e-Weekly

June 29, 2011

Poll shows only 15% of high school students know credit union difference
A new national opinion poll of nearly 900 high school students shows that only 15% of students are aware that credit unions are different from banks with respect to their not-for-profit status.

Philip Heckman, director of youth programs at the Credit Union National Association's (CUNA) Center for Personal Finance, said this failure to connect with America's youth has a cost. "Any credit union that isn't using its full-family membership policy to form a lifelong bond with children is setting itself up for the much more expensive challenge of trying to overcome their ignorance and cynicism later to win their business as adults," Heckman said.

CUNA has established a consumer-friendly website, aSmarterchoice.org, intended to help consumers--both young and old--better understand the benefits of credit union membership, and how to sign up to be a member. "We honestly believe that to know credit unions--and their better rates--is to love them, and we are helping to forge a credit union relationship for more consumers," said Pat Keefe, CUNA vice president of communications and media outreach. More than two years after the country suffered the massive financial crisis of 2008 and 2009, the majority of poll respondents harbor a significant amount of distrust toward credit unions, banks, credit card companies, businesses, and investment institutions.

This sense of distrust is compounded by a lack of understanding about the basic services and products of financial institutions, said Dr. Michael Staten, director of the University of Arizona's Take Charge America Institute for Consumer Financial Education and Research, which commissioned The Financial Literacy Group consulting firm to conduct the survey earlier this year.

"This poll is extremely revealing," Staten said. "In addition to students' lack of knowledge about the building blocks of personal finance, which we have seen for years in these types of surveys, it shows the next generation of American consumers now also actively distrusts many of the pillars of the financial services industry.

Despite their strong suspicion of financial institutions, survey respondents believe that financial education is important and financial success can be achieved with the right decisions, Staten said. "This is a hopeful sign and it tells us that more financial education is needed," he added. "It may not yet be too late to defuse this sense of cynicism about all things financial, and to prepare these young consumers for the financial choices they will face in adulthood."

Some of the poll's findings include:

• The majority of students responding to the survey (60%) believe that credit card companies often entice people into taking on more debt that they can handle.
• More than 70% of students believe that businesses often try to "trick young people" into spending more than they should.
• Only 25% of students disagreed with the following statement: "The stock market is rigged mostly to benefit greedy Wall Street bankers."
• Only 15% of students are aware that credit unions are different than banks with respect to their not-for-profit status.
• Fewer than one in five students who responded to the survey (17%) disagreed with the statement that "Banks are mostly interested in getting my money through hidden fees."

The poll was offered to students at 18 high schools in 11 states nationwide, and 878 students completed the survey in January and February. Respondents from all levels of high school were represented.

"While some organizations are making strong efforts in the field of financial education, overall not enough is being done to educate America's youth about money, at school or at home," said Dan Iannicola Jr., former deputy assistant secretary for financial education at the U.S. Treasury Department and CEO of The Financial Literacy Group consulting firm. "But as these results show, just because we aren't teaching about money, doesn't mean kids aren't learning about it. This survey asks the question, just what are they learning?"

Iannicola said the level of distrust is about more than bad public relations for the financial services industry. "Adolescents with this level of distrust of financial institutions become adults who don't open bank accounts, invest for retirement, insure against risks, or finance important purchases like college educations or homes," he said. "This type of financial disengagement could push a generation of consumers away from mainstream institutions and toward risky alternative service providers or toward simple inactivity, which has its own perils."

IRS adjusts business mileage rate
The Internal Revenue Service (IRS) announced an increase in the optional standard mileage rates for the final six months of 2011. The rate will increase to 55.5 cents a mile for all business miles driven from July 1, 2011, through December 31, 2011. This is an increase of 4.5 cents from the 51 cent rate in effect for the first six months of 2011, as set forth in Revenue Procedure 2010-51.

The agency said it made this special adjustment in recognition of recent gasoline price increases. The IRS normally updates the mileage rates once a year in the fall for the next calendar year. The agency also made an adjustment to the rates in 2008 after gas prices soared.

The new six-month rate for computing deductible medical or moving expenses will also increase by 4.5 cents to 23.5 cents a mile, up from 19 cents for the first six months of 2011. The rate for providing services for charitable organizations is set by statute, not the IRS, and remains at 14 cents a mile.

Supreme Court to look at RESPA case
The recent U.S. Supreme Court decision to hear a Real Estate Settlement Procedures Act--or RESPA—class action case that involves title insurance could have ramifications for credit unions involved in mortgage lending.

The case is known as First American Financial Corp. v. Edwards. Broadly, the case revolves around whether a consumer, who based a purchase of title insurance on a referral by a real estate settlement agency--under conditions the consumer claims violated RESPA's anti-kickback provisions, can sue in federal court if there is no evidence of actual injury.

Credit Union National Association (CUNA) Deputy General Counsel Mary Dunn said that the case has significant implications for credit unions. "Credit unions work very hard to comply with all consumer protection laws they are subject to, such as RESPA for mortgage lenders. And, they generally support reasonable legal protection for consumers. However, awarding damages when a consumer is not harmed raises serious concerns and this issue deserves judicial review," she said.

To have standing to sue, the class representative, plaintiff Denise P. Edwards, had to meet three requirements, according to court documents: injury, causation, and redressability.

The defendants, First American Corp. and First American Title Insurance, argue that Edwards has not suffered a "concrete injury" and has not alleged that the charge for title insurance was higher than it would have been without the exclusivity agreement. In fact, the defendants have noted, the plaintiff cannot make that allegation because Ohio law mandates that all title insurers charge the same price.

If the Supreme Court rules against Edwards, CUNA's Dunn noted, it could help credit unions battle against unjustified, "gotcha", types of lawsuits that are sometimes filed against lenders under RESPA.

A question raised but not answered so far in the case--and not likely to be addressed by the Supreme Court justices--is whether the title insurance company's tie-in arrangement with the title insurance company is, in itself, an improper arrangement.