Welcome to The Free Toaster!
We’re dishing out a free newsletter for marketing pros at banks and lenders. Inspired by the free toasters banks used to hand out to each new customer, we’re here to help you acquire more customers at scale. We deliver fresh news, data, and insights to help you acquire more customers—minus the breadcrumbs.

The One Takeaway

The CFPB's final rule on open banking requires financial institutions to freely transfer consumer data upon request, now including payment apps—an addition from last year’s proposal. The rule aims to increase competition by enabling easier switching between banks, better rates, and enhanced credit access. It exempts financial institutions with less than $850 million in assets and phases in compliance from 2026 to 2030. While the CFPB emphasizes improved consumer control and privacy, banking trade groups criticize the rule for exceeding authority and lacking adequate security measures.

News

(10/22) The Consumer Financial Protection Bureau (CFPB) has finalized a rule to empower consumers with more control over their financial data. The rule will allow users to move personal financial information to other institutions for free, making it easier to switch banks and shop for better rates. This move aims to boost competition, lower loan prices, and improve services across the financial sector. It also strengthens privacy protections, ensuring third-party access is limited to consumer-approved purposes. Compliance will roll out gradually, starting in 2026 for larger firms. [CFPB] [American Banker] [Payments Dive]

(10/22) The UK’s Financial Conduct Authority (FCA) is cracking down on "finfluencers" who illegally promote financial products. They've started questioning 20 individuals and flagged 38 social media accounts for possibly illegal promotions. With many young people trusting finfluencer advice, the FCA warns that these influencers could be risking followers' finances and even their life savings. Influencers are urged to verify the legality of the products they promote to protect their audiences. (For readers less familiar with the UK market, the Financial Conduct Authority (FCA) is the regulator responsible for overseeing financial markets and ensuring consumer protection, similar to the SEC in the U.S.) [Fintech Finance News]

(10/18) TomoCredit’s "no credit score" card hit a rough patch after the company defaulted on its debt facility and faced legal action from Silicon Valley Bank (SVB). Court records reveal at least seven defaults by Tomo, including misuse of SVB's collateral to pay its expenses. After pivoting from its original card to a questionable "TomoBoost" credit builder product, the company continued marketing the charge card despite its apparent unavailability. Tomo eventually settled its $5 million debt to SVB in early 2024, but only after multiple lawsuits and controversy over its business practices. [Jason Mikula]

(10/18) Ally Financial reported earnings for Q3 2024.

• $9.4 billion of consumer auto origination volume from 3.6 million consumer auto applications.

• Retail auto originated yield of 10.54% with 43% of the volume within the highest credit quality tier.

• The company also saw strong growth in consumer EV originations, totaling $1.1 billion.

• 1.3 million active credit cardholders with a “balanced approach to growth.”

• Provision for credit losses increased $137 million year over year to $645 million, reflecting higher net charge-offs and a 15 bps increase in the retail auto reserve rate in the third quarter. [Ally]

(10/17) JPMorgan Chase and Capital One are leading the AI race among banks, according to Evident's AI Index for 2024, thanks to the rapid implementation of AI use cases and investments in AI talent. JPMorgan alone projects $2 billion in AI-driven gains, particularly in fraud prevention. Other banks, like Morgan Stanley and HSBC, are playing catch-up, but the gap might become insurmountable as the frontrunners see AI pay off in efficiency, productivity, and revenue. While the ranking gets mixed reviews, it underscores how AI deployment is becoming make-or-break for staying competitive in banking. [American Banker]

(10/17) The 2024 Global Banking Annual Review by McKinsey highlights that global banking saw its best two years since the 2007-09 financial crisis, generating $7 trillion in revenue and $1.1 trillion in net income in 2023. However, the sector still faces skepticism, with a low price-to-book ratio of 0.9, signaling concerns about sustainable value creation​. Despite higher interest rates boosting recent performance, banking remains the least valued sector globally, largely due to productivity challenges, regulatory costs, and competitive pressures from fintech and private credit players​​. The report suggests that achieving "escape velocity" will require better execution, AI integration, and strategic scaling in select areas​. [McKinsey]

(10/17) Executives from Santander Consumer USA, previously charged with predatory lending, resurfaced at Exeter Finance—another subprime auto lender facing similar complaints. Despite a landmark settlement with Santander in 2020, regulators in a dozen states have taken minimal action against Exeter, which employs many of the same executives. Exeter's controversial practice of offering multiple loan extensions continues to pile unexpected interest on borrowers, often leading to repossessions. While some states are investigating, enforcement remains weak, limited by resources and arbitration clauses that restrict borrowers' legal options. [ProPublica]

People

(10/16) Fintech Digital Marketing Agency Welcomes Lou Friedmann as Managing Director [NewMediaWire]

Interview of Interest (From the Archive)

This week, we dug up an older podcast, something we plan to do occasionally.

