Consumer Protection Watchdog Issues New Rule to Make Transfer of Personal Financial Data Free
Comments
Link successfully copied
A customer uses an ATM at a Wells Fargo Bank office in San Francisco on Feb. 7, 2019. (Justin Sullivan/Getty Images)
By Chase Smith
10/22/2024Updated: 10/22/2024

The Consumer Financial Protection Bureau (CFPB) has issued a final rule the agency says is aimed at providing consumers with greater control over their personal financial data, promoting competition within the financial services industry, and improving customer service.

Under the “open banking” rule, consumers will be able to transfer their financial data, such as bank account information and transaction histories, from one provider to another for free, the agency said in a press release.

This move is intended to make it easier for consumers to switch financial institutions or fintechs, allowing them to access better rates and services, and to hold providers accountable for their service quality.

Open banking, in simple terms, allows consumers to securely share their financial data with third-party services, such as budgeting apps or other banks, to access new or improved financial services.

According to Investopedia, open banking fosters competition and innovation, driving better services and lower costs for consumers by breaking down data barriers between institutions. Similarly, Mastercard explains that it empowers consumers to control and benefit from their own financial data, such as easily switching banks or managing their finances through apps

The rule is the CFPB’s effort to implement Section 1033 of the Consumer Financial Protection Act, a provision passed by Congress in 2010 as part of the Dodd-Frank Act but largely dormant until now, the agency said in a press release.

By allowing consumers to access and share their financial data across providers, the CFPB said it aims to reduce costs associated with financial products, particularly loans, while driving competition that will force financial institutions to improve customer service.

“Too many Americans are stuck in financial products with lousy rates and service,“ said CFPB Director Rohit Chopra. ”Today’s action will give people more power to get better rates and service on bank accounts, credit cards, and more.”

Some stakeholders in the financial industry have criticized the new rule.

The Consumer Bankers Association (CBA) expressed strong opposition, particularly to what it calls an overreach of the CFPB’s authority.

“CBA fully supports consumers having access to their own personal financial information, as required under Section 1033 of the Dodd-Frank Act,” CBA President and CEO Lindsey Johnson said in a statement.

“The CFPB, though, has contorted this very clear and limited statute into enabling thousands of third parties to access consumers’ data. In doing so, the CFPB far exceeds its statutory authority.”

Johnson went on to dispute the CFPB’s rationale for the rule, arguing that the consumer credit card and deposit account markets are already highly competitive and that the CFPB is mischaracterizing the need for further intervention.

“Many CBA members support an open-banking framework. Nevertheless, even if the Bureau has the statutory authority to utilize this rulemaking to introduce an open banking framework, this final rule severely misses the mark as it failed to incorporate much of the critical feedback provided by industry through the comment period,” Johnson added, noting that the rule does not reflect practical realities of the marketplace.

Rob Nichols, president and CEO of the American Bankers Association (ABA), acknowledged that the rule enhances consumer access to their financial data, but also raised concerns about its scope and implementation.

“As we have stressed throughout this rulemaking process, America’s banks firmly believe that customers own their own financial data, and no industry goes to greater lengths to protect that data than the banking sector,” Nichols said.

“Today’s long-awaited proposed rule brings us one step closer to achieving our common goal of enhancing consumers’ access to their financial data and allowing them to share it safely with companies of their own choosing, whether that sharing is from bank to bank, bank to fintech, or fintech to bank.”

Nichols added, however, “It is critical that the Bureau right-size the scope of the rule pertaining to the types of accounts involved and the information data providers are required to share, as well as addressing the question of liability if something goes wrong.”

The ABA said it is also “concerned with the significant implementation costs” for its members and wary of regulatory complexity, particularly in light of other ongoing efforts to amend the Fair Credit Reporting Act.

Beyond encouraging competition, the CFPB said the new rule introduces stronger privacy protections.

Financial institutions and third-party providers will be allowed to use consumer data only for the purposes explicitly authorized by the consumer.

The rule will establish procedures for consumers to revoke access to their data, and companies will be required to delete data upon the consumer’s request, ensuring that personal information is not misused, the agency added.

The rule is set to be implemented in phases, with larger institutions required to comply by April 2026 and smaller institutions by April 2030.

Share This Article:
Chase is an award-winning journalist. He covers national news for The Epoch Times and is based out of Tennessee. For news tips, send Chase an email at chase.smith@epochtimes.us or connect with him on X.

©2023-2024 California Insider All Rights Reserved. California Insider is a part of Epoch Media Group.