3 minutes
A Game-Changer for Credit Unions and Their Members
CFPB’s new data rights rule empowers consumers but poses challenges for credit unions. Discover key impacts, compliance strategies, and how this shift could reshape member experience and competition.
On October 22nd, the CFPB issued its final rule on personal financial data rights aimed at empowering consumers’ control over their financial data. This falls under the Consumer Financial Protection Act of 2010, specifically Section 1033. While institutions less than $850M in assets are exempt from this ruling, it may still have many indirect impacts on all institutions. Below are some key considerations and implications of the final rule.
One of the first impacts on credit unions to consider comes from a system, operations, and financial perspective. What will be necessary for credit unions to comply and how will it impact the different parts of their business? Credit unions rely on multiple platforms and systems to store and transmit data. Expansion of that may create additional burdens for credit unions in these areas. Partnership with key vendors and system providers will be essential in adherence to this rule. This means credit unions need to begin having conversations, if they have not already, with their core provider as well as other essential processing partners.
It will be interesting to see what impact this rule will have on the competitive advantage of data. While credit unions will continue to have valuable and actionable data available, that benefit could potentially be eroded because of this rule. If the flow of data and information becomes more commonplace, other organizations may be able to leverage that and benefit their business at the expense of credit unions. Credit unions should evaluate their current data practices to determine if they are maximizing those opportunities already.
The other important aspect of this rule is how it will impact new providers entering the financial services space. We have seen a major influx of new financial service providers enter the market recently. Many of those are fintech providers who often focus on singular services or target a niche audience. While the CFPB argues that more competition is better for consumers, does it further dilute the credit union industry with other providers and make it more challenging for credit unions to compete? If this rule further accelerates the infiltration of providers entering the space it will create an even more fragmented member experience and further erode the concept of primary financial institution. Credit unions have touted their ability to deepen relationships by providing services beyond a singular need. Expanded marketplace entrants would make this even more difficult. The other factor to consider with this phenomenon is the goal of new providers entering the space compared with established providers like credit unions. When newer entrants come into the market, many of them are likely to focus almost exclusively on growth and expansion at the expense of profitability. Credit unions must manage not only the ability to retain and grow their business but do so with sound financial performance and an adherence to major laws and regulations for which they are not exempt.
While there are challenges that this rule presents there also are opportunities for credit unions. This is a great opportunity for credit unions to reflect on the shift in consumer banking the last few years and examine the key priorities moving forward. This is a pivotal time to assess how your credit union will navigate through this in coming years, but also critically reflect on how your organization adapted to other trends in consumer expectations. This rule will certainly ignite some meaningful dialogue and create opportunities for credit unions to evaluate the member experience they cultivate and the products and services they provide to their members.
Doug Williams is VP of Product Development and Strategy for Envisant. He brings 20 years of experience in the area of financial services with a broad background that includes commercial credit analysis, consumer lending, executive leadership, as well as developing and formulating strategic plans. In his current role at Envisant, Doug is responsible for identifying, evaluating, and implementing new products and services across business units.
