Legislative & Regulatory Update

​CFPB rule could redefine how credit unions operate and compete. Is this a victory for consumer choice or an existential threat? 

by John Alexander, Director of Legislative & Regulatory Affairs

How the CFPB’s New Data Rule Threatens the Future of Credit Unions
The Consumer Financial Protection Bureau (CFPB) has thrown a curveball at the financial world, unveiling a rule that could redefine how credit unions operate and compete. With the finalized Section 1033 rule, consumers are now more empowered than ever to control their financial data—at the expense of the institutions that have long safeguarded it. While the CFPB paints this as a step toward transparency and competition, credit unions across the country are bracing for the impact.

The rule forces financial institutions, including credit unions, to provide free access to consumers' personal financial data, which can be shared with third parties like fintech companies. What credit unions see as a threat to their very survival, the CFPB views as a victory for consumer choice. But with mounting costs, increased fraud risks, and heightened competition from tech-driven companies, credit unions are left questioning how they’ll navigate this new regulatory landscape.

What Changed?
At the heart of the rule is the requirement for financial institutions, including credit unions, to provide consumers with free access to their personal financial data. Consumers can also authorize third parties, such as fintech companies, to access this data. The goal is to make it easier for consumers to switch financial institutions or use various digital financial services without being tied down by existing providers.

This rule also establishes new standards for data security and data sharing. Institutions must now implement robust Application Programming Interfaces (APIs), ensuring data is transferred in a machine-readable format, securely, and without reliance on older methods like screen scraping. Importantly, financial institutions cannot charge fees for providing this data to either consumers or third-party apps, effectively commoditizing what has long been considered one of the most valuable assets of any bank or credit union—its data.

What’s New?
While the rule does exempt smaller credit unions—those with less than $850 million in assets—it applies to nearly all others. Compliance deadlines are staggered, with the largest institutions required to be compliant by April 2026 and smaller ones by April 2030.

The rule prohibits the use of consumer data for purposes like targeted advertising unless explicitly authorized by the consumer. Additionally, consumers must reauthorize third-party access to their data annually and retain the right to revoke access at any time.

Furthermore, fintech companies can now use consumer data to improve their services without requiring a separate authorization for each enhancement. This was a change from the initial proposal, reflecting feedback from the fintech industry that called for a more flexible framework.

The Impact on Credit Unions
The finalized rule places credit unions in a precarious position. Credit unions have long been trusted by their members to safeguard their financial information. By forcing them to share that data with third-party fintech companies—often free of charge—this rule undermines one of the key benefits that credit unions offer: personalized, secure, member-focused financial services.

Jim Nussle, President and CEO of America’s Credit Unions, captured the frustration and concern of the credit union community in a recent statement. He emphasized how this rule could devalue the hard-earned trust and data assets of credit unions, describing it as a move that turns valuable data into a commodity. His warning is clear: the additional burden of complying with these new regulations could push many credit unions to the brink of mergers or even closures.

The rule’s financial impact cannot be understated. Credit unions, especially those in the middle range of the asset spectrum, will now face hefty costs associated with developing, implementing, and maintaining APIs and other necessary infrastructure. As Nussle pointed out, the rule could increase risks related to fraud and liability while offering little opportunity to recoup these costs.

Perhaps most concerning is the potential for increased competition from large fintech companies, which, thanks to the rule, will now have easier access to the same data credit unions have relied on to build relationships with their members. These fintech companies, often operating without the same regulatory scrutiny or security standards, can now compete directly with credit unions for members’ attention and business.

A Step Toward More Mergers?
As Nussle alluded to, this regulation may accelerate the trend of mergers and consolidations within the credit union industry. Smaller and mid-sized credit unions, unable to bear the costs of complying with this rule or compete with larger institutions and fintechs, may be forced to merge. While the CFPB has attempted to address these concerns by exempting the smallest credit unions, the financial pressure on those that do fall under the rule's requirements could reshape the entire industry.

This scenario is particularly troubling for communities that rely on their local credit unions for personalized service and financial inclusivity. Mergers often mean that these institutions lose their unique community focus, becoming absorbed into larger, more impersonal entities.

A Call for Reform
Credit unions are calling for CFPB reform, accusing the agency of overstepping its congressional mandate. Nussle's statement argued that the CFPB has gone beyond the original intent of Section 1033 of the Dodd-Frank Act, transforming a simple directive about data portability into a massive regulatory overhaul that reshapes the competitive landscape of financial services. For credit unions, this rule not only increases operational burdens but also jeopardizes their core mission of providing safe, secure, and member-focused financial services.

The Road Ahead
While the CFPB hails this rule as a victory for consumer choice and competition, credit unions see it as an existential threat. With implementation deadlines looming, credit unions must now assess their ability to comply, invest in costly infrastructure upgrades, and prepare for an increasingly hostile competitive environment.
Ultimately, the CFPB’s Section 1033 rule leaves credit unions at a crossroads. They can either adapt and compete in this new landscape, facing increased costs and risks, or they can consolidate, merging with larger institutions to survive. For many, it’s a lose-lose proposition, where the most valuable assets—trust, service, and personalized member relationships—are sacrificed on the altar of open data.

Don't hesitate to contact me with any regulatory or advocacy questions.