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Floor Statement: Financial Literacy and Wall Street Reform
Fri, April 30, 2010
Mr. President, it is timely that we have started to consider the financial services modernization legislation during April, a month that we have designated as Financial Literacy Month. There are three vital components to financial literacy: education, consumer protection, and economic empowerment. H.R. 3217, the Wall Street Reform bill, includes essential provisions in all three of these areas for consumers and investors. I have worked extensively with the Chairman of the Banking Committee and other members of the Committee to ensure that bill includes essential education, consumer protection, and economic empowerment provisions. I appreciate all of the leadership and work done by Chairman Dodd and his efficient, effective, and hardworking staff to develop this legislation so important to working families.
With regard to education, the legislation creates an Office of Financial Literacy within the Consumer Financial Protection Bureau. The Financial Literacy Office is tasked with developing and implementing initiatives to educate and empower consumers. A strategy to improve the financial literacy among consumers, that includes measurable goals and benchmarks, must be developed. The Administrator of the Bureau will also become Vice-Chairman of the Financial Literacy and Education Commission. This will ensure meaningful participation in the Commission.
The legislation also requires a Securities and Exchange Commission (SEC) financial literacy study to be conducted. The SEC will be required to develop an investor financial literacy strategy intended to bring about positive behavioral change among investors.
The second key component of financial literacy is consumer protection. This legislation creates a regulatory structure to ensure greater emphasis by regulators on investor and consumer protection. The failure of regulators to protect consumers contributed significantly to the financial crisis. Prospective homebuyers were directed into mortgage products that had risks and costs that they could not understand or afford.
The Consumer Financial Protection Bureau will have the ability to restrict predatory financial products and unfair business practices in order to prevent unscrupulous financial services providers from taking advantage of consumers.
Mr. President, we also strengthen the ability of the SEC to better represent the interests of retail investors. My proposal to create an Investor Advocate within the SEC is in the bill. The Investor Advocate is tasked with assisting retail investors to resolve significant problems with the SEC or the self-regulatory organizations (SROs). The Investor Advocate's mission includes identifying areas where investors would benefit from changes in Commission or SRO policies and problems that investors have with financial service providers and investment products. The Investor Advocate will recommend policy changes to the Commission and Congress in the interests of investors. The creation of the Office of the Investor Advocate has widespread support from consumer, labor, and industry organizations.
Mr. President, we worked to include in the legislation clarified authority for the SEC to effectively require disclosures prior to the sale of financial products and services. Working families depend on their mutual fund investments and other financial products to pay for their children's education, prepare for retirement, and attain other financial goals. This provision will ensure that working families have the relevant and useful information they need when they are making decisions that determine their future financial condition.
Mr. President, this legislation also addresses remittance consumer protections. Working families often send substantial portions of their earnings to family members living abroad.
In my home state of Hawaii, many of my constituents remit money to their family members living in the Philippines. Consumers can have serious problems with their remittance transactions, such as being overcharged or not having their money reach the intended recipient. Remittances are not currently regulated under federal law and state laws provide inadequate consumer protections.
The bill will modify the Electronic Fund Transfer Act to establish remittance consumer protections. It will require simple disclosures about the costs of sending remittances to be provided to the consumer prior to and after the transaction. A complaint and error resolution process for remittance transactions would be established.
Mr. President, the third component of financial literacy is economic empowerment. Senator Kohl and I developed Title XII of the legislation which is intended to increase access to mainstream financial institutions for the unbanked and the underbanked. Mainstream financial institutions are a vital component to economic empowerment.
Banks and credit unions provide alternatives to high-cost and often predatory fringe financial service providers such as check cashers and payday lenders. Unfortunately, approximately one in four families are unbanked or underbanked.
Many of these families are low- and moderate-income families that cannot afford to have their earnings diminished by reliance on these high-cost and often predatory financial services. Unbanked families are unable to save securely for education expenses, a down payment on a first home, or other future financial needs. Underbanked consumers rely on non-traditional forms of credit that often have extraordinarily high interest rates. Regular checking accounts may be too expensive for some consumers unable to maintain minimum balances or afford monthly fees. Poor credit histories may also limit their ability to open accounts. More must be done to promote product development, outreach, and financial education opportunities intended to empower consumers.
Title XII authorizes programs intended to assist low- and moderate-income individuals establish bank or credit union accounts and encourage greater use of mainstream financial services. Mr. President, Title XII will also encourage the development of small, affordable loans as an alternative to more costly payday loans.
Payday loans often have outrageously high interest rates. Payday loan flipping often leads to instances where the fees paid for a payday loan well exceed the principal borrowed. This creates a cycle of debt that is hard to break.
There is a great need for working families to have access to affordable small loans. This legislation would encourage banks and credit unions to develop consumer friendly payday loan alternatives. Consumers who apply for these loans would be provided with financial literacy and educational opportunities. I am proud of the credit unions in Hawaii that have worked to develop payday loan alternatives to meet the needs of their members, particularly for our military families that have traditionally been exploited by payday lending.
The National Credit Union Administration has provided assistance to develop these small consumer-friendly loans. More working families need access to affordable small loans. This program will encourage mainstream financial service providers to develop affordable small loan products.
I also appreciate the work done by Senator Menendez and his staff to authorize financial education economic empowerment grants intended to provide opportunities for economically vulnerable families.
