By Michael Fryzel
The recent criticism by the CFPB of credit unions using credit reporting agencies to screen for checking accounts, along with the press reports on the potential impact of Walmart’s GoBank account program on credit unions, clearly highlights the two major issues credit unions now face—regulation and competition.
The onslaught of new, additional regulations that began with the financial crisis of 2008 continues today. Many feel regulators have gone beyond putting in place the safeguards that are needed to prevent a reoccurrence of the problems encountered and as a result are now hampering the operation and growth of the financial sector.
The CFPB has promulgated more regulations in a shorter period of time than any federal agency in the history of government, and indications are they are just getting started. Add to that what other regulatory agencies have done and you have a situation where dealing with compliance takes more time than actually running a business.
Now you have the CFPB telling credit unions how to determine whether or not someone should have a checking account. What happened to the belief that such decisions are best left to management? The CFPB is not the one that must answer to and be held accountable by the members of the credit union. It only makes sense then that the criteria used by a credit union to weigh risk and the potential for loss, should not be determined by a regulator who believes everyone should have a checking account regardless of their financial history. That view is reminiscent of the government’s once-held belief that everyone must own their own home. We all saw where that went.
Credit unions have always had to deal with competition from other financial service providers. The products that credit unions offer are readily available at banks, consumer credit lenders, payday loan stores, money transmitters and check cashers. In addition, retailers have used every means possible within the law to provide as many of those products as they can.
The Question Now
So while dealing with competition is not new, it has become more intense. The Walmart’s have deep pockets, outstanding marketing consultants, competent legal advice and will stop at nothing to expand and promote their financial products to consumers hungry for a better deal. They also have the advantage of attracting customers into their establishments to purchase items of need and then once there, sign them into their financial network.
The question now becomes how do credit unions survive the one two punch of regulation and competition and live to fight another day?
If you believe that by reading on it will tell you how, you are mistaken. The answers need to be provided by you, the people who are the backbone of the credit union industry.
I have always believed and stated that you have the experience, knowledge and ability to meet any challenge. Each and every one of you must accept the challenges you face and deal with them head on. You all have ideas and you need to develop them and put them to work. I am convinced that when you do you will have met and conquered the double-punch challenge.
Michael E. Fryzel is an attorney and advisor to the financial services industry with offices in Chicago, Illinois. He is a past Chairman and Board Member of the National Credit Union Administration. He can be reached at firstname.lastname@example.org.