CFPB’s Move to Rescind Rule 1033 Creates Uncertainty in Open Banking

Apparently, the days of Rule 1033 are numbered. In fact, as of Sunday (May 25) they might be down to four, as the Consumer Financial Protection Bureau’s (CFPB) general counsel indicated late Friday that it will petition a U.S. District Court in Kentucky on May 30 to have the rule rescinded.

The action took place as part of a status report from the bureau in its defense regarding a lawsuit filed against it and acting Chairman Russell Vought by several banks and the Bank Policy Institute (BPI). BPI and co-plaintiffs argued that the CFPB lacks the authority to mandate free, comprehensive data-sharing and that the rule risks undermining safer, emerging private-sector open banking efforts. They also raised concerns about the rule’s potential to increase fraud and scams, fail to hold third parties accountable, and allow third parties to profit from systems built by banks.

“After reviewing the rule and considering the issues that this case presents, Bureau leadership has determined that the rule is unlawful and should be set aside,” the CFPB stated in a court document released late Friday. “To that end defendants intend to file a motion for summary judgment by May 30th, 2025, the date that this court had set for plaintiffs in its March 27th order.”

As has been the case with the bureau’s recent announcements, including the recession of the BNPL/Credit Card rule, details were scarce, and reactions muted due to the holiday weekend. The industry will now spend the week identifying and scenario planning for life without the rule, which was enacted in October 2024 and went into phased enforcement in January.

Reaction did come quickly and predictably from the two trade associations that have been at odds over the rule and its implications. Both are important if the hearing at which the CFPB will give up the rule is consequential enough to warrant an appeal.

“The CFPB has taken the appropriate step of acknowledging Section 1033’s clear legal deficiencies, and we urge the big tech companies to do the same, rather than protracting a legal dispute that endangers consumer financial data,” read a statement from the Bank Policy Institute. “Banks have already made it possible for hundreds of millions of Americans to safely access and share their data — the current rule undermines and disrupts that ecosystem to the benefit of tech companies looking to profit even further from consumers’ data.”

FinTechs wanted the rule to stand because so many of the sector’s companies depend on data sharing as a foundation of their business model. “Vacating the 1033 rule is a handout to Wall Street banks, who are trying to limit competition and debank Americans from digital financial services,” said Penny Lee, president and CEO of the Financial Technology Association.

“Americans must have the right to control their financial lives, not the nation’s biggest banks. As an intervening party in the ongoing litigation, FTA will continue to defend open banking and Americans’ freedom to access the financial services they want to use. We remain committed to building a financial system that is inclusive, innovative, and centered on the needs of everyday Americans.”

Regardless of the fate of Rule 1033, open banking and its subset — pay by bank — have been progressing. Kathryn McCall, chief legal and compliance officer at open banking platform Trustly, told PYMNTS late last year, “When we talk about the data collection and use the rule, it allows companies and third parties like Trustly to collect and use data for payment solutions. We’re reassured that we’ll be able to collect and use the data … as long as we receive the proper authorization from the consumer.”

Life under the new rules, if it stayed in effect, she said, would look “very similar to our current authorizations and our current [user experience],” she said. “There will not be many changes, and we’re well-positioned to adapt to the new rule.”

But now, the new rule, as well as the regulatory authority of the entire CFPB, is in play. The recently passed budget reconciliation bill, H.R. 1, dubbed the “One Big Beautiful Bill Act,” contains provisions that would slash CFPB spending.

“We put a firm cap on the Consumer Financial Protection Bureau’s budget, setting its funding at no more than $249 million for 2025, with an annual adjustment for inflation going forward,” House Financial Services Committee Chairman Rep. French Hill, R-Ark., told the House Rules Committee before the committee approved a rule for floor debate of the measure.

According to legal firm Ballard Spahr, as of Sept 30, the CFPB had incurred about $755.1 million in FY24 spending. About $480 million was spent on employee compensation and benefits for the 1,755 bureau employees on board at the end of the quarter. The Federal Reserve Board funds the CFPB from the combined earnings of the Federal Reserve System. The agency may draw 12% of the Fed’s 2009 operating budget.

The Trump administration has proposed eliminating more than 1,400 employees at the agency, leaving about 200 workers. That plan has temporarily been blocked by the Court of Appeals for the District of Columbia Circuit.