Today, the Consumer Financial Protection Bureau (CFPB) finalized its rule on open banking (Section 1033). In December 2023, David Nohe, founder and CEO of FinGoal, joined Kris Kovacs on the Fintech Combine podcast to discuss the rule.

David explained the proposed rule, which aims to reshape open banking by requiring financial institutions to share consumer data more freely. He described how this rule could change banking operations, particularly for credit unions and smaller institutions, emphasizing both risks and opportunities. The conversation covered how banks could use the influx of data to improve customer service, compete more effectively, and maintain compliance. David suggested that banks should leverage data aggregation to offer better rates and services, thereby converting indirect relationships into direct ones.

Key Topics and Quotes:

Open Banking

• David explained that open banking depends on consumers owning their own data: “The member's data belongs to them, even though it might be held inside various financial institutions.”

• This principle is central to Rule 1033, which mandates secure data sharing by banks.

Impact of Rule 1033 on Marketing

• The rule would enhance targeted marketing by making more consumer data available. David noted: “You get visibility to not just the account and routing number... You actually get line of sight into every account they have… any deposit accounts, any timed deposit accounts, the rates on them.”

• This transparency would enable banks to offer tailored products, like loans and savings accounts, potentially shifting consumer loyalty from larger institutions to smaller community banks.

Compliance and Competitive Edge

• David advised community banks to focus on compliance but also seize the opportunity to anticipate customer needs: “If data is moving, that’s opportunity. There will be winners and losers… I want to ask my team how my institution can be a winner in this new world?”

• Taking a proactive approach could turn regulatory costs into growth opportunities, boosting member engagement and increasing deposit conversions.

Defensive and Offensive Strategies

• On the defensive side, Rule 1033 would allow banks to monitor data flows to competitors. As David put it: “You will know… Sally Joe shared it to Rocket Mortgage on this date. And this was the data that was shared.”

• On the offensive side, banks could use aggregated data to convert indirect members into direct ones by offering competitive products based on real-time insights.

Implementation Timeline and Challenges

• While Rule 1033 is still in draft form, David recommended that credit unions integrate it into their strategic planning for 2024-2025, noting that full implementation could take up to four years depending on asset size: “It’s a draft rule right now… but I wouldn’t bet against it becoming law.”

The proposed rule could significantly impact bank and lender marketing strategies. By prioritizing data-driven personalization, banks can enhance customer relationships, boost conversions, and ultimately grow deposits.

Webinar of Interest

(10/18) Curinos, an analytics firm that works with 85 of the top 100 banks and credit unions, gave a webinar on Consumer Lending in Transition: The Impact of Falling Rates. It’s always good to get a perspective of what others are seeing, and a few things caught our eye:

When looking at 30-day or greater, dollar-weighted delinquency trends, they see “elevated risk” coming from consumer products. One caveat they mention is that this applies to all consumer products and not just unsecured loans.

For Curinos, the increase in consumer product delinquencies is primarily due to riskier credit profiles (relative to HELOC and HELoan products).

Unsecured Loans:
With wider credit boxes on the unsecured side, there is a larger distribution of lower credit scores, which explains the higher delinquency rates. Nearly a quarter of unsecured borrowers have credit scores below 700.

Home Equity Products:
They see delinquency rates declining for HELOCs and HELoans, and that’s been the case for the last four years. Over half of the borrowers with home equity products have credit scores above 780. This indicates a conservative approach by lenders, limiting risk and contributing to stable performance. “There’s a much lower credit risk tolerance versus the unsecured side.”

Be sure to listen in around the 39:00 minute mark to hear more.

They also raise the question of how credit quality will change if unemployment rises above 5%. Deterioration? normalziation? Recession? [Listen at the 41:06 mark]

They expand on whether rising delinquencies signify a true deterioration or just a return to normal levels after years of strong consumer credit performance. They highlight how recent labor data adds complexity, with surprising revisions suggesting either ongoing normalization or potential signs of a recession. They also emphasize the Fed’s data dependency and how volatility makes it harder to determine whether the economy is truly in decline or just adjusting to a new normal.

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