The Biden administration continued to crack down on financial institutions Thursday, proposing a new rule that would give Americans protections against companies misusing their data.
The proposed Personal Financial Data Rights rule, announced by the Consumer Financial Protection Bureau (CFPB), would ban financial institutions from hoarding a person’s data. It would also require companies to share data associated with credit card, checking, prepaid, or digital wallet accounts at the person’s direction to third parties, such as a new bank.
The CFPB said it will now take comments from the public and expects to finalize the new regulation this fall.
The proposed rule would make it easier for consumers to terminate their relationship with banks and transfer their transaction data to another financial institution. It would also prohibit companies that receive data from misusing or wrongfully monetizing such financial information.
The move is the latest in a series of efforts made by the CFPB and Congress to safeguard Americans’ personal finance data and improve competition in the consumer finance industry.
“With the right consumer protections in place, a shift toward open and decentralized 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.”
‘Much easier to switch’
Under the proposed Personal Financial Data Rights rule, banks and other providers would have to make personal financial data available, at no charge, to consumers through safe, secure, and reliable digital interfaces, the CFPB said.
Chopra added in a call with reporters: “The CFPB’s proposed rule would require that financial firms offering transaction accounts like checking accounts, prepaid cards, credit cards, digital wallets, that they give you access to your personal financial data so that you can share or transfer the data to another provider…This will make it much easier to switch, you won’t lose your transaction history which essentially serves as your life ledger. You won’t have to start over with a new firm that has less history with you and that is less likely to offer you better deals.”
Consumers would also have more rights to give or revoke access to their personal finance data.
Additionally, consumer authorization for a third party to access their data can only last up to one year, the CFPB said, with the potential for reauthorization by the consumer.
The measure would be a “move away” from risky data collection practices, the government watchdog said in a press statement. It would also strengthen protections to prevent unchecked surveillance or misuse of data. For instance, a bank would not be able to sell your data to a third party broker or fintech company.
Lastly, third parties would not be allowed to collect, use, or retain data to advance their own commercial gain or advertising. This aims to reduce the probability of being targeted for loans or high-fee products that may not be in your best interest, the CFPB said.
“One of the competition problems we see in the sector is it is often really daunting for a consumer to switch banks in part because it’s difficult to take their financial transaction history data to a new bank,” Lael Brainard, director of the National Economic Council of the United States said in the press call. “That’s why in his executive order on promoting competition, the president encouraged the CFPB to consider issuing rules to make it easier for consumers to take their financial data to a new financial services provider.”
Escaping junk fees
Since launching its Personal Financial Data Rights rule-making initiative in October 2022, the CFPB has made notable strides in strengthening consumer rights protections.
Last year, the CFPB launched a campaign to reduce exploitative junk fees charged by banks and financial companies. The government agency found that lowering or cutting overdraft fees would save households billions of dollars a year and encourage a fair and transparent marketplace.
Multiple banks have begun eliminating or reducing junk and non-sufficient fund fees, the CFPB said. The CFPB estimated that these changes would result in $5.5 billion in annual fee savings for consumers, while eliminating NSF fees would save $2 billion annually.
The Biden-Harris administration also announced new actions to crack down on junk fees on Oct. 11, with the Federal Trade Commission proposing a rule that would forbid businesses from charging hidden fees. In other words: requiring companies to show the full price up front.
The government watchdog also proposed a rule in February 2023 to reign in excessive credit card late fees. Companies currently charge customers as much as $41 for each missed payment, which costs Americans about $12 billion annually.
If successful, the rule would lower the provision for late fees to $8, eliminate an automatic annual inflation-fee adjustment, and ban late fee amounts above 25% of the required minimum payment.