CFPB Eyes Open Banking’s Data Rules and ‘New Regulatory Approach’

The Consumer Financial Protection Bureau (CFPB) is facing legal challenges to its very structure and its reach — and where it gets it funding.

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

CFPB Director Rohit Chopra delivered remarks Tuesday (Oct. 25) at the Money 2020 conference in Las Vegas, signaling the path forward for the agency’s regulation of open banking in the United States.

Chopra laid out the steps involved. The CFPB will “launch the process to activate a dormant authority under Section 1033 of the Consumer Financial Protection Act” (the legislation that in 2010 established the CFPB). The move has been widely expected, Back in April, and during testimony on Capitol Hill, Chopra said he would push for new regulation under that act’s authority.

Section 1033 requires consumer financial services providers to grant consumers access to certain financial information. Chopra cautioned that 1033 is “not explicitly an open banking or open finance rule,[but] will move us closer to it.” And it is through subsequent rulemaking governing data sharing that personal data rights would, in Chopra’s estimation, “have teeth.”

Those are the mechanics of the process. The CFPB would gain some more authority, rulemaking would follow, data sharing would be standardized, and a “decentralized and neutral consumer financial market structure,” as described by Chopra, would promote healthier competition for consumers’ bank accounts and business.

But before getting there, before issuing a proposed rule, the CFPB must convene a panel of small businesses to provide input on the agency’s proposals. As early as this week, the CFPB will be releasing a “discussion guide” for these smaller firms.

Data Portability = Greater Competition

Amid the push toward open banking rules, said Chopra, the CFPB is taking a “new approach” to market regulation. That includes moving away from incumbent methods, such as screen scraping, which are not secure or sustainable while establishing new mandates for data sharing.

With a new, more pro-competitive market view, he said that mandating that data holding companies must share permissioned data with authorized third parties will lead to more “shopping” by consumers “because they have the leverage to walk away and because they will have access to more tailored products and services.” Switching becomes easier and data portability ensures that, as Chopra put it, “consumers won’t have to start from scratch.”

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

Chopra’s speech also outlined a few examples of improved financial services under open banking, once those data sharing practices are fully in place. Consumers who want to link their accounts with an app that helps with daily budgeting to find a route to affordable credit would be able to do so without having to provide login credentials to third parties.

PYMNTS noted earlier this year that there’s some readiness on the part of consumers to switch their primary financial institutions (FIs), depending on the services and products on offer, as well as the perceived level of data security. Thirty-five percent of these “potential switchers” cited offerings of loyalty and reward programs, 32% mentioned account fraud protection and 32% selected data security.