Mr. President, this bill is not about the last financial crisis. This legislation is about creating a more fair financial system that better educates, protects, and empowers consumers and investors. The emergency actions that had to be done in the fall of 2008 brought with it an obligation to create a financial regulatory system that is more helpful to working families. This legislation fulfills that obligation and will help improve the lives of so many people in our country by educating, protecting, and empowering consumers and investors.
Thank you, Mr. President.
With regard to education, the legislation creates an Office of Financial Literacy within the Consumer Financial Protection Bureau. The Financial Literacy Office is tasked with developing and implementing initiatives to educate and empower consumers. A strategy to improve the financial literacy among consumers, that includes measurable goals and benchmarks, must be developed. The Administrator of the Bureau will also become Vice-Chairman of the Financial Literacy and Education Commission. This will ensure meaningful participation in the Commission.
The legislation also requires a Securities and Exchange Commission (SEC) financial literacy study to be conducted. The SEC will be required to develop an investor financial literacy strategy intended to bring about positive behavioral change among investors.
The second key component of financial literacy is consumer protection. This legislation creates a regulatory structure to ensure greater emphasis by regulators on investor and consumer protection. The failure of regulators to protect consumers contributed significantly to the financial crisis. Prospective homebuyers were directed into mortgage products that had risks and costs that they could not understand or afford.
The Consumer Financial Protection Bureau will have the ability to restrict predatory financial products and unfair business practices in order to prevent unscrupulous financial services providers from taking advantage of consumers.
Mr. President, we also strengthen the ability of the SEC to better represent the interests of retail investors. My proposal to create an Investor Advocate within the SEC is in the bill. The Investor Advocate is tasked with assisting retail investors to resolve significant problems with the SEC or the self-regulatory organizations (SROs). The Investor Advocate's mission includes identifying areas where investors would benefit from changes in Commission or SRO policies and problems that investors have with financial service providers and investment products. The Investor Advocate will recommend policy changes to the Commission and Congress in the interests of investors. The creation of the Office of the Investor Advocate has widespread support from consumer, labor, and industry organizations.
Mr. President, we worked to include in the legislation clarified authority for the SEC to effectively require disclosures prior to the sale of financial products and services. Working families depend on their mutual fund investments and other financial products to pay for their children's education, prepare for retirement, and attain other financial goals. This provision will ensure that working families have the relevant and useful information they need when they are making decisions that determine their future financial condition.
Mr. President, this legislation also addresses remittance consumer protections. Working families often send substantial portions of their earnings to family members living abroad.
In my home state of Hawaii, many of my constituents remit money to their family members living in the Philippines. Consumers can have serious problems with their remittance transactions, such as being overcharged or not having their money reach the intended recipient. Remittances are not currently regulated under federal law and state laws provide inadequate consumer protections.
The bill will modify the Electronic Fund Transfer Act to establish remittance consumer protections. It will require simple disclosures about the costs of sending remittances to be provided to the consumer prior to and after the transaction. A complaint and error resolution process for remittance transactions would be established.
Mr. President, the third component of financial literacy is economic empowerment. Senator Kohl and I developed Title XII of the legislation which is intended to increase access to mainstream financial institutions for the unbanked and the underbanked. Mainstream financial institutions are a vital component to economic empowerment.
Banks and credit unions provide alternatives to high-cost and often predatory fringe financial service providers such as check cashers and payday lenders. Unfortunately, approximately one in four families are unbanked or underbanked.
Many of these families are low- and moderate-income families that cannot afford to have their earnings diminished by reliance on these high-cost and often predatory financial services. Unbanked families are unable to save securely for education expenses, a down payment on a first home, or other future financial needs. Underbanked consumers rely on non-traditional forms of credit that often have extraordinarily high interest rates. Regular checking accounts may be too expensive for some consumers unable to maintain minimum balances or afford monthly fees. Poor credit histories may also limit their ability to open accounts. More must be done to promote product development, outreach, and financial education opportunities intended to empower consumers.
Title XII authorizes programs intended to assist low- and moderate-income individuals establish bank or credit union accounts and encourage greater use of mainstream financial services. Mr. President, Title XII will also encourage the development of small, affordable loans as an alternative to more costly payday loans.
Payday loans often have outrageously high interest rates. Payday loan flipping often leads to instances where the fees paid for a payday loan well exceed the principal borrowed. This creates a cycle of debt that is hard to break.
There is a great need for working families to have access to affordable small loans. This legislation would encourage banks and credit unions to develop consumer friendly payday loan alternatives. Consumers who apply for these loans would be provided with financial literacy and educational opportunities. I am proud of the credit unions in Hawaii that have worked to develop payday loan alternatives to meet the needs of their members, particularly for our military families that have traditionally been exploited by payday lending.
The National Credit Union Administration has provided assistance to develop these small consumer-friendly loans. More working families need access to affordable small loans. This program will encourage mainstream financial service providers to develop affordable small loan products.
I also appreciate the work done by Senator Menendez and his staff to authorize financial education economic empowerment grants intended to provide opportunities for economically vulnerable families.
Mr. President, this bill is not about the last financial crisis. This legislation is about creating a more fair financial system that better educates, protects, and empowers consumers and investors. The emergency actions that had to be done in the fall of 2008 brought with it an obligation to create a financial regulatory system that is more helpful to working families. This legislation fulfills that obligation and will help improve the lives of so many people in our country by educating, protecting, and empowering consumers and investors.
Thank you, Mr. President.
