus $109,000 for whites.
The Urban League strategy for addressing this glaring gap
is to create culturally competent programs that address both
financial principles and long-term behavioral change. Overall
evaluation research of our financial literacy programs
consistently finds significant correlations between the level
of financial knowledge and good financial management practices.
Housing counseling also plays a key role in support of the
goal to increase financial awareness and sophistication and to
close the wealth gap between minority and non-minority
households. In addition to a deeper national commitment to
housing counseling, a core tenet of our Homebuyers Bill of
Rights, the National Urban League advocates three primary
objectives that the Federal Government and the Financial
Literacy and Education Commission should pursue to promote
economic opportunity for minority and low-income families and
communities.
First, we must expand access to capital and financial
services through mainstream banks and thrifts, particularly by
ensuring that the CRA remains effective.
Second, bank the unbanked with innovative new private
sector products and services driven by new incentives for
financial services for the poor.
Third, we must promote savings among the poor by catalyzing
wide-scale establishment of individual development accounts and
other mechanisms that help low-income families save for
homeownership and other key assets.
And of course, particular emphasis must be placed in all of
this on reaching neighborhoods with low-income and minority
populations.
On behalf of the National Urban League, I thank you for the
opportunity to offer our views today on this very important
issue, and we look forward to continuing to work with you as
you develop and implement a new regulatory system.
Thank you very much.
[The prepared statement of Ms. Jones can be found on page
60 of the appendix.]
Mr. Hinojosa. Thank you very much, Ms. Jones.
And I now call on Dr. Lauber.
STATEMENT OF GERALD LAUBER, CHIEF SENIOR ADVISOR, NATIONAL
URBAN ALLIANCE (NUA)
Mr. Lauber. Thank you.
Good afternoon, Mr. Chairman, and distinguished members of
the committee. Thank you for the opportunity to testify before
you today about the need for effective financial literacy
education for Americans.
I am Gerald Lauber, the financial literacy advisor to the
president of the National Urban Alliance, which is a not-for-
profit corporation out of Syosset, New York.
Prior to working with the NUA, I was a school
superintendent, an assistant superintendent for instruction, a
principal, and a classroom teacher. In all, I have devoted over
45 years to the process of helping students.
The mission of the NUA is to focus on helping schools
assess their instructional programs and deliver professional
development for teachers so they are better prepared to help
their students master content and learning skills. We have
learned a great deal about education and organizations. We know
that teaching a subject does not ensure that all students will
learn it.
Financial literacy programs must contend with common
complications for teaching and learning while competing for
sufficient space in the crowded instructional day. To contend
successfully with these complications is a matter of
professional skill and organizational focus. Without plans for
professional development and content that is integrated into
the curriculum through material relevant to students, financial
literacy will be just another catch phrase in our past history
of failing to educate our citizens about how they manage their
daily life to position them for long-term financial security.
I hope the creation of a new government consumer financial
protection agency, as expressed by the Administration, will
exemplify a real commitment to fight for the education and
protection of consumers. That fight must recognize that
financial education right from the start is part of the answer
to protect consumers and build a foundation for behaviors that
support a healthy U.S. economy.
Why can't we provide the impetus to help our children
create a new generation of consumers who use reason to direct
the use of their resources rather than celebrating conspicuous
consumption and debt accumulation that currently endanger the
basic fabric of our country?
Strategies that help people make informed decisions will
work if we provide education programs that help all people
obtain financial literacy and decision-making skills.
Application of these skills will strengthen their knowledge in
areas such as credit cards, mortgages, insurance, and other
financial products. In a consumer-credit-based society, we must
teach children about credit and the wise use of it so they are
prepared to be informed consumers. The lack of inclusion of
financial literacy in the vast majority of our Nation's schools
continues to create a new generation of consumers who are not
informed about the use of money.
Unfortunately, what is clear is that the current effort to
transfer knowledge about financial literacy has not worked.
While more than 90 percent of America's students attend public
schools, the President's Advisory Council on Financial
Literacy, as it is presently constituted, has only one member
who has any public school experience. This fact has not gone
unnoticed by the Nation's educational community. How does this
government demonstrate its commitment to this issue when only
1/20th of the advisors have classroom experience?
Yes, consumers need to be presented financial products in a
simpler, straightforward manner that is clear, accurate, and
contains understandable information. I applaud efforts by this
subcommittee and the Congress to demand that our financial
products industry makes information about their products more
transparent to consumers.
Yet I must warn and emphasize that without effective
financial literacy education, an understanding of these
products will continue to be difficult and will not result in
desirable behavioral changes by consumers. Consumer protection
and relevant financial education must go hand-in-hand and must
include an emphasis on our Nation's young people.
Over the past 6 months, this Congress has authorized nearly
$1 trillion of American taxpayers' money to Wall Street to
clean up our financial mess that they created that brought this
country to an economic condition not seen since the Great
Depression.
On January 6, 2009, the President's Advisory Council on
Financial Literacy, established by President Bush, stated as
its principal recommendation: ``The United States Congress
should mandate financial education in all grades for students,
kindergarten through 12.''
Local school districts cannot afford another unfunded
mandate. Now is the time to supplement that investment by
committing some of those resources to sound financial literacy
education for Americans.
I urge this committee to strongly support both this message
and the messengers working to refine and deliver effective
financial literacy education. It is critical to building the
information base our citizens need to live as informed
consumers. But just using well-written financial literacy
material without a well-thought-out delivery system will not
enable them to transform information into action.
Thank you again for inviting me to testify today. And I
will be happy to answer any questions you may have.
[The prepared statement of Dr. Lauber can be found on page
67 of the appendix.]
Mr. Hinojosa. Thank you.
