Today, October 19, 2023, the Consumer Financial Protection Bureau (CFPB) proposed a long-awaited rule that aims to accelerate the shift to open banking in the US.
The Personal Financial Data Rights rule proposal includes additional protections for consumers trying to access their financial data and forbids financial institutions from charging for access.
“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 proposal is the first to enact Section 1033 of the 2010 Consumer Financial Protection Act, a much-anticipated part of the Dodd-Frank Wall Street reform.
A move to improve Consumer Data Rights In the Finance Sector
The proposed rule enters a sector that typically makes switching between financial institutions difficult. If consumers are unhappy with the financial services they receive, they can face a number of challenges and fees to access the data needed to switch to other providers.
“Many consumer finance markets are structured in ways that don’t allow consumers to exercise their power,” said Chopra in prepared remarks following the rule’s announcement. “Financial firms have learned that they don’t need to provide great rates or customer service for a sustained period of time. Instead, they can attract customers with teaser rates, change them whenever they want, and make it bureaucratically difficult to switch.”
The rule moves to implement consumer rights over the sharing of their data, allowing users to allow the access of third parties to their financial information and cash flow data. This could create increased access to financial services and credit for consumers who are typically underserved.
By ensuring that consumers can have easy access to their own data, the rule aims to spark competition within the financial sector. With financial institutions unable to rely on their barriers to make customers “stick,” the hope is that a focus on innovation and the creation of better products will come into play.
The proposal also outlines safeguards against the misuse of consumer data, allowing consumers to revoke access to data as well as creating strict permissions surrounding financial data.
“Today’s rule is a win for consumers, who are one step closer to having a strong right to control their financial data,” said Penny Lee, President and Chief Executive Officer of the Financial Technology Association. “We look forward to the CFPB creating strong rules of the road that guarantee people’s right to use the digital financial tools they want, regardless of where they bank. The proposal builds on our industry’s progress and can provide assurances for continued consumer-friendly innovation.”
The proposal is now open for comments, which will be reviewed before the CFPB finalizes legislation by Fall 2024.
Fintech Nexus will be hosting a Twitter Spaces forum this afternoon, October 19, at 4 p.m. to discuss the proposal and the rule’s implications for the banking community.
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