Study: 70% of Consumers Lack Knowledge of Financial Rights

Fewer than one-third of American consumers have a passable understanding of their financial rights, according to a new study from FICO.

In a comprehensive survey of U.S. bank customers, the analytics company found only 30 percent of those quizzed about their financial rights earned a passing grade, with only 1 percent achieving an A (with 92 percent of responses correct).

Out of the remaining number who passed, 3 percent earned a B grade (83 percent correct), 12 percent got a C (75 percent correct), and 14 percent got a D (67 percent correct).

Of all the topics included in the 12-question survey, the questions that stumped the most respondents largely revolved around credit reporting. For example, 81 percent of consumers quizzed thought a credit reporting agency (CRA) did not need written consent to provide their credit report to their employer, and 78 percent weren't aware that consumer information agencies can report negative information that is more than three years old.

Meanwhile, a full three-quarters did not know that their credit rating is protected by the government in the event of a credit-related dispute.

As a whole, FICO found younger consumers were generally less informed about their credit rights than older generations. According to the survey results, only 48 percent of millennials (age 25–34) could answer even half of the questions, while 57 percent of Generation X (35–50) and 62 percent of people over the age of 50 could achieve the same result.

FICO says banks should take notice of the survey results, as consumers who fared better on the test also tended to say they were more satisfied and engaged with their banks: The respondents who were most satisfied answered 47 percent of questions correctly on average, while those who were the most engaged answered 50 percent right.

On the other hand, unengaged customers were correct on only 42 percent of the questions, while unsatisfied consumers were right on 40 percent.

"The study showed a correlation between financial literacy and better customer engagement, more use of bank services and decreased likelihood to switch banks," said Anthony Sprauve, senior consumer credit specialist at FICO. "Educating consumers, especially Millennials, about their financial rights makes good business sense. Basic financial literacy equips consumers with the knowledge and confidence they need to make responsible financial decisions at all stages of their lives."