At this time, I would like to recognize Mr. Gannon.
STATEMENT OF JOHN M. GANNON, SENIOR VICE PRESIDENT, OFFICE OF
INVESTOR EDUCATION, AND PRESIDENT OF THE FINRA INVESTOR
EDUCATION FOUNDATION, THE FINANCIAL INDUSTRY REGULATORY
AUTHORITY (FINRA)
Mr. Gannon. Mr. Chairman, Ranking Member Hensarling, and
members of the subcommittee, I am John Gannon, senior vice
president for investor education at the Financial Industry
Regulatory Authority, or FINRA. On behalf of FINRA, I would
like to thank you for the opportunity to testify today.
Mr. Chairman, I commend you for having today's hearing on
the critically important topic of improving financially
literacy. In these uncertain financial times, the role of
financial education is more important than ever. FINRA and the
FINRA Investor Education Foundation are committed to expanding
the knowledge and confidence of all Americans wishing to build
a more secure financial future through saving and investing.
And we share your interests in considering how best to promote
financial literacy in the context of reforming the financial
regulatory system.
FINRA's Office of Investor Education provides an array of
educational opportunities to investors. These include
maintaining our prominent investor information area on the
FINRA Web site, providing a comprehensive market data resource,
and publishing information on such critical topics as
investment fraud, job dislocation and investing in bonds.
Interactive tools, such as FINRA's Fund Analyzer, allow
investors to compare fees and expenses among competing
investment alternatives.
In 2003, FINRA established the FINRA Investor Education
Foundation, which is the largest foundation in the United
States dedicated to investor education. The Foundation's
mission is to provide Americans with the knowledge, skills, and
tools necessary for financial success throughout life.
Foundation grants are used solely to fund educational
programs, publications, and research. Recent grants have
supported efforts to help low-income individuals build savings
and achieve financial goals and guide working Americans as they
make the transition into retirement.
FINRA commends the Administration's inclusion of
recommendations focused on improving financial education and
literacy in its proposals for regulatory reform. The
Administration's proposal to mandate a financial education
authority signals a commitment to increasing financial literacy
of all consumers.
It will be important for all regulators with roles in
financial oversight and consumer protection to coordinate and
communicate about their financial education initiatives to
ensure that the government leverages its resources for maximum
impact.
FINRA further commends the Administration's proposal to
enact an automatic IRA program with an opt-out. A similar and
successful approach has been taken by a number of employers
with 401(k) plans. FINRA has teamed with the Retirement
Security Project and AARP to establish Retirement Made Simpler,
an effort to increase participation rates among employees whose
companies offer 401(k) plans by encouraging more employers to
adopt automatic 401(k)s.
FINRA's work in investor education has provided us with
experience in managing the challenges of how to most
effectively and efficiently get information out to investors
and consumers. Let me highlight now some issues to consider for
improving financial education and literacy efforts.
First, there is a need for baseline data on financial
capability and literacy. The FINRA Foundation is currently
working on a survey that should provide that crucial data.
Recommended by the President's Advisory Council on Financial
Literacy, the survey of over 25,000 Americans addresses a
comprehensive array of financial topics, including retirement
planning, investment choices, household budgeting, credit
consumer protections, and the use of financial education
resources. This data will help inform the efforts of both
public and private entities as they attempt to best structure
financial literacy and investor education initiatives.
Second, I would want to emphasize the importance of
distribution channels in financial literacy efforts.
Recognizing that high-quality investor education resources
already exist, the FINRA Foundation and its partners focus on
making sure that such resources get into the hands of all those
who need them the most.
The FINRA Foundation's grants and projects leverage
partnerships with other organizations and use new and
conventional media to widen access necessary to the resources
for financial success. Sometimes this is via the Internet or
public broadcasting. At other times, it is through a counselor
or a workplace representative.
The government has a variety of existing robust
distribution channels at its disposal. The Social Security
Administration, the IRS, the Postal Service, and the Federal
Citizens Information Center are just some of the potential
channels that could be used to promote and advance financial
literacy efforts with an extremely wide reach.
Finally, as Congress considers how to improve financial
literacy, it is vital to provide adequate funding for whichever
agencies or groups are given responsibility for this task.
Further, given that a variety of existing agencies and
departments have roles to play in investor and consumer
protection and education, those agencies should have a clear
mandate to provide financial education, coordinate those
efforts with other Federal agencies, and engage in partnerships
to broaden their reach.
FINRA appreciates the opportunity to testify on these
important issues, and I would be happy to answer any questions
you may have. Thank you.
[The prepared statement of Mr. Gannon can be found on page
52 of the appendix.]
Mr. Hinojosa. Thank you.
And finally, I would like to call on Mr. Neiser.
STATEMENT OF BRENT A. NEISER, DIRECTOR OF STRATEGIC PROGRAMS
AND ALLIANCES, NATIONAL ENDOWMENT FOR FINANCIAL EDUCATION
(NEFE)
Mr. Neiser. Thank you, Mr. Chairman, Ranking Member
Hensarling, and members of the subcommittee.
I am Brent Neiser, director of strategic programs and
alliances for the National Endowment for Financial Education,
otherwise known as NEFE. We are based near Denver, Colorado. We
are a 501(c)(3) private-operating foundation, nonprofit,
nonpartisan, noncommercial.
At the end of my written testimony, there are several
examples of initiatives we undertake. Our high school program
trained over 6 million students in public and private high
schools throughout the United States in the last 20 years; a
college program with nearly 300 enrolled institutions; and a
free, noncommercial source called CashCourse.org. There is a
growing interest among community colleges signing up for this
Web resource. We do research on retirement issues, teacher
training, unique populations, immigration issues, and student
financial behavior all related to personal finance. We are also
concerned about workplace, and collaborate with many of the
organizations represented on this panel, as well as the Boy
Scouts of America, the American Cancer Society, and scores of
other nonprofit groups.
