The finalized 1033 rule: A threat to credit unions and military families (Tyfone, October 30, 2024)

​The Consumer Financial Protection Bureau recently finalized its 1033 rule, mandating that financial institutions provide consumers with greater access to their financial data, and allow them to share that data with third-party financial technology companies.
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While the rule is presented as a victory for consumer empowerment and financial innovation, it comes with a set of profound risks — particularly for credit unions, and more critically, for those serving the military community.

s the Defense Credit Union Council, we represent not-for-profit, member-owned credit unions that serve active-duty military personnel, veterans, and their families. Our institutions operate under a guiding principle of “people helping people,” with a unique focus on providing tailored financial services that meet the specific needs of military families. Unfortunately, the CFPB’s 1033 rule threatens this model, and the potential consequences for credit unions and the military families they serve are troubling.

Credit unions are some of the most trusted institutions in the financial sector, particularly for military families, who rely on us to safeguard their financial well-being. Service members face unique challenges — frequent relocations, deployments, and the complexities of transitioning to civilian life — which make financial stability even more critical.

The 1033 rule, mandating that credit unions provide third-party fintech firms with unrestricted access to members’ financial data, compromises the very foundation of trust we have built with our members. While credit unions are heavily regulated and must adhere to stringent security standards, many third-party fintech firms operate under far less rigorous oversight.

By allowing these companies access to sensitive financial data, the 1033 rule opens the door to potential data breaches and fraud, exposing service members and their families to heightened financial risks.

For military families, who may already face additional stress due to the demands of military life, the impact of a financial data breach can be devastating. The potential for identity theft or financial fraud isn’t just an inconvenience; it could delay access to pay, affect housing stability, or even compromise military readiness. Credit unions are trusted to protect against these risks, and the 1033 rule undermines that trust by forcing us to share sensitive member data with entities that may not uphold the same security standards.

Credit unions are unique in their cooperative structure — members are not just customers; they are owners. This model ensures that credit unions operate in the best interests of their members, offering lower fees, better interest rates, and financial products tailored to their needs. The imposition of the 1033 rule fundamentally alters the relationship between credit unions and their members by handing over control of sensitive financial information to third-party companies, often without a full understanding of the potential risks involved.

For military members who trust their credit unions to safeguard both their financial data and their financial future, the 1033 rule creates uncertainty. Many service members may not fully grasp the implications of sharing their financial information with third parties, especially those who may be more focused on profit than on member well-being. As a result, military families may unknowingly expose themselves to predatory practices, high fees, or fraudulent activities.

In this way, the 1033 rule effectively erodes the cooperative values that credit unions represent, undermining the trust we have built with our members over decades of service. Service members join credit unions because they know that we prioritize their financial security, and the 1033 rule threatens to disrupt that bond.

The operational and compliance burdens imposed by the 1033 rule also pose significant challenges for credit unions, particularly smaller institutions that lack the resources of large commercial banks. Implementing the technology and infrastructure necessary to securely share data with third-party fintech firms is an expensive and complex undertaking. For defense credit unions, many of which are smaller, community-based institutions, these costs could divert resources away from the services that matter most to military families.

For example, credit unions currently offer robust financial readiness programs tailored to military personnel, helping them navigate the challenges of deployment, relocation, and transition to civilian life. These programs are often provided at little or no cost to members because of the efficiency and member-focused structure of credit unions. However, the additional expenses associated with complying with the 1033 rule could force credit unions to scale back or eliminate these critical services.

In short, the rule creates a regulatory burden that disproportionately affects credit unions — institutions that have proven time and again their commitment to serving underserved and vulnerable communities, including military families. By imposing these costs, the 1033 rule undermines our ability to continue fulfilling our mission.

Perhaps most troubling is the fact that the 1033 rule appears to be a solution in search of a problem, at least for military members and their families. While some consumers may demand greater control over their financial data and the ability to share it with fintech companies, this is not a priority for most credit union members, particularly those in the military.

Service members value security, privacy, and trust above all else when it comes to their finances. The idea of freely sharing sensitive financial data with third parties is, for many, an unnecessary risk that offers little tangible benefit. Credit unions already provide tailored, low-cost financial services to military families, without the need for the kind of data portability envisioned by the 1033 rule.

Instead of catering to the interests of a few fintech companies, the CFPB should recognize the unique needs of military families and the credit unions that serve them. We urge the CFPB to reconsider the impact of this rule on not-for-profit financial cooperatives and the members they serve.

At the Defense Credit Union Council, our top priority is the financial security and well-being of military families. The finalized 1033 rule jeopardizes that mission by imposing unnecessary risks, eroding member trust, and burdening credit unions with costly compliance requirements.

We stand ready to work with policymakers to ensure that the interests of military families are protected, and we will continue to oppose any measures that threaten the ability of credit unions to serve their members effectively.

The Defense Credit Union Council bills itself as the trusted resource for credit unions on all military and veteran matters.