The Bank Policy Institute and the Kentucky Bankers Association have initiated a lawsuit against the Consumer Financial Protection Bureau (CFPB), alleging that the agency exceeded its authority with the introduction of new open banking regulations.
Just yesterday, the CFPB announced final rules that empower consumers to direct their banks to share their financial data with other financial institutions. According to the CFPB, these regulations are designed to facilitate easier transitions for consumers to providers offering better rates and services, potentially lowering loan costs and enhancing customer service across the banking sector.
Greg Baer, President & CEO of the BPI, elaborated on the lawsuit’s motivations: “BPI supports a competitive marketplace where consumers maintain control over their personal financial data while ensuring its protection. However, the CFPB has issued a rule that handles sensitive financial data as carelessly as it would a consumer’s web browsing history. If this ruling goes unchallenged, technology firms, many of which lack sufficient oversight, will gain access to highly sensitive information, such as account balances and spending habits. Banks hold the responsibility to safeguard their customers and data, and this rule undermines those duties, putting consumers at risk.”
The CFPB asserts that under these new provisions, third parties can only collect, use, or retain data for the specific purposes requested by the consumer. They are prohibited from utilizing that data for unrelated business activities, such as offering loans based on consumer data for targeted advertising.
However, the BPI and KBA contend that the final rule places the entire burden of consumer protection on banks, while the CFPB does not take responsibility for monitoring or supervising the entities that receive this data. They warn that mandating data sharing without requiring adequate protections from third parties could weaken existing consumer protection laws.
Ballard W. Cassady, Jr., President & CEO of the Kentucky Bankers Association, stated: “The CFPB’s 1033 rulemaking threatens the safety and soundness of our banking system and fails to safeguard consumer data. We are challenging the CFPB to ensure that banks can continue to protect their consumers and uphold the integrity of the financial system in a secure manner.”
The CFPB is currently facing multiple challenges from various industry associations regarding its rulemaking authority. Earlier this week, the Fintech Association filed a lawsuit contesting the agency’s new buy now, pay later rules. Additionally, JPMorgan is contemplating legal action concerning an ongoing investigation into the misuse of Zelle payment services by scammers.