We believe financial literacy is an important component of
consumer protection, and any kind of work toward regulatory
reform should consider it. It is a baseline. Financial markets
and products change, but consumers need to be equipped with a
basic understanding of personal finance so they can make the
best decisions and be aware of the positive and the negative
consequences of those decisions. Also, there are appropriate
times to connect financial education to events in their
lifespan and when products are appropriate. This has to come
out through this basic baseline and financial understanding.
We think that individual financial literacy and education
are not the whole solution. Automatic features in behavioral
economics, product disclosure, social markets, etc., all play
into this beautifully.
The President's advisory council, on which NEFE CEO and
president Ted Beck serves, has identified some of the concepts
and definitions for a proposed body of knowledge that can form
as a baseline for this effort.
We want to empower Americans to make their own decisions
about which products and behaviors will maximize their
financial wellbeing; be aware of financial products and
strategies that may not be suitable and would concern them.
Also, financial literacy needs to move to a level of full
engagement in society through a public education campaign,
social marketing, a nationwide financial checkup, consistent
and repetitive messaging, and a clear link to financial
literacy tools at points of transaction where appropriate, and,
again, across one's financial lifespan.
I will close by mentioning five points or principles that
might be considered under any regulatory reform that links
financial literacy education and issues with consumer reform
considerations.
First, definition: Building on the President's advisory
council, setting baseline standards, as Mr. Gannon mentioned,
will create a consistent framework for public and private
financial education efforts.
Number two, context: Providing the context for
understanding a product and its relationship to life goals and
timing within one's economic lifespan will increase the
effectiveness of any disclosures that are contemplated by
Congress.
Number three, simplicity: We need to actually take a step
back. And we talk about plain vanilla, there needs to be plain
vanilla financial literacy, too, to make any type of
disclosures work, focusing on financial understanding,
capability, and literacy. Again, a social marketing campaign
could include basic messages, principles that people can think
about when they are interacting or contemplating a product and
interacting or working with an adviser. Thrift, paying yourself
first, having an emergency fund, understanding the time value
of money when it comes to debt as well as growth of an equity
investment, the appropriate use of credit and diversification--
without these principles embedded in the minds of Americans at
all ages, at different times in their lifespans, disclosures
may not be effective and might even be confusing.
Number four, relevance: Message campaigns need to be
culturally and circumstantially relevant and age-appropriate.
Underserved audiences need special attention.
Finally, number five, self-assessment: A nationwide
financial checkup, as recommended by the President's advisory
council, would allow Americans to assess their own financial
knowledge and provide appropriate links to trustworthy sources
of information to fill any gaps.
Finally, let me just congratulate the leadership of
Congress, especially the Financial Literacy and Economic
Caucus, Representative Hinojosa, Representative Biggert, and
all Members, for a true bipartisan approach to this issue.
Thank you.
[The prepared statement of Mr. Neiser can be found on page
78 of the appendix.]
Mr. Hinojosa. Thank you.
I want to say that, before we start a line of questioning
by each of the Members of Congress, I ask unanimous consent to
submit for the record GAO's April 29th, 2009, testimony before
the Senate Subcommittee on Oversight of Government Management.
Hearing no objections, so be it.
I would like to recognize myself for 5 minutes. And every
other member will also receive 5 minutes to have an opportunity
to ask questions.
I am dissatisfied with the Financial Literacy and Education
Commission, commonly known as FLEC. They have yet to produce a
true national strategy for financial literacy despite having 4
years to produce one.
On April 29th, the GAO testified before the Senate
Subcommittee on Oversight and Government Management, and, in
their testimony, GAO concluded that the so-called national
strategy remains more descriptive than strategic. Others have
referred to this, their strategy, as, ``the strategy to
strategize on a national strategy,'' which I don't understand
what that means and I don't think they do either.
Congresswoman Judy Biggert and I knew that this likely
would happen prior to the enactment of the FACT Act. We had our
own competent legislation that would not have created an
unwieldy entity unable to arrive at a national strategy to help
the United States and its economy.
So, moving on to ask my first question of Mr. Diaz, Mr.
Salisbury, and Ms. Jones, and I would ask you to react to my
statement and tell me what you think of this legislation, of
this Act.
Mr. Diaz. Mr. Chairman, the financial literacy for us has
been--it increases awareness. Our take on it has been we have
done, run many programs. We have seen a lot of programs
operate. It does impart knowledge, but it doesn't change
decision-making behavior necessarily. We have seen lots of
examples, whether it is credit cards or payday lending, where
consumers have been given a lot of education and yet it does
not change behavior.
So my feeling related to financial literacy education
awareness is that it never hurts anybody, but our concern is to
really increase wealth amongst Latino families. And that is a
little bit more targeted and a little bit more tricky
objective, because it requires changing behavior, in many
cases, and that usually requires both time and a situation
where you can actually exchange information.
So, in my testimony, I referred to one-on-one counseling as
an effective tool to do that. I can tell you of countless
examples where families are taken from a starting place and end
up at a very different place anywhere from 6, 12, 18 months
later because they have had the ability to converse and reflect
on their situation with an impartial party who is only
interested in making sure they progress.
Mr. Hinojosa. Thank you, Mr. Diaz.
I would like to get a response from Mr. Salisbury.
Mr. Salisbury. Mr. Chairman, first, I would just note that,
at the most recent meeting of FLEC, it was noted by Assistant
Treasury Secretary Barr, who was in his first week at the
Department, that a multi-agency review of the documents and of
the report from the Government Accountability Office has begun
and is underway.
