Open Banking Rulemaking Set for this Fall: Five Issues to Watch

WASHINGTON, D.C. –  At the Philadelphia Federal Reserve Bank’s Seventh Annual Fintech Conference, Consumer Financial Protection Bureau (CFPB) Director Rohit Chopra reiterated that the Bureau will issue a proposed rule this fall to establish a personal financial data right for consumers. This proposal is the next step under Section 1033 of the Dodd-Frank Act to establish rules of the road for open banking and provide an immediate benefit to consumers so they can access fintech apps and services regardless of where they bank. 

What’s Happening

  • July 2021: President Biden issued an Executive Order on Promoting Competition in the American Economy, which called on the CFPB to commence rulemaking under Section 1033 of the Dodd-Frank Act to “facilitate the portability of consumer financial transaction data so consumers can more easily switch financial institutions and use new, innovative financial products.” 
  • November 2022: The CFPB kicked off the formal rulemaking in November 2022 and later released an outline of proposals for consideration as required under the Small Business Regulatory Enforcement Fairness Act (SBREFA). 
  • January 2023: The Financial Technology Association, along with other trade groups and consumer finance stakeholders, submitted a comment letter providing feedback on the outline.
  • March 2023: the CFPB released a report on results from the small business review panel, which is expected to serve as a basis for a proposed rule. 
  • This Fall: The public will have an opportunity to comment once the proposal is released, and the CFPB anticipates finalizing the rule in 2024.  

Why It Matters

Millions of Americans rely on fintech tools to manage their financial lives. These apps and services are powered by the ability of consumers to share their personal financial information. In fact, eight in ten Americans use a fintech app, and 75 percent say it’s essential to be able to connect their bank accounts to digital apps and services.

Yet, many of the ongoing innovations and financial benefits consumers enjoy today – from overdraft protections to loan servicing and fraud monitoring – could be undermined without clear rules of the road on open banking. Even worse, traditional providers have been known to slow down or outright block consumers from using the technology or apps of their choice absent strong consumer data rights.

The CFPB’s Section 1033 rulemaking will address these concerns by requiring financial services providers to make data available to their customers and help unlock greater consumer financial choice and opportunity. 

Five Issues to Watch in the 1033 Rule

The Financial Technology Association (FTA) supports the consumer-centric implementation of open banking and the 1033 rule to foster competition, choice, and innovation. Here are five key issues to monitor in the proposed rule. 

  • Establishing Strong Consumer Data Rights: An open banking rule will enshrine consumers’ right to safely control and connect their financial data with the apps and services they choose. Strong consumer data rights will help ensure that all consumers, regardless of where they bank, can take advantage of transparent, personalized, and lower-cost services. 
  • Preventing Anti-Competitive Behavior: Incumbent financial institutions have historically held consumers’ financial data captive to prevent them from switching to a different service provider or shopping for alternative products and services. The CFPB should monitor and prevent attempts to block the sharing of financial data, restrict data parity, and advance anti-competitive objectives.
  • Consumer Control and Data Privacy: Financial data is central to financial services innovation and should be used fairly, transparently, and securely. FTA members signed on to data privacy principles that reflect our values of promoting consumer trust. Companies across the ecosystem should be required to inform consumers about the information collected, how it will be used, and how consumers can disconnect their data when they finish using a product or service.
  • Responsible Timeline for Shift to APIs: Over the last few years, data platforms have worked with financial institutions of all sizes to move away from a process known as ‘screen scraping’ and instead share consumer-permissioned data through secure application programming interfaces (APIs). However, it is critical to preserve consumers’ ability to share their financial data with third-party digital tools. FTA has therefore encouraged the Bureau to embrace a responsible adoption and implementation timeline so consumers don’t lose access to the financial services they rely on, regardless of where they bank. 
  • Supervision of Data Aggregators: FTA believes the CFPB should supervise third-party data platforms according to its larger participant authority through rulemaking. Supervision can provide regulatory certainty to the industry, prevent costly and confusing compliance requirements, and ensure continued innovation. As such, the Bureau should set clear standards for companies providing data access to facilitate ongoing consumer benefits. 

What’s Next: The Open Finance Future

Regulators are currently focused on enabling open banking, which allows consumers to securely share and permission financial information from their bank accounts. FTA and other trade associations have called on the CFPB to expand the scope of the 1033 rule to include consumer data from accounts like brokerages, retirement funds, utility payments, payroll, and Social Security. This holistic approach, known as open finance, would give consumers a fuller picture of their financial lives. For example, in an open finance setting, consumers could access financial information like their payroll data in real-time, helping inform their investment options or qualify for a loan. Overall, open finance will usher in a new era of personalized offerings, price transparency, and increased access to financial services. 

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