Banking institutions must stay abreast of compliance requirements in an ever-evolving regulatory landscape. One such recent change is the new Community Reinvestment Act (CRA) rules regarding financial literacy training for bank customers. This regulatory amendment aims to bolster the financial savviness of the population, thereby promoting financial independence and confidence.
The Digital Wealth News team recently interviewed Teresa Leno, CEO and Founder of Fresh Finance, about how the CRA’s financial literacy requirement will impact banks and customers.
Understanding CRA legislation
The CRA was enacted in 1977 and has undergone several amendments to match the changing economic climate. It is a federal law designed to encourage bank institutions to help address the credit needs of the communities in which they operate. Previously, the Act encouraged banks serving specific populations in low—and moderate-income neighborhoods to provide financial education. However, earlier this summer, an amendment to the Act expanded financial literacy to all bank customers, regardless of neighborhood, community, or income.
“Financial Literacy is a crucial component of our modern economic ecosystem. It endorses informed financial decision-making, enabling individuals to manage their money wisely, which helps foster sustainable economic growth. Recognizing this, the CRA, in its recent amendment, has elevated the importance of financial literacy for bank customers, with banks now required to provide it,” says Leno.
Under the new rules, banks are now given credit during audits for providing customers with financial literacy education and training. This rule encourages U.S. banks to invest more resources into developing comprehensive financial literacy programs. The regulations also extend to training small and minority-owned businesses, promoting a fair, inclusive, and robust financial ecosystem.
Leno adds, “These enhanced regulations encompass a host of subjects, such as understanding interest rates, managing credit card debt, investing, planning for retirement, and home-buyers education. By widening the scope of financial literacy, the new CRA rules aim to tackle the problem of financial illiteracy, thereby minimizing financial distress for many Americans.”
These new CRA rules mean customers have better access to financial education. Banks must be more proactive in providing these services, making it easier for customers to understand complex financial concepts and terminology and empowering bank customers to make informed decisions. Financial education initiatives help promote trust and transparency between banks and their customers.
The stakes are high for U.S. banks.
“By implementing robust financial literacy programs, banks can expect to build long-term relationships with their customers, fostering loyalty and trust. Additionally, a more financial-literate customer base can potentially mitigate the risk of default and late payments, leading to a healthier portfolio for the banks,” Leno comments.
The new CRA rules are about more than just promoting financial literacy. They represent a shift towards a more inclusive and sustainable finance system, where every individual—regardless of their socio-economic status—has access to and services related to financial products and services. In light of these new CRA rules, banks should review their current financial literacy programs and adapt them to reap the maximum benefits of an educated customer base.
“Some banks are already implementing financial education through digital newsletters to customers. Our software provides this digital newsletter solution, plus a database of financial education articles and third-party social media articles bank employees can share on social media, all managed by the bank’s internal marketing team.
Customers find developing a relationship with a personal banker more profound, so featuring the bank’s brand and the personal banker’s photo and contact information is paramount. Since the newsletter is about financial education, it is not the place to market bank products,” Leno adds.
Simultaneously, customers should use these opportunities to broaden their financial literacy and enhance their money management skills.
The new CRA rules concerning financial literacy training are a progressive step for the U.S. banking sector. They mark a renewed focus on financial education, setting the stage for an empowered, financially savvy population and stable banking landscape.
Teresa Leno worked as a financial advisor and experienced firsthand the importance of financial education to help clients make more informed decisions before a crisis. Through her experience, Fresh Finance was started as a financial content marketing solution to help advisors validate their expertise through sharing content.
