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The Consumer Financial Protection Bureau (CFPB) has introduced its much-anticipated open banking rule, a significant step towards fostering competition in the US banking and payments sector.
The proposed rule, named the Personal Financial Data Rights rule, reactivates Section 1033 of the Dodd-Frank Act, a provision enacted by Congress over a decade ago. It mandates that consumer financial service providers share data, at the user’s discretion, with other ecosystem companies offering more attractive products and services.
Director of the CFPB, Rohit Chopra, noted, “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 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, individuals would have the ability to share data related to their usage of checking and prepaid accounts, credit cards, and digital wallets.
The CFPB outlines that the rule would provide consumers with the following: access to their data free of unnecessary fees, a legal right to share their data and the option to switch away from subpar service.
The proposed Personal Financial Data Rights rule is designed to protect the interests of both consumers and financial firms through:
- Robust safeguards to prevent unchecked data surveillance and misuse.
- Giving consumers meaningful control over their data.
- Shifting away from risky data collection practices.
- Promoting fair industry standard-setting.
The rule would be implemented in phases based on an institution’s size and capacity. The largest banks and fintechs would need to comply within six months, while smaller companies would have up to four years. Smaller community banks and credit unions without digital customer interfaces would be exempt from the rule’s requirements.
The CFPB has expressed its intention to expand the rule to cover additional financial products and services in future regulations.
The CFPB is inviting comments on all aspects of this proposal, including the potential inclusion of other consumer financial products and services in subsequent rulemaking. Comments are welcome until December 29, 2023.
Chopra concluded, “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 compete with major market players.”
Penny Lee, President and CEO of the Financial Technology Association, expressed their anticipation for the CFPB to establish robust rules ensuring people’s right to use digital financial tools regardless of their bank. Lee believes the proposal will build upon the industry’s progress, ensuring continued consumer-friendly innovation. They also urge the CFPB to implement open banking in a way that prevents anti-competitive behavior, safeguards consumer data privacy, and fosters innovation.
Steve Boms, Executive Director of the Financial Data and Technology Association (FDATA), hailed the CFPB’s proposed rule, emphasizing that it empowers consumers to take full control of their financial data and choose providers best suited to their needs. This rule promises more competition and choice in the financial services marketplace, ultimately benefiting consumers.
Previously, the CFPB expressed its expectation to finalize open banking rules by 2024. Earlier this year, the CFPB cautioned against larger firms attempting to control open banking standards.
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