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As open banking continues to evolve in the United States, it holds the promise of delivering personalized services and products to customers, thereby expanding financial access. This progress relies heavily on the collaborative efforts of traditional financial institutions (FIs) and third parties to harness consumer data and bring innovative solutions to the mass market.
However, as recent communications from banks to the Consumer Financial Protection Bureau (CFPB) indicate, the new rules governing the collection and use of consumer-level data introduce complexities that necessitate significant reconfigurations of technology and workflows. In light of these challenges, banking trade groups have requested additional time to prepare for these changes.
According to a letter sent to the CFPB by several banking associations, including the American Bankers Association, Bank Policy Institute, The Clearing House, and the Consumer Bankers Association, the stakeholders are seeking more time to comply with the upcoming regulations. The letter highlights the extensive adjustments that banks will need to implement to meet the new requirements.
The CFPB’s proposed rule aims to implement section 1033 of the Consumer Financial Protection Act of 2010 (CFPA). The rule mandates that both depository and non-depository entities make certain consumer transaction and account data available to consumers and authorized third parties. It also sets obligations for third parties accessing consumer data and establishes privacy protections for that data. The objective is to foster data consistency and standardize data access and sharing practices. Financial institutions, as data providers, must make consumer financial data available securely and free of charge to other enterprises through digital channels.
The banking associations argue that the final rule will necessitate complex and time-consuming changes to their systems and processes to ensure compliance. Among the numerous tasks outlined in the letter, banks will need to update their public-facing websites to meet the new public disclosure requirements, provide data in a standardized format, and support data elements not currently shared, such as bill payment data and certain terms and conditions. Additionally, they will need to upgrade their underlying technology infrastructure to meet API performance standards and adapt their data access agreements and third-party oversight processes.
Open banking fosters use cases such as account-to-account transfers and pay-by-bank services. Moreover, 65% of banks and credit unions have entered into at least one FinTech partnership in the past three years, with 76% of banks viewing FinTech partnerships as essential to meeting customer expectations.
The CFPB has faced additional pushback recently. For instance, buy now, pay later firms have requested an additional five months to comply with new regulations that classify them as credit card providers.
The ongoing discussions and requests for delays highlight the significant impact these regulations will have on the financial industry. As open banking continues to develop, balancing innovation with regulatory compliance will remain a critical challenge for financial institutions and regulatory bodies alike.
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