CFPB Rule 1033 Will Hasten Shift to Open Banking in US

Back in October, the Consumer Financial Protection Bureau (CFPB) made public a new rule about data and data sharing. And it wasted no time signaling the intent behind it.

In a press release issued Oct. 19, the CFPB said Rule 1033 “would accelerate a shift toward open banking, where consumers would have control over data about their financial lives and would gain new protections against companies misusing their data.”

Kim Funari, vice president of regulatory compliance at i2c, agreed. She said the CFPB’s proposed rule on data handling and data rights will hasten the shift to open banking in the United States. As she told PYMNTSRule 1033 represents a move toward “consumer empowerment.”

“All companies will be using the same formats and the same security rules,” Funari said. “It’s really leveling the playing field across the financial institutions and across the industry.”

Section 1033 of the Consumer Financial Protection Act, part of Dodd-Frank, turns over the financial data owned by the consumer to the consumer to price check and weigh options, to take competitive bids from providers. At a high level, 1033 — beyond making data available to consumers and third parties — includes a mandate to standardize the formatting of that data.

The CFPB noted last year upon the announcement of the proposal that “there is a general lack of consistency across data providers in the terms and conditions for access, and the data formats used. This creates inefficiencies for market participants, as every connection between a third party and a data provider requires many detailed terms and conditions to be negotiated.”

Attempts to standardize or streamline negotiations through model agreements “generally have been undertaken only by certain segments of the market, limiting their effectiveness,” the CFPB said.

The Competitive Landscape Changes

The leveled playing field, said Funari, means that traditional financial institutions and larger banks will face competition that they have never historically had to face. Third parties are going to come into the market, with an eye on promoting good service and price-competitive options.

The innovation will be based on the data that is detailed by the CFPB rule — which Funari said builds on information that is already available to the consumer, including digital statements and transaction-level data.

Through open banking, we’ll see the presentation of bill-payer information, rewards and other information that may not be readily available today to the consumer. But that same data, she said, “will really give a complete picture of what that consumer product looks like.”

The Challenges

The implementation of 1033 will be tiered, with initial rollouts beginning with larger financial institutions, she said.

“These types of organizations typically will be challenged with years of legacy applications as well as acquisitions they’ve made along the way,” Funari said. “So, their streamlined data workflows are much more complicated in order to get that data into an endpoint that a consumer can receive it or they can authorize the third party.”

FinTechs and data aggregators are traditionally nimbler and quicker in grappling with technological challenges, Funari said.

“The biggest challenge is going to be around ensuring the protection of the consumer data,” she said. “And what is really left to be determined is really how this third-party authorization is going to work and be implemented.” 

She added issues will revolve around third-party authentication and making sure consumers can easily revoke authorizations to share data.

We’re likely to see collaboration and cooperation between financial institutions and digital upstarts, she said, as data shows patterns of consumer behavior, and infrastructure that’s built with APIs will allow companies to more seamlessly share consumer-level information.

“You’ll have multiple companies vying for the same consumer — and no longer will the incumbents have a leg up,” Funari told PYMNTS. “Everyone’s going to have to innovate at a much faster rate.”