By Rep. Rubén Hinojosa (D-Texas) - 04/24/13 10:25 PM EDT
Financial Literacy Month is about empowering Americans to take control of their fiscal futures, whether by avoiding payday lenders, opening a first savings account or planning for a retirement. We all strive for a more stable financial life for ourselves and our families.
Over the past decade, many consumers throughout the U.S. have faced severe financial hardship. According to a Federal Deposit Insurance Corporation survey, at least 25.6 percent of American households, comprising approximately 60,000,000 adults, are unbanked or underbanked, and subsequently have missed opportunities for savings, lending and basic financial services. These statistics include low- and middle-income families as well as military veterans, many of whom are coming home from war to financial uncertainty.
Jesse Rodriguez, an Air Force veteran who served in the Persian Gulf War, was looking for information on home buying. He’s being cautious because many of his friends have been caught in extremely high interest loans, and he was seeking advice from the VA to keep him on the right path. The VA website provides a lot of financial information.
In a letter to the Treasury Department, senior Department of Defense official Clifford L. Stanley wrote that financial worries were “second only behind work and career concerns and ahead of deployments, health, life events, family relationships and war/hostilities.” Service members and their families face unique challenges, including repetitive relocation, low salaries and targeting by predatory lenders.
In an effort to curb the most usury loans, I supported giving the Consumer Financial Protection Bureau the ability to regulate, on a national level, non-bank lenders. Additionally, Congress ensured that the bureau included an office, currently run by Holly Petraeus, dedicated solely to military members, veterans and their families.
The Military Lending Act of 2007 helped curtail the targeting of military members by payday loan companies, but there are no federal regulations limiting loan interest rates for veterans or their families. Some companies continue to target military members using alternatively structured debt-trap products.
My home state of Texas has no limits to the fees that payday and auto-title lenders can charge. It’s not unusual to see APRs climb to above 500 percent.
State legislators are working on a bill to limit payday lenders to offering four kinds of loans and cap the amount of a loan based on a borrower’s income, but many say the bill will not limit industry fees. Thus the cycle of debt continues.
There are alternatives to exorbitant payday loans that have long plagued our communities. In my district, the Rio Grande Valley Multibank has a program called the Small Dollar Affordable Loan. This program allows workers to take out 12-month loans. Once an employer opts in, employees authorize a payroll deduction to pay their loans back. The difference between this program and payday loans is that consumers don’t have to pay back the loan within 18 days. This is more likely to help the consumer build credit instead of potentially wrecking their finances. Additionally, by requiring a checking account, these products incentivize engagement in the mainstream financial system. Too many of our residents opt out of savings and checking accounts, leaving them to struggle in a cash economy. Bank accounts are a first step to long-term savings and financial planning.
Financial Literacy month should be a reminder to policymakers that our military members and veterans have unique financial situations but often are too humble to ask for information. Financial literacy is a journey, not a destination. We all make financial decisions every day that contribute to our long-term fiscal health. Financial literacy needs to be better integrated into all aspects of our lives. Not only should federal agencies, banks and credit unions, nonprofit practitioners and employers provide easy-to-understand financial information and ensure safe and appropriate financial products, but the appropriate information and products should be targeted to the right audience at the right time. MyMoney.gov is one reliable source to find information and resources for everyone, from young military members looking to stay away from the vicious debt cycle to veterans and civilian families saving and planning for retirement.
A more financially literate country means a more resilient, robust economy. Let’s use Financial Literacy Month to take steps to better inform ourselves, our families, our constituents and our communities about leading more financially literate lives.
Hinojosa is a member of Congress and co-chairman of the Congressional Financial and Economic Literacy Caucus.