CFPB Eyes Open Banking Data Rules

The Consumer Financial Protection Bureau (CFPB) is facing legal challenges over its very structure and scope – and where it gets its funding.

But for now, at least, rulemaking (or something like that) continues, shaping consumer finance, competition, open banking, and data sharing.

CFPB Director Rohit Chopra delivered a speech Tuesday, October 25 at the Money 2020 conference in Las Vegas, outlining the way forward for the agency’s regulation of open banking in the United States.

Chopra laid out the steps involved. The CFPB will “initiate the process of activating a dormant authority under Section 1033 of the Consumer Financial Protection Act” (the legislation which in 2010 established the CFPB). This decision was widely expected, in April, and during testimony on Capitol Hill, Chopra said he would push for new regulations under the authority of this law.

Section 1033 requires providers of consumer financial services to provide consumers with access to certain financial information. Chopra warned that 1033 is “not explicitly an open banking or open finance rule,[but] will bring us closer. And it is thanks to the subsequent development of rules governing data sharing that the rights to personal data would have, according to Chopra, “bite”.

These are the mechanics of the process. The CFPB would gain authority, rulemaking would follow, data sharing would be standardized, and a “decentralized and neutral consumer financial market structure,” as described by Chopra, would foster healthier competition for bank accounts and consumer businesses.

But before we get to that, before issuing a rule proposal, the CFPB must convene a panel of small businesses to give their opinion on the agency’s proposals. Starting this week, the CFPB will publish a “discussion guide” for these small businesses.

Data portability = greater competition

Amid the push for open banking rules, Chopra said, the CFPB is taking a “new approach” to market regulation. This means moving away from established methods, such as screen scraping, which are neither secure nor sustainable, while establishing new mandates for data sharing.

With a new, more pro-competitive view of the market, he said requiring companies holding data to share authorized data with authorized third parties will lead to more consumer ‘shopping’ “because they have the power to leave and because they will have access to more suitable products and services. Switching becomes easier, and data portability ensures that, as Chopra put it, “consumers won’t have to start from scratch.”

There is precedent for data portability here, as noted by Chopra, and it is found in telecommunications. Consumers have long been able to move their numbers between carriers with minimal switching costs.

Chopra’s speech also presented some examples of improved financial services under open banking, once these data sharing practices are fully in place. Consumers who want to link their accounts to an app that helps with day-to-day budgeting to find a path to affordable credit could do so without having to provide third-party login credentials.

PYMNTS noted earlier this year that there is some willingness on the part of consumers to change their primary financial institution (FI), depending on the services and products offered, as well as the perceived level of data security. Thirty-five percent of these “potential changers” cited loyalty and reward program offerings, 32% mentioned account fraud protection, and 32% selected data security.

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