The Consumer Financial Protection Bureau (CFPB) has unveiled its long-anticipated open banking rule, aimed at enhancing competition within the U.S. banking and payments sectors.
The proposed Personal Financial Data Rights rule is designed to activate Section 1033 of the Dodd-Frank Act, which has remained dormant since its passage by Congress over a decade ago. This rule mandates that consumer financial service providers share data at the request of users with other businesses in the ecosystem that may offer more appealing products and services.
CFPB director Rohit Chopra emphasized, “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. Today, we are proposing a rule to empower consumers to leave poor services behind and select financial institutions that provide the best products and prices.”
Under this rule, individuals would have the ability to share information regarding their use of checking and prepaid accounts, credit cards, and digital wallets. The CFPB outlines key consumer rights included in the proposed rule, which would ensure that consumers:
– Receive their data free of junk fees
– Have a legal right to share their data
– Can discontinue services from inadequate providers
Moreover, the CFPB asserts that the proposed rule would safeguard both consumer and financial firm interests through:
– Strong measures to prevent unregulated surveillance and data misuse
– Genuine consumer control
– A shift away from risky data collection methods
– Establishing fair industry standards
Implementation of the proposed requirements would occur in phases, taking into account the size and capacity of the institutions involved. Larger banks and fintech firms would have compliance deadlines starting from six months, extending up to four years for smaller organizations. Notably, community banks and credit unions without any digital interaction with customers would be exempt from these requirements.
The CFPB also indicates that additional products and services may be included in future regulatory actions. The public is invited to comment on various aspects of this proposal, including the possibility of covering other consumer financial products and services in future rulemaking, with comments due by December 29, 2023.
Chopra further remarked, “Over time, I hope our efforts to activate this dormant authority, encourage competition, and foster decentralization in finance will help American families save billions while enabling smaller startups to compete with larger market entities.”
Penny Lee, President and CEO of the Financial Technology Association, expressed optimism about the CFPB’s move, stating, “We look forward to the CFPB creating robust guidelines that ensure individuals can use whichever digital financial tools they prefer, no matter their banking situation. This proposal represents a significant advancement for our industry and can ensure ongoing consumer-friendly innovation. Moving forward, we encourage the CFPB to implement open banking in a manner that prevents anti-competitive practices from established financial institutions, safeguards consumer data privacy, and supports market innovation.”
Steve Boms, Executive Director of the Financial Data and Technology Association (FDATA), remarked, “Today marks a pivotal moment for our members and millions of consumers nationwide with the CFPB’s proposed rule establishing a legally binding consumer financial data right. We fully endorse this proposal, which will empower consumers to have complete control over their financial data and select the financial providers that best meet their unique needs. This initiative is expected to promote competition and choice in the financial services marketplace, ultimately leading to better consumer outcomes.”
The CFPB has previously indicated plans to finalize its open banking rules by 2024. Earlier this year, the agency also warned against large firms seeking to dominate open banking standards.