Consumer Financial Protection Around the World

The Filene Research Institute’s recent research titled “Consumer Financial Protection: U.S. Proposals and International Experience” describes the experiences of credit unions around the world that operate under similar consumer protection schemes that the U.S. has recently created.

The U.S. Congress has created a watchdog Consumer Protection Bureau that will oversee and regulate financial products available to consumers. By creating a new consumer financial protection body, Congress has separated the historical powers of most financial regulators, including the National Credit Union Administration, and created a “twin peaks” model wherein one agency oversees institutions’ prudential compliance (safety and soundness) and another regulates their interactions with consumers.

The Filene Research Institute strives to illuminate credit unions’ changing regulatory landscape, and our recent research titled Consumer Financial Protection: U.S. Proposals and International Experience describes the experiences of credit unions around the world that operate under similar consumer protection schemes. Their experiences will not be identical to ours, but they can help us know what to expect.

Credit unions in Ireland, Canada and Australia have already lived through changes in country-specific consumer financial protection. Therefore, we looked at the consumer financial protection rules and their implications for these three English-speaking countries. They each have credit unions that operate in consumer and regulatory systems analogous to those of the United States. They also offer the convenience of hard data to illuminate the effects of a formal consumer financial protection scheme on natural person credit unions.

So, what did Filene find?

  • As with any regulatory change, the CFPB will entail changes and probably some costs for credit unions. The laws that institutions are subject to will not change significantly; they will be interpreted by the new organization.  The NCUA will enforce those rules for all credit unions smaller than $10 billion in assets. Though most credit unions will be exempt from regular financial protection compliance examinations, they will still have to report compliance data to the CFPB.
  • Credit unions in Australia, Canada, and Ireland have not been significantly affected by dedicated consumer financial protection regulators. In some cases, credit unions’ demonstrated responsible track record has been used as a public relations tool.
  • In the countries surveyed, credit unions suffered far fewer complaints than other financial sectors.

What Are the Implications for Credit Unions?
Credit unions’ size and history of dealing responsibly with members have protected most of them from the heaviest burden of the new CFPB. Nevertheless, the new law entails new reporting requirements and an unknown level of compliance costs. Also, as large banks and financial institutions are compelled to offer more transparent services, credit unions may have an even tougher time differentiating their own products. But the CFPB silver lining is that responsible practices and strong member advocacy may lead to stronger goodwill and more data to demonstrate a credit union difference.

Ben Rogers is the research director of the Filene Research Institute, where he manages and edits a large pipeline of economic, behavioral, and policy research related to the consumer finance industry. He will be participating in a General Session Panel Perspective: “Post Crash – Who’s in Charge of the Financial System” at the 2010 Convention and Annual Business Meeting. To register or for more information visit the Washington Credit Union League Convention website  Learn more about Ben at  filene.org.