The CFPB's proposed data sharing rule: How banking insiders are reacting

April 15, 2024 5:30 AM

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In October of 2023, the Consumer Financial Protection Bureau finally released its proposed rule on Personal Financial Data Rights. It has taken more than a decade to see the light of day, but the proposal would reshape how consumers interact with their personal financial data.

Section 1033 of the Dodd-Frank Act — which requires financial institutions to provide consumers with electronic access to their banking account data — received little attention when President Obama signed it into law in July 2010 along with the rest of the sweeping bill. As Tom Brown, partner and general counsel at Nyca Partners, recently wrote in an American Banker BankThink column, the creation of the CFPB and the remaking of the mortgage industry overshadowed it. Comprehensive summaries of Dodd-Frank from major law firms and even Senate Democrats did not mention it. How the language even made it into law was mysterious. The consumer fintech industry, as it exists today, did not then exist. Products on which hundreds of millions of people now rely — including Venmo, Square Cash, Propel, Earnin and Chime — had yet to launch.

The implications of the long-anticipated proposal are profound, explains BankThink contributor and founder of Allon Advocacy Steve Boms: Enabling a financial services ecosystem based on consumer centricity has the potential to facilitate a more competitive and vibrant marketplace, he wrote in a recent column. While the initial response from all sides has been generally positive, some observers believe that to fully realize the transformative potential of the CFPB's proposed rule, the agency could, and should, do more.

As the CFPB reviews industry feedback and looks to shape the final regulation, some say that American consumers deserve more than the ability to delegate access to electronic data related to their deposit accounts, credit cards and electronic wallets. Some insiders suggest that while the current proposal has laid a good foundation, the CFPB should take its time to ensure the final rule is more expansive than the proposal.

Big banks have not alway been the biggest proponents of data sharing and open banking, fearing the likelihood of stiffer competition, writes BankThink contributor Rory Van Loo, a law professor at Boston University who was on the implementation team that set up the CFPB. He reminds us of the moment nearly a decade ago when, as digital technologies took off, JPMorgan Chase CEO Jamie Dimon warned shareholders: "Silicon Valley is coming."

Such fears may be unfounded. While long overdue, the proposed new rules would require banks to let consumers take their account data with them when they move their business to other institutions — known as data portability — and would also force banks to allow third-party digital access to accounts when customers request such access. But these changes may in fact be beneficial to banks.

Catch up on these perspectives on how the CFPB's proposed new rule on data sharing could impact the banking industry.

What consumers deserve from the CFPB’s rulemaking on data sharing

"The underlying foundation of the banking system is reliant on customers trusting that a bank will keep their money safe," writes Ravi Govindaraju, head of connected banking at Chase, in his latest column for American Banker. "Much like our vaults, our customers trust us to safeguard their most valuable possessions. And — our customers value their own data. They want their data to be secure and to control who they share it with and how it's used."

Govindaraju sees the Consumer Financial Protection Bureau's long-awaited proposed rulemaking on Personal Financial Data Rights as an opportunity to develop a clear framework to guide how banks, fintechs and data aggregators work together to create a secure data sharing ecosystem while protecting consumers.

Catch up on Govindaraju's views on the current "patchwork system" and the four key objectives he believes the industry should look for in a final framework, created using "thoughtful, well-calibrated regulation."

Read more:

The CFPB must take the opportunity to lead on consumer data security

Why the CFPB’s proposed rule on data sharing needs to go further

Steve Boms, founder of Allon Advocacy and executive director of the Financial Data and Technology Association of North America, believes the proposed CFPB rule on personal financial data rights is not merely a regulatory update.

"It is a visionary step toward creating a financial ecosystem that is inclusive, innovative and competitive," he wrote in a column for American Banker.

As Boms notes, it's no surprise that the CFPB's proposal has been met with support from consumer advocates, fintechs, financial institutions and both parties on Capitol Hill. But he states that the CFPB could do more to help build a future where financial services are deeply aligned with consumer needs in a vibrant and competitive marketplace, ensuring that the rights to personal financial data are not only recognized but also actively protected.

Read more:

The CFPB's Section 1033 rule is a good start, but could be much better

‘Golden opportunity’ awaits CFPB to empower auto loan shoppers

When it comes to household debt, car loans are tied with student loans for the second-highest debt item on the household balance sheet at $1.6 trillion out of a total of $17 trillion as of Q3 2023, according to the Federal Reserve Bank of New York. (Only mortgage loans, at $12.14 trillion, hold a larger share of household debt.)

Which begs the question Tom Oscherwitz, vice president of legal at Informed.IQ, asks in a recent piece for American Banker discussing the CFPB proposed new Personal Financial Data Rights rule: Why does it focus on open access requirements to savings and checking accounts, digital wallets and credit cards, but does not apply to auto loan documents?

"This omission is troubling because of all the major consumer lending products, consumers likely have the least knowledge of the contents of their auto loans," writes Oscherwitz. "Given the importance of auto loans to consumer wealth and financial health, consumers should have more control and understanding of the information underlying these debt instruments."

Read more:

The CFPB's data access requirements should apply to auto loans

How a ‘healthy level of fear’ about opening banking may help big banks

Competition is what keeps small-business owners up at night, makes them improve their services and offer lower prices, according to Rory Van Loo, a Boston University law professor who was on the implementation team that set up the Consumer Financial Protection Bureau.

Fear of competition has also been driving big banks in their desire to lock in customers by making it harder to access and transfer their financial data. "As a result, consumers pay tens of billions of dollars more each year," Van Loo writes in a recent column for American Banker. "Fortunately, the CFPB is finally taking steps to move us toward a world of open banking. Banks are scared, but maybe that's not such a bad thing."

Van Loo discusses how banks responded to the mandate on financial institutions to provide consumers with electronic access to their banking account data in Dodd-Frank, and why the proposed new CFPB rule on data portability and third-party digital access when requested by customers may in fact be beneficial to banks.

Read more:

Big banks are afraid of open banking. That's a good thing.

Restricted scope of proposed CFPB rule demands rethink

A rule implementing the mandate on data access in the 2010 Dodd-Frank Act has been a long time coming, but with the CFPB proposal somewhat constrained in scope, after waiting this long we can afford to wait a bit more for them to get the rule right, notes Tom Brown, partner and general counsel of Nyca Partners, in a column for American Banker.

"The proposed rule offers a solid foundation, yet its impact is limited," Brown writes. "The original statute's wording is expansive, requiring all consumer financial services firms to provide consumers with access to their data, except those explicitly exempted. However, the recent draft of the rule is restricted in scope, applying only to credit cards, checking accounts and digital wallets. To truly align with the statute's broad intent, the CFPB should consider broadening the rule's reach."

Brown discusses why it would be better for the CFPB to take its time to expand its current proposal and include more meaningful consumer data despite potential further delay.

Read more:

It's time to deliver on the promise of the CFPB's open banking rule