Financial education can't replace tough regulations
Ira Rheingold, Executive Director and General Counsel of the National Association of Consumer Advocates (NACA)
TEXT OF COMMENTARY
TESS VIGELAND: It's hard to argue against the need for more financial literacy. But commentator Ira Rheingold says you'd best consider the source when you hear that consumer education is a cure-all for our economic woes.
IRA RHEINGOLD: As a long time consumer advocate, I place my hand over my wallet when someone from the banking industry suggests better financial education will help solve most of the problems in our consumer financial services marketplace.
It's not that I don't believe we need financial education classes in our schools, or that both children and adults need to learn about debt and credit. It's simply that after years of working in consumer protection, financial education can never replace tough, fair regulations that reward banks for serving consumers, not exploiting them.
Over the last two decades, we have all seen a fundamental shift in the ways consumer banks make most of their money. Long gone are the days of George Bailey's Building and Loan, when your corner bank thrived when you successfully placed your hard-earned savings in its care, or when you made your monthly mortgage payment on time. In those days, when you missed that payment, your community bank was likely to contact and work with you before your financial troubles grew.
Today, we have a banking industry that thrives on consumer failure. Its bottom line depends on persuading us to borrow more than we know we can afford, to write checks and use debit cards when we know (or don't know) we have insufficient funds in our accounts.
Overdraft fees, bounce protection, payday, title and refund-anticipation loans, late fees, over-limit fees, balance-transfer fees, yield-spread premiums, credit life insurance -- these are all designed by banks so they can profit when we don't use our money wisely.
Financial education and financial literacy programs are great. But we're kidding ourselves if we think they'll have any real effect on our savings or our use of credit. That won't really happen until we create rules and regulations that stop banks from tricking and trapping us into products we don't need and we can't afford.
VIGELAND: Ira Rheingold is Executive Director of the National Association of Consumer Advocates.