I mention that because I think that is a very positive
statement on an initial review process that tries to be
responsive to what the Government Accountability Office said. I
think that the combined testimony of this panel, but in
particular the suggestions of Mr. Gannon and Mr. Neiser,
essentially laid out the core of what could become a strategic
document that could then move to implementation.
I think that, as I noted in my testimony, the key is the
focus, and it is one of the reasons that I have discussed the
desirability of a new agency such as that suggested by the
Administration, with FLEC being built into it. Essentially, the
entire realm of financial literacy coordination across the
Administration would be directed by an agency that puts far
more particular focus on the consumer. This is opposed to what,
most particularly in the last 18 months, has been a rather
large national economic problem that, quite appropriately, is
where most of the attention of the Treasury Department has
been. And, given where we are, frankly, for the next 2 years,
as a citizen, I hope that is where most of their attention will
be.
Mr. Hinojosa. Thank you, Mr. Salisbury.
I would like to get a reaction from Ms. Jones.
Ms. Jones. Mr. Chairman, we feel very strongly that
anything that is done at the Federal level related to financial
literacy must take into account what the actual needs are in
the communities and must link very directly to those
communities.
That is one of the reasons we strongly suggest that the
government work closely with national intermediaries such as La
Raza and the National Urban League, who are working on the
ground, in the communities, who know what the needs are and can
get directly to the people but, also, who people will come to.
People trust us; they understand what we do there. They know
that we are there in the community working every day.
Because there often is a disconnect. And there really is no
shortage of housing counseling providers. There are all sorts
of, for example, for-profit providers out there who are
offering all manner of services that don't necessarily address
the real needs of our constituents. And so it is important for
people to know where to go and to go to organizations and
entities that have a proven track record and know what they are
doing, frankly.
And I think anything that is done at the Federal level must
take that into account and must consider that and should be
used in a way that enables our constituents to get the best
possible service.
Mr. Hinojosa. My time has run out, Ms. Jones. Thank you
very much.
I now yield 5 minutes to the ranking member, Congressman
Hensarling.
Mr. Hensarling. Thank you, Mr. Chairman. And, again, let me
recognize your leadership in this effort, along with the
gentlelady from Illinois, Mrs. Biggert. Clearly, this entire
committee respects your body of work, your leadership, her
leadership, in trying to help educate our populace on the
financial products that are available to them and help our
communities.
I continue to be concerned, if you were here for my opening
statement. I know the subject has to do with financial
literacy.
My first question would be, how many on the panel are
familiar with H.R. 1705, which is the House version of the
President's initiative for the Consumer Financial Products
Agency? Have any of you studied that?
Mr. Salisbury, have you studied it? And, I am sorry, Ms.
Jones, as well? Did I understand, are you all supportive of
that legislation? Or have you formed an opinion? Have your
organizations formed--not yet? You continue to study the
legislation? Okay.
Mr. Diaz, in your testimony, I think, if I heard you
properly, you mentioned the term ``choice'' on many occasions,
leading me to believe that consumer choice is at least
something that would be valued by your organization. Is that
correct?
Mr. Diaz. Absolutely. That is critical.
Mr. Hensarling. Section 5(B)(i)(a) of H.R. 1705 creates an
unelected group that has the legal authority to ban from the
marketplace any consumer financial product, practice, or
feature it considers ``unfair'' or ``anti-consumer.'' Those
seem to be rather subjective terms, as opposed to objective
terms.
If, for some reason, this bill became law and the unelected
members of the Financial Products Safety Commission decided to
ban electronic remittances because they viewed them as
inherently unfair or anti-consumer, would that trouble your
organization?
Mr. Diaz. Well, that is a big hypothetical. Remittances are
obviously a current standard practice that many immigrant
families transfer excess income down to families of their place
of origin. I can't imagine the question of whether they would
ban remittances. I mean, that is--I don't know if there is
anything in the legislation where they have written or seen
about that that would be even the case. So it is a
hypothetical--
Mr. Hensarling. But it doesn't trouble you that this
particular commission could have that power without any review.
So you would be trusting that simply wouldn't happen.
How about with respect to payday lending, which is
controversial within a number of areas and communities? It
seems among some disadvantaged and low-income communities, some
believe they serve a valuable purpose; other people, frankly,
would like to see them banned.
I don't know what the position of La Raza is. But would it
trouble you if this particular panel decided to ban all payday
lending as inherently ``unfair'' or ``anti-consumer?''
Mr. Diaz. Well, like I said, the devil is always in the
details. But what we would be focused on is access to credit,
did that change. We at NCLR believe low-income families have to
have access to credit. We don't believe that families should be
taken advantage of, so just because they can sell a family a
product doesn't mean it is right for that family.
So what I would tell you is that the key for us is,
whatever that new commission sets up to do, we would be focused
on: What is the civil rights implication, one? And, two, is it
still going to allow product innovation even within the rules
that it establishes?
Mr. Hensarling. And, as various panel members look at the
challenge of disclosure, financial literacy--it takes two to
communicate, the communicator, the communicatee. And I have
heard some verbiage, and there is no doubt, that there have
been lenders who have purposely tried to deceive borrowers.
There has been a lot of controversy in subprime mortgages and
in credit cards.
I am just curious if any of you have undertaken an analysis
of the disclosures necessary in the average credit card
agreement.
I just happen to have one in front of me that indicates
that 43 percent of the content is mandated by Federal law,
including Regulation P, Regulation Z, the FACT Act; 5 percent
of the content is dictated by State statutory law; 16 percent
arises from legal risk management--in other words, liability
exposure; meaning essentially two-thirds of the disclosure
written in legalese is, frankly, mandated by Federal and State
government and liability exposure.
