Aloha. I am pleased to be here today because we share a common purpose of improving the financial literacy of all Americans. I have worked with many of you in this room on the Excellence in Economic Education Act. The Act authorizes funds for activities such as teacher training, evaluations, material distribution, and related activities in grades K-12. I appreciate the assistance of my colleagues in the House, Representatives Biggert, Hinojosa, and Dreier to secure funding for the program.
Economic and Financial Education is a vitally important component of the national strategy, but we must also remember that adult financial literacy needs must be addressed. We must develop a strategy that attacks predatory lending, helps bring people into mainstream financial institutions, and encourages the dissemination of improved, personalized, and relevant disclosures to consumers.
Too many Americans are taken advantage of by unscrupulous lenders through refund anticipation loans, payday loans, and other predatory loan products. For example, an estimated $1.9 billion of Earned Income Tax Credit benefits intended to assist low-income families was received by commercial tax preparers and affiliated national banks to pay for tax assistance, electronic filing of returns, and high-cost refund anticipation loans (RALs) in 2002. We have an obligation to do more so that working families can keep more of their earned tax credits. I have introduced legislation, the Taxpayer Abuse Prevention Act, that would restrict refund anticipation loans and provide additional opportunities for taxpayers to receive their refunds without fees by establishing their own bank or credit union deposit account.
We also need to develop more mainstream financial products and services that will provide viable alternatives to fringe financial services such as payday loans. Shortly, I intend to introduce legislation that will a authorize demonstration program that encourages the development of consumer friendly, small loans at credit unions and banks. This demonstration program will have a maximum interest rate of 18 percent and must include financial literacy opportunities for participants. Several credit unions have developed similar products. We need to further encourage the development of these alternatives so that working families have access to affordable small loans when they have unexpected expenses such as medical bills.
We must address the unbanked problem in our country. Too many working families are susceptible to predatory lending because they are left out of the financial mainstream. Between 25 and 56 million adults are unbanked, or not using mainstream, insured financial institutions. The unbanked rely on alternative financial service providers to cash checks, pay bills, send remittances, utilize payday loans, and obtain credit. Many of the unbanked are low- and moderate-income families that can ill afford to have their earnings unnecessarily diminished by their reliance on these high-cost, and often predatory, financial services. In addition, the unbanked are unable to save securely to prepare for the loss of a job, a family illness, a down payment on a first home, or education expenses.
We must ensure that consumers receive improved, personalized, and relevant disclosures so that they may make better debt management decisions. Due to the Bankruptcy Reform bill making it harder for consumers to discharge their debts in bankruptcy, we have a responsibility to provide additional information so that consumers can make better informed financial decisions. The Senate-passed version of S. 256 requires that credit card issuers to provide a generic warning about the consequences of only making the minimum payment. This provision fails to provide the detailed information for consumers on their billing statements that an amendment that I offered would have provided. My amendment would have given consumers the detailed personalized information necessary for them to make better informed choices about their credit card use and repayment. It would have required companies to inform consumers of how many years and months it would take to repay their entire balance and the total cost in interest and principal, if the consumer makes only the minimum payment. The amendment would also have required consumers to be provided with the amount they need to pay to eliminate their outstanding balance within 36 months. Finally, my amendment would have required that creditors establish a toll-free number so that consumers can access trustworthy credit counselors. Unfortunately, this amendment was defeated. I will continue to work to give consumers this much needed and useful information.
As you know, the Financial Literacy and Education Commission is charged with developing a national strategy to promote financial literacy and education among all American consumers. I have great expectations for the Commission. I will be closely monitoring its development and activities.
We must continue to work together to encourage better economic and financial literacy, which, in turn, will result in stronger families, better-functioning markets, and a more secure future for our nation. I look forward to continuing to work with all of you to ensure that the Commission and national strategy it produces are effective, so that the financial literacy of our country improves.
Again, mahalo for inviting me today.
