The Consumer Financial Protection Bureau (CFPB) has proposed its long-awaited open banking rule in the hopes of improving competition in the US banking and payments sector.
The proposed Personal Financial Data Rights rule activates the dormant Section 1033 of the Dodd-Frank Act, which was enacted by Congress more than a decade ago. This means consumer financial service providers are required to share data at the user’s direction with other companies in the ecosystem that offer more attractive products and services.
“With the right consumer protections in place, a shift toward open and decentralised banking can supercharge competition, improve financial products and services, and discourage junk fees,” said CFPB director Rohit Chopra. “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 the proposed Personal Financial Data Rights rule, people would be able to share data about their use of checking and prepaid accounts, credit cards, and digital wallets.
According to the CFPB, the proposed Personal Financial Data Rights rule would ensure that consumers:
- Get their data free of junk fees
- Have a legal right to share their data
- Can walk away from bad service
The CFPB further states the proposed Personal Financial Data Rights rule would protect the interests of both consumers and financial firms through:
- Robust protections to prevent unchecked surveillance and misuse of data
- Meaningful consumer control
- A move away from risky data collection practices
- Fair industry standard-setting
The requirements proposed would be implemented in phases based on size and capacity. The largest banks and fintechs compliance dates start at six months, and reach up to four years for smaller companies. Smaller community banks and credit unions that have no digital interface at all with their customers would be exempt from the rule’s requirements.
The CFPB stated its intention to cover additional products and services in future rulemaking.
The CFPB has invited comments on any aspect of this proposal, including on other consumer financial products and services that could be covered via subsequent rulemaking. Comments must be received on or before 29 December 2023.
Chopra concluded: “Over time, I hope our work to activate this dormant authority, jumpstart competition, and promote decentralisation in finance will help American families put billions of dollars in their pockets, while allowing small players startups to go head-to-head with major market players.”
Penny Lee, president and chief executive officer of the Financial Technology Association said: “We look forward to the CFPB creating strong rules of the road that guarantee people’s right to use the digital financial tools they want, regardless of where they bank. The proposal builds on our industry’s progress and can provide assurances for continued consumer-friendly innovation. Looking ahead, we urge the CFPB to implement open banking in a way that prevents anti-competitive behavior from incumbent financial institutions, safeguards consumer data privacy, and fosters innovation in the marketplace.”
Steve Boms, executive director of the Financial Data and Technology Association (FDATA), stated: “Today, we’re celebrating a moment that our members – and millions of consumers across the country – have been waiting for: the CFPB’s release of its proposed rule creating a legally binding consumer financial data right. We strongly support the proposed rule, which will put consumers in full control of their financial data and empower them to choose the financial provider best suited to meet their unique needs. The proposed rule will create more competition and choice in the financial services marketplace, ultimately leading to better consumer outcomes.”
The CFPB have previously stated they expect they would finalise open banking rules by 2024. Additionally, earlier this year the CFPB warned against large firms trying to control their open banking standards.