Financial Literacy and Consumer Education Subject of FTC Testimony

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Continuing FTC testimony today before the Senate Committee on Banking, Housing, and Urban Affairs, Associate Director for Financial Practices Joel Winston discussed “financial literacy” and how it relates to the Fair Credit Reporting Act (FCRA). Winston stressed the influence and importance of current FTC initiatives, but said that the FTC’s legislative recommendations for the FCRA would provide greater consumer protection and give the FTC more authority over certain aspects of the FCRA regulation. The recommendations were first presented to the Committee by FTC Chairman Timothy J. Muris on July 10, 2003.

Discussing the Commission’s efforts to educate consumers about financial issues and credit matters, the testimony began with an overview of available FTC publications, various programs run by the FTC staff, and other FTC outreach efforts. “Credit publications have consistently been among the Commission’s most popular items. Last year, we distributed about two million credit-related brochures in print, and consumers accessed these publications on the Commission’s Web site another 1.5 million times,” the testimony stated. The testimony also explained how the FTC identity theft program works to educate consumers about credit matters.

The testimony detailed how the FCRA serves as an important educational tool for consumers. The law requires that consumers be notified when lenders or other users of credit reports take “adverse action” based on information from a credit report. “This notice puts credit reports in consumers’ hands when they are the most motivated to act on it – that is, after they have been denied credit, insurance, employment, or benefits based on this report,” the testimony said. The FTC recommendations would grant the FTC specific rulemaking authority to allow more situations to be considered “adverse action,” thereby enabling consumers to be more informed when decisions are made based on their credit reports.

Many consumers are unaware of the credit reporting system and “may not realize that information about their financial history is compiled and sold, not just to creditors, but also to employers, insurers, landlords, utilities, and others who use it to make decisions,” the testimony said.

Consumers may not be aware of the information that is reported about them, who the information is sold to, and for what purposes the information is sold. “Improving financial literacy may not by itself ensure that consumers are successful in using our credit system, but it’s certainly a key component,” the testimony continued.

Winston concluded by reiterating the importance of the FTC’s proposals on the FCRA in providing greater consumer protection and fighting financial fraud. “Our proposals would put more information in consumers’ hands by: (1) expanding consumers’ right to adverse action notices when they are offered less favorable credit terms; (2) making annual credit reports available at no charge; and (3) giving consumers more information about their credit scores along with explanatory materials.”

The Commission vote to approve the testimony was 5-0.

Copies of the testimony are available on the FTC’s Web site. The FTC works for the consumer to prevent fraudulent, deceptive, and unfair business practices in the marketplace and to provide information to help consumers spot, stop, and avoid them. To file a complaint, or to get free information on any of 150 consumer topics, call toll-free, 1-877-FTC-HELP (1 877-382-4357), or use the complaint form at The FTC enters Internet, telemarketing, identity theft, and other fraud-related complaints into Consumer Sentinel, a secure, online database available to hundreds of civil and criminal law enforcement agencies in the U.S. and abroad.

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