The U.S. Consumer Financial Protection Bureau (CFPB) took a step in the direction of formalizing open banking regulation today. The agency proposed a rule that would shift the financial services industry toward open banking, giving consumers control over their financial data.
The rule proposed today marks the CFPB’s first proposal to implement Section 1033 of the Consumer Financial Protection Act. Under Section 1033, the CFPB is charged with implementing personal financial data sharing standards and protections.
For the 100 million consumers that have authorized a third party to access their account data, this is welcome news. The rule would require banks to share consumer data (with the consumer’s permission, of course) with third parties in order to promote competition. It would also prevent companies from misusing or wrongfully monetizing consumers’ personal financial data.
“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.”
The rule would also benefit the financial services industry as a whole by providing detailed technical standards on how consumer data sharing should work. The standards will contain safeguards to ensure industry standards are fair, open, and inclusive.
“Today, we’re celebrating a moment that our members – and millions of consumers across the country – have been waiting for: the CFPB’s release of its proposed rule creating a legally binding consumer financial data right,” said Financial Data and Technology Association Executive Director Steve Boms. “We strongly support the proposed rule, which will put consumers in full control of their financial data and empower them to choose the financial provider best suited to meet their unique needs. The proposed rule will create more competition and choice in the financial services marketplace, ultimately leading to better consumer outcomes.”
Not everyone in the industry sees the Section 1033 rule making proposal in a positive light, however. A handful of large incumbent institutions have long been of the opinion that their consumers’ financial data belongs to them and should not be shared with third parties. When banks offer third parties access to consumer data, they see it as losing out to competition.
The move comes two years after the CFPB first touched on the topic of open banking by issuing an advanced notice of proposed rule making to create formal regulation around open banking in the U.S. And while it is exciting to see the CFPB move in the direction of open banking, the formalization of rules around the topic becomes technical and complicated, given the range in size of the players involved. The agency is currently accepting comments on its proposal until December 29, 2023.
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