The Office of the Superintendent of Financial Institutions (OSFI) announced last Friday (June 30) it would start applying the rules of the Bank Act to all non-bank financial service providers – including credit unions. Part of the ruling includes a provision to penalize financial institutions not federally regulated that use banker-speak. So, no more talk about banking at a credit union.
As you can imagine, this has created a bit of a stir amongst Canada’s 623 credit unions. Credit unions hold claim to over 3000 branches, thousands of employees, 10.1 million members and approximately $350 billion in assets in Canada, and are often the preferred alternative to the big 5 banks under federal regulation. Increased competitive pressure within the financial services sector and some recent bad press may have contributed to the Canadian Bankers Association lobbying the federal regulator. Whatever the reasoning, the change will certainly negatively impact net profits at credit unions that need to adjust signs, websites, brochures and all the other branding and promotional materials that have “banking” included in them.
While this is a less than positive move forward for liberal values and freedom of commerce in Canada, and it will negatively impact some credit unions in the short term, it nonetheless presents an opportunity for credit unions across the country. Credit Unions are NOT Banks (with a capital “B”), which is a good thing. And this ruling offers credit unions the chance to remind Canadians they are NOT banking, but something much better.
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In economic downturns or shrinking markets, credit unions and co-ops often survive and adjust much more locally than a traditional bank or business. In general, this is because credit unions are driven by local or regional interests, not centralized investor or sales driven entities, like big banks. Yes, credit unions aim to make a profit, like banks, but they are also designed to serve their local members’ interests.
During an economic downturn or within a shrinking market, ensuring the financial health of members is closely linked to the financial well-being of the credit union. And customizing mortgages or financial planning to suit a member’s unique situation is something credit unions do better than any other financial institution – especially banks.
So, while this ruling is unwarranted, perhaps costly to some of us credit union shareholders, and unnecessarily draconian, there is a bright side. Credit unions have a great opportunity to remind Canadians they’re not banks. They’re something much better.