So I am curious if anybody on the panel has engaged in a
similar study and have come to the same or different
conclusion. Anybody who cares to--
Mr. Lauber. I will jump in quickly.
It is not the content of the disclosure that is important,
because, as we have heard from many distinguished members, they
read it and they don't understand it. Eighty percent of what we
take in we take in visually. And if we can't visualize and
understand the concepts, no matter how long and extensive the
regulations may be, they are going to fall on deaf ears.
We talk about a product, but we don't talk about how to
market the product. And the marketing of the product comes from
the understanding of the concepts that you are addressing. So
failure to educate consumers to understand how to ask the right
questions, or banks or financial institutions, how to present
information so it is understandable, that is a major part of
the problem.
Mr. Salisbury. And, Congressman, I would just quickly note
that, with that versus the disclosure, I personally would look
at the statement.
And before this hearing, I looked last night. I have five
credit cards; I looked at my most recent five credit card
statements. From one of the companies, it is a clean,
uncluttered statement that has the basic information in large
print and nothing hidden. With the worst of them, it takes
minutes to figure out how much you pay, if what you want to do
is pay it off.
Mr. Hensarling. So the market has provided at least one
plain vanilla.
Mr. Salisbury. One plain vanilla. And so, what I mean by
plain vanilla is something that is instantly and easily, by
visualization, understandable.
Mr. Hinojosa. The gentleman's time has expired.
I would like to call on Congresswoman McCarthy from New
York.
Mrs. McCarthy of New York. Thank you.
And I thank everybody for their testimony.
By the way, we are hoping that we are going to clear that
up as we go forward with the credit card clarity, so that we
can have that kind of a credit card. But five credit cards, I
don't know. I only use one, that is it.
One of the things that I want to say is that--not only do I
sit on this committee, but I also sit on the Education
Committee. And in the higher education bill, financial literacy
would be included in that. We are now starting to work on Leave
No Child Behind or whatever name it is going to be. There is
language in that, which I plan on offering that will be from
kindergarten to 12th grade. I happen to think it can be worked
into the school day, so there is no extra time.
I have already spoken in front of a large group of
superintendents, teachers, parents, PTAs, and they are starting
to get it, mainly because we want to educate the children, and
especially those children learning a second language, so they
can help their parents when they go home.
So we have a lot of work to do for the future, but I guess
the question--I am going to start with Dr. Lauber. We have
been, unfortunately, under terrible economic strain, everybody.
I doubt very much if there are too many people who haven't been
touched by this.
Now, obviously, we know there are an awful lot of people
who are excellent in financial literacy, hopefully--but they
still got hurt. But what would you say to the majority of our
constituents, do you think they had enough financial literacy
background that wouldn't have gotten them into the amount of
debt they have carried, taking their money out of their home?
Mr. Lauber. I think, especially on Long Island, where we
know best, and affluent areas, that was one level of the
population that was hurt. But the populations that we work with
at the National Urban Alliance were hurt much more than that,
because these are people who started without all of the assets
that we have to deal with.
Why did they get hurt? They got hurt not necessarily
because they didn't have the knowledge someplace in their mind,
but there was a problem with the application of the knowledge.
So I heard a comment before, it is not what we can do, it is
what we should do. And unfortunately, the process of thinking
about making decisions, about what we should do with economic
choices, is not ingrained in our students.
Thinking is not taught in our schools. Our schools are
basically content-based. And I think the challenge that you
identified is absolutely correct: How do we fit this in the
school day? It cannot be a replacement to mandated courses. We
work with teachers to help them substitute examples in
financial literacy for the courses that they are currently
teaching and use brain-based learning strategies. The brain can
only take in new information for 5 to 7 minutes, and that may
be a good thing for all of us to listen to, but then you need
another 10 or 15 minutes to apply that knowledge; otherwise, it
doesn't stick.
And I think if we could somehow take all of the work that
is being done to focus on financial literacy education--and
there is wonderful material out there. Where it falls apart is
that it is not being integrated into the school day; it is not
a high priority.
And you know from the forums that we are having around New
York State, where we are bringing all the school stakeholders
together--parents, teachers, administrators, superintendents,
board members--this is a topic that they are starting to want
to discuss, because it has just been ignored.
Mrs. McCarthy of New York. I thank you.
One of the other things, you know, when you are talking
about private and government working together, I think we are
going to have to do that, because the government can't answer
everybody's questions, and they can't.
For years, talking to the bankers, talking to the credit
unions, talking to many other financial institutions, saying we
need financial literacy, and they said, ``We are doing it,''
and I said, ``Where?'' because I have never really seen that
much out there. I am seeing it now, to be honest with you.
There is more out there. I hope that we can continue to do
that.
But how do we work with--how does the government work with
a private enterprise, whether it is our bankers--we can't
mandate them to do this with us. Maybe we can, I guess the way
we are going today. But how do we bring those two together so
that we can also not only reach all the young students for the
future generations, but how do we also reach out to the
families?
One thing I found out, especially with all the
foreclosures, people knew they were in trouble, and they didn't
know who to go to. They could have prevented half the
foreclosures out there if they had found out who to go to.
If you could just give me a quick answer, because I see my
time is up.
Mr. Salisbury. I will give you one quick example, which
could be dealt with by an amendment to the FACT Act or by this
new agency. FLEC put together a Web site called MyMoney.gov.
Under Treasury regulations, MyMoney.gov cannot have anything on
it that relates to nongovernmental organizations. So it can't
be a one-stop shop across for-profit, nonprofit, government, or
noncommercial.
So there are relatively simple things that could be done to
bring information together just by making some changes in
regulation.
Mrs. McCarthy of New York. Thank you.
