CFPB Unleashes Open Banking Revolution with New Data Rule

The Consumer Financial Protection Bureau (CFPB) is making a bold move to ignite competition within the US banking and payments sector with the introduction of the long-awaited Personal Financial Data Rights rule, as outlined in Finextra news. This initiative breathes life into Section 1033 of the Dodd-Frank Act, a law enacted over a decade ago, aiming to enhance consumer choices by mandating financial service providers to share data with other companies in the ecosystem, all in the pursuit of offering more attractive products and services.

CFPB Director Rohit Chopra expressed optimism about the potential for open and decentralized banking to rev up competition, enhance financial products and services, and discourage excessive fees. He stated, «Today, we are proposing a rule to give consumers the power to walk away from bad service and choose the financial institutions that offer the best products and prices.»

Under this proposed rule, consumers gain the ability to share data concerning their use of various financial tools, including checking and prepaid accounts, credit cards, and digital wallets. This rule is designed to ensure that consumers can:

• Obtain their data without incurring unnecessary fees.
• Legally share their data as they see fit.
• Make the choice to switch away from subpar services.

The CFPB’s vision for the Personal Financial Data Rights rule includes robust protections against unwarranted data surveillance and misuse, meaningful consumer control, a shift away from risky data collection practices, and the establishment of fair industry standards. Implementation will be phased based on the size and capacity of financial institutions, with larger banks and fintech companies having a compliance window starting at six months and extending up to four years for smaller entities. Community banks and credit unions without digital interfaces with their customers are exempt from the rule’s requirements.

Furthermore, the CFPB intends to broaden the scope of the rule to encompass additional financial products and services in future iterations.

Comments on any aspect of this proposal, including suggestions for expanding coverage to other consumer financial products and services, are invited by the CFPB and must be submitted by December 29, 2023.

Chopra added, «Over time, I hope our work to activate this dormant authority, jumpstart competition, and promote decentralization in finance will help American families put billions of dollars in their pockets, while allowing small startups to go head-to-head with major market players.»

Industry leaders have welcomed the CFPB’s move. Penny Lee, president and CEO of the Financial Technology Association, emphasized the importance of guaranteeing consumers the right to use digital financial tools, irrespective of where they bank. She urged the CFPB to ensure that open banking implementation prevents anti-competitive behavior, safeguards consumer data privacy, and fosters innovation.

Steve Boms, executive director of the Financial Data and Technology Association (FDATA), celebrated the release of the proposed rule, highlighting its potential to give consumers control over their financial data and foster competition and choice in the financial services marketplace.

The CFPB has previously outlined its goal to finalize open banking rules by 2024 and issued warnings against large firms attempting to control open banking standards. This groundbreaking proposal marks a significant step toward reshaping the future of banking in the United States.