Rule 1033 Explained: How the CFPB’s Data Sharing Standards Could Reshape Banking

The Consumer Financial Protection Bureau’s finalized rule on data sharing has its share of supporters and detractors.

Those in favor of the new mandates — and as described by the CFPB itself — say the rule promotes competition among incumbent banks, levels the playing field between banking behemoths and smaller players, and gives consumers control of their own banking data.

Critics charge that complying with it all comes amid poorly defined parameters of liability, compressed timelines — and that the CFPB has overstepped its legal authority.

Many players within financial services may be left wondering what will change, and when.

Kathryn McCall, chief legal and compliance officer at open banking platform Trustly, told PYMNTS, “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, in other words, will 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.”

For other companies, there are some new limitations imposed by Section 1033 of the Dodd-Frank Act that govern the retention of data, which — given that they do not have the scale or operating history of Trustly — may hamper some newer entrants into open banking and pay by bank, in particular.

“This is going to create a new moat around our business,” McCall said.

The Timeline

Asked by PYMNTS about the implementation timeframe for banks, which is staggered depending on the size of the banks (measured by assets), McCall said bigger banks already have APIs and thus can enable the required connectivity with third-party providers.

“We see a lot of opportunities for smaller financial institutions, especially credit unions and community banks,” she said. “The compliance deadline is something that smaller banks can seize to come to market first with data sharing portals. … There are a lot of tools, there’s a lot of partners, there’s a lot of data sharing FinTechs and other nonbanks that can help fill” any competitive gaps with larger financial institutions (FIs).

Data sharing can ease the transition of consumers seeking to open new accounts with smaller FIs, particularly with open banking, she said. Smaller FIs also have a competitive edge because they offer better rates on accounts than their larger competitors.

Trustly, for its part “stands ready, willing and able to partner with any smaller bank, any community bank, credit unions,” McCall said.

The Path Ahead

McCall predicted that the new rule will speed the transition to open banking in the United States.

“There are a few things that we’re encouraged by,” she said.

Banks will not be allowed to charge for data access, which helps third-party providers, and there are also no new liability shifts, so consumers can choose to share their data with third parties without the latter entity having to agree to indemnify the bank, she said. Banks also must share a working payment number for ACH purposes.

As to what Trustly’s disappointed with: There’s a rules-based approach to payment issues, McCall said, with less-than-well-defined use of tokens — and the CFPB may have “potential issues” under the Administrative Procedure Act that expose the agency to potential litigation that may wind up invalidating the rule.

Recurring billing use cases should also be exempt from the 12-month reauthorization requirement that creates a disparity between card-based payments (that do not require re-authorization) and pay by bank.

“If you set up a pay-by-bank method, you are going to have to reauthorize that every single year,” McCall said.

In the months ahead, Trustly will look to have a role within the still-coalescing standards-setting body to help ensure that “it’s not only the big banks and the big players’ voices that are being heard,” she said.

As McCall told PYMNTS: “We’re hoping that more symbiotic relationships can be established between FinTechs, nonbanks and smaller banks with more competition, which fosters more innovation. And for the consumers, well, they get more choice.”