Open banking is a growing trend in the financial industry, which I’ve discussed a few times before here.
The idea is to promote data sharing between banks and third-party providers. And, a new ruling from the Consumer Financial Protection Bureau (CFPB) has significant implications on this front.
The CFPB recently released their final ruling on Section 1033 of the Dodd-Frank Act, also known as the “Right to Access” rule. This rule requires financial institutions to provide consumers with access to their own financial data in a secure and electronic format. By giving consumers control over their financial data, this rule aims to increase competition and innovation in the market.
What is Section 1033 of the Dodd-Frank Act?
Before getting into the thick of it, let’s start with a little background.
Section 1033 of the Dodd-Frank Act was established in response to concerns about data privacy and consumer rights. It states that individuals have the right to access their financial information held by financial institutions, such as banks, credit card companies, and lenders. This includes account balances, transaction history, fees, and other relevant data.
The purpose of the legislation is to promote transparency and give consumers more control over their own financial data. Prior to this, consumers often faced obstacles when trying to obtain their own financial information from their bank or other financial institution. Now, financial institutions are required to make this information available at the bank customer’s discretion.
What is the CFPB’s New Ruling?
In a nutshell, the ruling on Section 1033 affirms that consumers have the right to access their financial data held by financial institutions. This covers account balances, transaction history, and other relevant financial details.
The rule also mandates that this data must be shared in a secure, digital format to ensure both convenience and protection against unauthorized access.
The rule applies to “covered data providers.” This means any financial institutions subject to Regulation E, including banks, savings associations, and credit unions managing consumer asset accounts. It also applies to credit card issuers governed by Regulation Z, as well as “Any other person that controls or possesses information concerning a covered consumer financial product or service that the consumer obtained from that person.” For example, digital wallet providers.
Is There Any Pushback Against the New Rule?
Yes, there has been some pushback to this ruling. In fact, two bank trade associations wasted no time by filing a complaint against the CFPB on the same day the ruling was issued.
The plaintiffs cited several objections to the rule, including that the CFPB overstepped their authority, and that the rule imposes an unfair financial disadvantage on the data providers outlined above. They also allege that the rule outsources the authority to set compliance standards to private parties, which may open another can of legal worms.
At the present moment, it’s difficult to say how this legal challenge will pan out. Literally as I write this, we’ve gotten reports that the new acting director for the CFPB has just ordered staff to “cease all rulemaking, litigation, enforcement, and communications.” So, it’s possible that the ruling might be undone. But, if it is allowed to go forward, there might actually be some interesting developments that result.
Why Adopt This Ruling?
By codifying consumers’ rights to their own financial information, the 1033 rule aims to foster transparency and empower individuals to make more informed financial decisions. But, it will also encourage innovation by enabling third-party service providers to deliver personalized financial tools and services.
If the 1033 rule is ultimately implemented, it could have far-reaching implications for the financial industry. By increasing competition and encouraging innovation, we may see a rise in fintech companies offering innovative solutions for managing personal finances.
We may also see traditional banks partnering with fintech startups or developing their own digital tools to stay competitive in an increasingly tech-driven market. This could lead to a more diverse range of financial products and services available to consumers.
Consumers get more control and choice over their financial data, while businesses have the opportunity to develop new products and services that can improve people’s financial lives. In short: it’s a win-win.
As with most things related to financial regulation right now, we’re in “wait and see” mode. But, if the rule goes forward, it could open the door for some very interesting innovations in the banking space.
