Speeches and Congressional testimony

US Office of the Comptroller of the Currency: Quarterly Journal, Sep 2002

Remarks by John D. Hawke, Jr., Comptroller of the Currency, before the Consumer Bankers Association, on the benefits of financial literacy programs, Arlington, Virginia, April 8, 2002 Financial Literacy:

A Key to New Banking Markets

It's a pleasure to join you at your annual Community Reinvestment Act conference-another opportunity for CBA to reaffirm its standing as one of the premier banking organizations in this country. A large share of the credit for your success goes to Joe Belew, who over the years has led with intelligence, conviction, and style.

One of the most important of your products is your survey of the industry's financial literacy efforts. When it was first released last summer, the survey confirmed what many of us already knew: that thousands of Americans have been smarter financial consumers-and more successful participants in the economy-because they attended educational programs developed, financed, and carried out by banks across the country.

This year's survey reflects an even more impressive variety of bank-sponsored programs: credit counseling, small business development, in-school tutoring, foreclosure prevention, and more. Of the banks surveyed-a group that represented almost 60 percent of the industry's total assets-nearly all said that they contributed to the war on financial illiteracy in some way, with more than half serving as primary sponsors of the programs in which they participated.

Clearly, bank-sponsored financial education programs have not only benefited the people who have enrolled in them, they've also earned respect and good will for the industry.

Yet when you think about it, the wonder is not that financial institutions have been so busy and active in promoting financial literacy, it's that there are still banks out there that aren't involved.

There are certainly plenty of reasons for public-spirited bankers to become involved in the effort to promote financial literacy. Evidence confirms that people who have been through well-designed and well-executed financial education programs are more likely to make sound economic choices for themselves and their families.

They're more likely to own their own homes and to keep them, with all of the social and economic advantages that go with homeownership. They're more likely to accumulate assets and less likely to be burdened by excessive debt. As Treasury Secretary Paul H. O'Neill recently said, "Ownership, independence, and access to wealth should not be the privilege of a few. They should be the hope of every American. Financial literacy is an essential tool to make that hope a reality."

Studies also tell us that financial education is an indispensable element of any strategy to combat the rise of predatory lending. I don't need to tell you that abusive lending has become a serious public policy concern-and a serious concern for the financial services industry.

Although those who engage in predatory practices are relatively few in number-and only rarely include regulated depository institutions-they've done real harm to the reputation of all financial institutions. It's therefore very much in the industry's interests to assist in efforts to oust the bad actors.

One of the best ways we've found to do that is through education, with programs that focus on the most common victims of predatory lending-particularly the poor, the elderly, and minority groups-programs that provide information on predatory practices and on non-predatory financial options. I was encouraged to see that more than half of the respondents in the current CBA survey reported addressing predatory lending issues in their financial literacy programs.

The predatory lending problem illustrates what I think is a point of surpassing importance: altruism that's reinforced by self-interest is most likely to produce results. And I believe that banks have a strong self-interest in promoting financial literacy.

High among the reasons why banks serve themselves when they serve others through participation in financial literacy efforts are regulatory considerations, and particularly CRA considerations.

We and other financial regulators give CRA credit for financial literacy programs in assessing your record of serving the needs of low- and moderate-income individuals. Banks' participation in these programs may receive consideration under the CRA regulations.

For example, the Interagency Q&As offer a long list of activities that would qualify for consideration under the CRA service test. The list includes such things as:

* providing technical assistance on financial matters to small businesses;

* providing credit counseling, home buyer and home maintenance counseling, financial planning or other financial services education to promote community development; and

* establishing school savings programs and developing or teaching financial education curricula for low- and moderate-income individuals.

Regarding the investment test, the Interagency Q&As note that when financial institutions make investments in or grants to non-profit organizations that provide counseling for credit, home-ownership, home maintenance, and other financial services education, such investments will qualify for CRA consideration.