Mr. Hinojosa. At this time, I would like to recognize the
Congressman from Texas, Mr. Marchant.
Mr. Marchant. Thank you, Mr. Chairman.
I would like to follow a line of questions based on the
number of groups that are attempting to accomplish the same
thing. And would any of you venture to say how many different
groups in the United States have their sole focus on the
financial literacy of America? There are about seven here, so--
Mr. Salisbury. The American Savings Education Council
Program has partners from all 50 States, and there are State
banking agencies and various others across the United States
working on this.
What is lacking is as much of a coordination mechanism as
would be desirable and, frankly, a place to go in the Federal
Government to work broadly with the Federal Government. I think
this was the intention of what FLEC would become, but it hasn't
gotten there yet.
Ms. Jones. Also, I want to clarify the National Urban
League, while financial literacy and housing counseling is an
important part of what we do, it is certainly not our sole
focus. We provide all manner of training.
I do think, though, that the fact that there are so many
entities out here doing it shows the extent of the need. And I
know, at least from the National Urban League's perspective, we
could serve exponentially more people if we had the capacity.
People are beating down our doors trying to get help, because
the need is so great out in the community.
Ms. Levine. And I might add that my organization, the
Jump$tart Coalition, is a coalition of about 180 organizations
nationally over a network of 48 affiliated State coalitions,
each with their own partners. And we know we don't have all of
them, but there is an effort to work together. And the
Coalition members do come from the private and the public and
nonprofit sectors. And so I think that it is a step in the
right direction and we need to do more.
Mr. Marchant. Was there an expectation that, under FLEC,
there would be a national coordinator of this, someone that is
responsible for giving all government grants out, and that
there was a place to go to get funding for this?
And I know HUD funds it. Every entity probably has some
kind of a funding mechanism for this, correct? Some of you are
saying yeah.
Mr. Diaz. I will take that.
Financial literacy education is funded through a variety of
mechanisms and different types of institutions.
But I would also say that it is something that is--we don't
treat it as a stand-alone product, generally. Because, as
someone said before, you don't learn unless you do, to some
degree. And so, our experience with financial education is it
does increase awareness of certain aspects of financial
transactions; it doesn't change their ability to transact well.
And so, what we have done, we have embedded the tools of
financial literacy inside other programs as they are practicing
something that they want to achieve in their lives.
Mr. Marchant. I am going to lose my time, sir.
I want to ask Mr. Salisbury, you are the one who talked
about the new CFPA. How would you make the new CFPA independent
of financial institutions' influence?
Mr. Salisbury. I would say it is not as much totally
independent as making sure that consumers are included. That
is, if there is a board of five, a majority of that board is
made up of people who view themselves principally as financial
consumers, as opposed to, for example, members of the regional
Federal Reserve banks.
Six of the nine board members are appointed by the banks,
who own the Fed. The Federal Reserve Board banks are basically
self-regulatory organizations, the banks regulating the banks.
If that was what this agency was, I would argue a consumer
agency that is run by the financial services organizations
definitionally can't be a consumer protection agency.
So it would be that, if there is a board of five, making
sure a majority of that board are actually financial consumers,
not those who basically have come out of the financial services
industry and, if history is a guide, would go back to work for
the financial services industry after service on the board.
Mr. Marchant. Thank you.
Mr. Hinojosa. I have just been informed that in 10 minutes,
we are going to start another long series of votes. And I would
like to give all the members present an opportunity to ask
questions. And I ask unanimous consent that we shorten the time
to 2\1/2\ minutes so that everybody can ask questions.
Hearing no objections, I would like to recognize the
gentleman from Texas, Congressman Al Green.
Mr. Green. Thank you, Mr. Chairman.
Friends, to properly understand why these contracts that we
are talking about are written in such legalese, I think we have
to understand what they are designed to do. Are they designed
to inform the consumer, or are they designed to protect one of
the parties?
And if they are designed to protect one of the parties,
then we have one set of circumstances to deal with. But let's
just assume it is designed to inform the consumer, then we have
to ask ourselves, will this contract in some way entrap the
consumer?
Because there are many who would have language somehow
associated with a contract that would indicate, ``I have read
this, I understand what I have read,'' and once you indicate
you have read it and you understand, at some point later on the
party who designed the contract to protect himself or herself
uses that language against you by saying, ``You knew, or should
have known, because you read, and we assume that you understood
because you said you understood.''
So I am mentioning this to you in my 2\1/2\ minutes simply
because I think that we do have to give a lot of thought to
what we want these contracts--and that is what they are--to do.
When we close on a home--and I am sure all of you have
closed on a home--when you close on a home, you are sitting
there, it is a great, happy occasion, and somebody brings in a
stack of documents with no blanks filled in, saving the one
that you will sign on, and your name is typed there perhaps,
and then, ``Sign here,'' you sign, and later on you find out
that you may have signed something that was not in your best
interest.
So the question becomes this, friends: How do we get to a
point where we can have these documents inform the consumer and
work to benefit the consumer, as opposed to the person who drew
the contract and is trying to protect himself? That is what we
have to do now.
If anybody would give me a quick response, I think my time
is almost up.
Mr. Lauber. Quick response. I think it is important that,
whatever documentation is presented, that the consumer
demonstrates that they understand it. Someone saying, ``Do you
understand it?'' and them saying, ``Yes,'' does not prove they
understand it.
Mr. Green. Quick question. Do we need to let the consumer
take it home?
Mr. Lauber. They can take it home. They can do it online.
In New York, when I wanted to take get a reduction on my
insurance, I take a driving test online.
Mr. Green. Just quickly, should the consumer have the
opportunity to peruse it for some period of time before signing
it?
Mr. Lauber. Absolutely.
