CU360 Article: Competition Update: Banks Are Beefing Up Their Education Efforts

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Competition Update: Banks Are Beefing Up Their Education Efforts

They're making greater use of consumer education, with an emphasis on mortgage lending.

June 16, 2005

Wearing the "white hat" may cause credit union personnel to believe they're the industry leaders in promoting financial literacy and consumer education. A recent survey by the Consumer Bankers Association (CBA) challenges that belief. Bank financial literacy programs continue to reach growing numbers of consumers, with an emphasis on mortgage lending and credit scores, according to preliminary findings of CBA's 2005 Financial Literacy Survey.

"Not enough can be said about the importance of educating consumers about how their credit worthiness is evaluated," says CBA president Joe Belew. Ninety-one percent of respondent banks address this in their financial literacy programs, according to Belew. Responses from 46 banks are included in preliminary findings of CBA's fifth annual Financial Literacy Survey. Among the findings:

Over one year, participation in homeownership counseling programs increased 57%, reaching an average 10,600 consumers.
Homeownership counseling programs are aimed at low- and moderate-income homebuyers, first-time homebuyers, and minorities. While almost all banks target all three groups to some degree, this year 88% say minorities are among their target audiences.
Ninety-one percent of the respondents offer affordable mortgage programs, which typically offers more flexible underwriting criteria. Credit counseling is a mandatory part of these programs at 80% of those institutions.
Sixty-nine percent have financial literacy programs that target issues associated with predatory or abusive lending practices. These are most often aimed at minorities (81%) and senior citizens (74%).
Ninety-one percent of homeownership programs are evaluated for effectiveness. Evaluations are mostly based on the percent of participants who complete the program (81%) and number of qualified mortgage applicants produced (64%).
In addition to receiving regular federal examinations, 82% engage in fair lending self-evaluation to ensure parity in mortgage lending among various ethnic groups.
Sixty-nine percent of banks track the number of hours employees spend on financial literacy efforts. Seventy-five percent also provide financial literacy publications in at least one foreign language.

The financial literacy survey shows that, of those banks that either offer risk-based pricing or have a separate channel for subprime loans (typically a finance company affiliate), 92% also have an additional policy or program in place to make sure customers with prime credit are offered the prime loan product.