Emphasis on Financial Education at Loan Origination Grows

A new Florida law requires lenders to offer free financial education to borrowers at the time a loan is made. Whether or not other states follow suit, the emphasis on closing the financial literacy gap is growing throughout the industry. Here’s what you need to know.

New State Legislation & Broader Regulatory Outlook

The Florida Governor signed into law House Bill HB1347, mandating that borrowers receive free financial education when they originate a loan. This requirement as part of the law aims to enhance financial literacy among Floridians. It indicates a growing desire to require financial institutions to address the known financial literacy gap.

While your bank may not be affected by this law, now is a good time to assess what practices you have in place to help curb financial illiteracy gaps among your customers. Take note of the requirements if you lend online throughout the United States, and especially if you have any customers with a Florida zip code or phone number area code.

The Financial Literacy Gap in America is Wide

According to the Financial Industry Regulatory Authority (FINRA), about 66% of the American population is considered financially illiterate.

Additionally, the National Financial Educators Council (NFEC) reports that financial illiteracy cost Americans over $388 billion in 2023 alone.

And lastly, a study by the TIAA Institute found that only 16% of Americans aged 18-37 were able to demonstrate a high level of financial literacy.

Next Steps: Adopt Financial Education for Borrowers

Lenders that want to proactively mitigate financial illiteracy should partner with financial education providers to deliver high-quality, accessible and verifiable education to borrowers. You might already link to high-quality educational resources for your customers – for which we applaud your proactiveness. However, doing it “by the book” is a little more involved. We lay out the exact parameters of Florida’s law below, which we think serve as an appropriate standard for all lenders regardless of state regulation. Why? The benefits of structured education outweigh the costs and brings more value to the customer over a collection of disconnected articles.

The Benefits of Offering Financial Education to Customers

The benefits of financial education for banks and borrowers goes beyond meeting legislative requirements. It’s a step in the right direction to:

• Reduce the incidence of loan default and financial distress among borrowers
• Increase awareness of responsible borrowing practices and the long-term implications of debt
• Empower individuals to make informed financial decisions, leading to greater financial stability and security
• Address the financial literacy gap across the USA
• Enables agents at the bank to improve their financial literacy and have more informed conversations with customers

Why do it Now?

There are multiple reasons to act now across your lending portfolio and get in front of potential requirements that could be coming your way:

• Demonstrate good stewardship in the industry with regulators
• Reduce default rates – The Financial Industry Regulatory Authority (FINRA) has found a direct correlation between increased financial literacy and reducing loan default rates
• Create customer loyalty, and advocacy for your brand

Additionally, lenders have an opportunity to tie the completion of a financial education program to reduced loan rates or more attractive repayment programs in collections. These bundles can incentivize good money management behaviors, reduce delinquencies and increase your competitive value.

A Free Financial Education Program Easily Absorbed into Your Lending Process

In collaboration with CBS Academy, we’re excited to offer online, on-demand credit health education for consumers and financial literacy training for call center agents. Our training covers the financial implications of key life events, the resulting effect on credit scores, and strategies to regain financial stability and credit health.

Our consumer education takes less than 10 minutes to complete, with knowledge checks along the way. Participants receive a downloadable completion certificate plus a suite of online resources to refer to, including a downloadable interactive budgeting tool. Also, it is priced at a highly competitive rate per consumer so that costs can easily be absorbed into existing origination costs.

Learn more about our financial education program and receive a free, no obligation trial here.