Mr. Green. Should there be some opportunity for the
consumer to perhaps rescind the contract if the contract is one
that proves to be adverse to the consumer's best interests and
the consumer doesn't have time to peruse it, a take-it-or-
leave-it kind of deal?
Mr. Lauber. Yes.
Mr. Green. And finally, let me just ask this with the 2\1/
2\ minutes, or maybe it is just a comment that I would make.
I am concerned about this agency. Is it going to be a
watchdog, as some have said, which means that it would have
some bark, maybe some bite? Is it going to be a guard dog that
would have a lot of bite, maybe some bark? Or is it going to be
one of these dogs with no bark, no bite, which is really a dog
to watch as opposed to a watchdog?
I am very concerned about what this agency will ultimately
become. Because if it becomes a watchdog with no bark, no bite,
then we have done the consumer a disservice.
Thank you. I yield back.
Mr. Hinojosa. Thank you.
At this time, I would like to recognize the gentleman,
Congressman Cleaver.
Mr. Cleaver. Thank you, Mr. Chairman.
Mr. Salisbury, I just have one question. In your comments,
in your written statement, you said that you believe that
financial literacy ought to be mandated for K through 12 and
that it ought to be tested. I happen to agree with you. I think
there is anecdotal evidence aplenty that would support your
position.
My question is that the critics, I think, would say that if
we mandated such a curriculum and teachers realize that they
would be measured by the ability of the students to regurgitate
the information, that they may do what many of them are doing
all across the country now, which is teaching the test. And
teaching the test doesn't always equate to teaching the
student, and the student, in the long run, turns out not to
have accomplished much.
What would you say to the critics?
Mr. Salisbury. I would basically play off of what Dr.
Lauber said, with which I totally agree, which is: Part of this
can simply be to, by mandate, require that the equivalent of
the financial literacy education be built into the existing
curriculum through examples, etc., which, to his point, can be
4 and 5 minutes here and there, with some type of quiz to
follow.
I think that I am hopeful vis-a-vis the current situation
because the President himself had extensive exposure to this in
Chicago through the Ariel Academy. The current Education
Secretary was involved with the Ariel Academy and recognizes
and has stated in his confirmation hearings and elsewhere his
view that that basic financial literacy education is absolutely
essential.
And so I think, if you can do it by building it into
curricula, and if what you are trying at the earliest grades to
teach are very basic concepts such as what is money, what is
interest, what is compound interest, if one is going to be
critical of testing to that or teaching to that, as long as it
is--pick a number, if it is 15 simple critical elements of
knowledge for people to have, then my response would be, so be
it. If they teach to that test, that it is 15 key things that
will help everyone get more successfully through life, hey,
fine.
Mr. Cleaver. Thank you, Mr. Chairman. I yield back the
balance of my time.
Mr. Hinojosa. Thank you.
At this time, I would like to recognize the Congressman
from Georgia, Congressman Scott.
Mr. Scott. Thank you, Mr. Chairman.
And thank you all for coming.
I can't think of really any more important thing we can do
than financial literacy to deal with what has happened in this
financial crisis. Because, quite honestly, if we had had an
informed, educated constituency consumer base, we wouldn't be
in this situation we are in now, where we are literally having
to spend trillions of dollars just to find our way back to
shore.
And education is important; K through 12 is important. But
this financial system of ours is so complicated, it is so
complex, and even as we are dealing with trying to fix it now,
it is getting even more complex and more complicated, for the
public not only lacks the education to understand how we got
into this situation, they are lacking the education as to what
we are doing to fix it.
So financial literacy has to come front and center. And I
am so glad, Mr. Chairman, that we are hosting this hearing. And
I hope that we will be able to lift financial literacy up to
the proper level it needs to be as a major component of our
financial regulatory reform.
So the question that we have to ask is, how can we
incorporate financial literacy into our new financial
regulatory system in a way that can certainly protect the
consumer today, as they stand? And I don't see how we can do
this without having some infrastructure and money and resources
behind it connecting the Federal Government to this.
By that, I mean this: I believe that we have to have
something out there, right now, as a part of our reform, to
have the consumer to say, ``Here is somewhere I can call to get
information now.'' Our system is complex. There are credit
cards coming, we have credit card reform; there is banking
coming.
Plus, we need a monitoring system to make these loan
originators, these credit card companies behave themselves.
Because if nobody is monitoring them, we are going to be right
back in the situation that we have now.
So I would like for us to give some thought to trying to
come up with a monitoring system, a toll-free 1-800 number with
human beings at the end of it anchored here in the government,
at the Treasury Department, not a counseling program, but folks
like the Urban League and the NAACP and ACORN and the senior
citizens group, people who have a relationship with the most
vulnerable out there. Because the damage is that these folks
out there target people, and we need something that we have
that targets them to give a help line. Therefore, we can have a
way for people to call in and ask questions about what that
situation is. And I am hopeful we can put something like that
together and probably put it in Treasury in the reform.
I know my time is up, Mr. Chairman, but I just wanted to
say that, and commend everybody for coming, and I look forward
to working on this going forward.
Mr. Hinojosa. I thank you for your remarks and especially
your recommendations.
I would like, at this time, to call on the gentleman from
California, Mr. Brad Sherman.
Mr. Sherman. Thank you very much.
First, a comment about this new protection agency, consumer
protection agency. I think it is important that it be a law
enforcement agency, not a law-making agency. I have seen a
tendency to think in terms of, ``We will have the Fed take care
of investment in the economy, and we will have this new agency
take care of consumers and make all the rules for consumers,
and then we can go out of business here in the Financial
Services Committee.'' I think lawmaking should be done here in
Congress.
Second, as to this education program, I couldn't agree with
it more. And I think that a use of Quicken or similar software
would be an important part of this. Financial literacy should
be for the 21st Century, not what I learned when I had hair.
As to Mr. Gannon, I will ask you to just respond for the
record, but one thing we have to educate consumers about is the
fact that FINRA is not really a government agency. And the name
implies that it is. So I hope that either FINRA would change
its name or add something to all of its communications or that
its foundation would get the word out that it is wonderful
private association but, in spite of the word ``regulatory''--
most regulatory authorities are government agencies.
I will let you respond very briefly.
Mr. Gannon. Congressman, thank you for that comment.
I think that we try to make sure that people understand
that we are a private-sector regulator. Most of our messaging
goes to that. But that is a very good point.
Mr. Sherman. I hope that you would do that. And you might
even think of a name change, although you are a relatively new
organization.
Now, for the one question. The fact is consumers in
mortgage transactions often don't see their loan documents
until they arrive at the closing and they are presented them.
In April of this year, in the mark-up of H.R. 7028, an
amendment was offered to amend RESPA to give borrowers at least
24 hours to review their closing documents, which, with the
exception of extenuating circumstances, would be complete and
finalized by the lender and the settlement agent 24 hours
before the closing.
And I will ask whoever wants to to respond to this: Would
providing key closing documents to consumers in advance help
consumers to understand the closing process better and to help
ensure that they do not enter into an unsuitable loan
transaction, which so often leads to unpleasant surprises,
frustration, potential nonperformance, which then can collapse
an entire free world economy?
Mr. Salisbury. It would have helped me.
Mr. Sherman. It would have?
Mr. Neiser. I would say, Representative, it would prompt a
kitchen table conversation, if there is a spouse or a partner
involved, where two or more can counsel each other as to, are
we doing this, are we in agreement. And if they are not, it
gives them an out.
Mr. Lauber. I think, providing they were given the right
questions to ask. I think two people not knowledgeable about a
mortgage statement talking to each other could be very humorous
at times. They must have structured questions and understand
the concepts of what they are asking, perhaps with assistance
of some of the organizations that were represented here today.
Mr. Sherman. And the documents would have to disclose,
``Here is the check you are going to have to write at closing;
here are your monthly payments.'' Because those are the two
most basic questions. ``Honey, can we afford this house?''
Mr. Salisbury?
Mr. Salisbury. The reason I made my comment--and so I don't
disagree with the doctor, but I sort of do, in that my wife and
I, over the years, walked out of three different settlements
because what was put in front of us at the settlement table was
not consistent with what we told were told beforehand the deal
was.
Mr. Sherman. Mr. Salisbury, you are so much stronger than
the average consumer. Every other average consumer signed the
papers in those three closings.
Mr. Salisbury. Fair enough. They are not married to my
wife.
Mr. Sherman. I believe my time has expired.
Mr. Hinojosa. Thank you, Mr. Sherman.
I wanted to ask unanimous consent that a December 2008
report prepared by the Washington State Financial Literacy Work
Group entitled, ``Putting the Pieces Together,'' be entered
into the record.
Without objection, it is so ordered.
Also, I would like to ask on behalf of other members of
this committee for unanimous consent that the following six
written statements be entered into this hearing record: a
statement by Dr. Annamaria Lusardi, professor of economics at
Dartmouth College; second, the testimony of Dr. Camille
Busette, vice president of EARN organization; the third one is
the statement by Dr. Rickie Keys on behalf of the National
Indigenous Literacy Association; the fourth is a statement by
J. Bradley Jansen, executive director of the Center for
Financial Privacy and Human Rights; the fifth is the testimony
of the SIFMA Foundation for Investor Education; and lastly,
unanimous consent for the testimony from the Financial Services
Roundtable.
Without objection, it is so ordered.
I would like to make some closing remarks and simply say
that it is very helpful to listen to the presentation made by
each of the witnesses and that I hope, when this is all
finished, that we would consider having some of the methods
that are now being used in classrooms--a congressional hearing
on the Education Committee that I sit on was held here 2 weeks
ago, showing us what 16 percent of schools in our country are
now using to keep students from getting bored by what is being
taught, how to keep their interest in math and science and many
other courses being taught.
And it is blackboard where they use cell phones, they use
texting, they use what the weathermen use on television where
they can touch the screen and move things around, making it
very interesting, particularly for K-12 students. They must get
this kind of education. But let me tell you, what works for
them will also work for adults, because it can be interesting.
And there should be tests like the ones that are now being
given to high school students, who are only passing, I think,
with a 48 percent passing percentage, or college students. It
doesn't matter that they pass it or don't pass it; it is just
so that they will know just how much they know and understand
about financial literacy.
I think that we are going to have to think out of the box
and have a way in which to progress on what has already been
built on the last 4 years.
I want to particularly thank the group that was responsible
for helping us start the Financial Caucus. And I will just do
it very shortly. I want to say thank you to Ms. Levine, because
Jump$tart, Junior Achievement, and the Council for Financial
Education coordinated with me on several Financial Literacy Day
fairs in the Cannon Caucus Room, and have been very successful.
And I think that it has proven one thing: that even the people
who work here, Members of Congress and staff, want to have this
kind of financial literacy. And so we are going to have to
really build on it.
Time has run out, and I have to have some parts to close
out this hearing. And I want to thank the witnesses and the
members for their participation in this hearing.
The Chair notes that some members may have additional
questions for these witnesses, which they may wish to submit in
writing. Therefore, without objection, the hearing record will
remain open for 30 days for members to submit written questions
to the witnesses and to place their responses in the record.
This subcommittee hearing is now adjourned. And I thank
you.
[Whereupon, at 5:20 p.m., the hearing was adjourned.]
A P P E N D I X
June 25, 2009
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