U.S. banks will now have to offer customers access to their financial data after the highest consumer regulator approved a long-awaited rule intended to extend competition in financial services and products.
Under the Consumer Financial Protection Bureau's open banking effort, consumers can request, download and transfer their coveted data to a different lender or financial service provider without cost. The rule is meant to make it easier for consumers to buy around for higher rates of interest and switch providers, which in turn will help lower loan prices and improve services by promoting competition, CFPB Director Rohit Chopra said in an announcement on Tuesday.
“Too many Americans are stuck in financial products with lousy prices and poor service,” Chopra said. “Today’s action will give people more options to get better interest rates and services on bank accounts, credit cards and more.”
Even if consumers take no motion, they may still profit as lenders proactively offer them higher services or rates of interest to forestall consumers from defecting, Chopra said in a separate interview with Bloomberg News. The rule could also push lenders to think about other, newly available data in consumer credit applications, he added.
The measure effectively breaks banks' control over key data from savings patterns and checking account details to rent payment history – an approach that Chopra said some firms have made switching difficult to spice up profits. The effort dates back to the financial crisis, when Congress passed the Dodd-Frank Act, whose Section 1033 gave consumers the precise to access their financial data. A primary proposal was published last 12 months.
Banks and credit unions with assets of greater than $850 million must comply with the rule. The largest institutions have until April 2026 to comply, while smaller institutions have until April 2030. According to the CFPB, non-custodial firms of all sizes must also comply.
Fintechs profit
Fintechs like Venmo and PayPal Holdings Inc.'s Betterment LLC stand to profit from a more connected ecosystem of consumer financial data. Consumer advocates and the fintech lobby have long called for regulators to make it easier for people to fireplace a financial service provider that doesn't satisfactorily meet their credit needs – whether on account of discrimination, one other unfair, fraudulent, abusive act or practice, or just worse Service to extend competition.
Plaid, which connects consumers' bank accounts with fintech apps and services, said the rule puts consumers on top of things.
“This rule will ensure more people have safe and reliable access to their financial information and accelerate innovation that benefits consumers,” John Pitts, global head of policy at Plaid, said in an announcement.
But Wall Street industry groups have argued, amongst other things, that the CFPB rule could expose them to liability if a 3rd party is compromised. The regulation requires banks to establish and maintain interfaces that allow third parties to access their data with the buyer's consent. A spokeswoman for the biggest US bank, JPMorgan Chase & Co., described the measure as “anything but” protected.
“This is not open banking — there is scope for more fraud and scams,” JPMorgan spokeswoman Trish Wexler said in an emailed statement. “By requiring banks to share sensitive customer account information with third parties who have persuaded someone to click “I accept” of their app, this rule limits banks’ ability to require high standards of security from third parties.”
Privacy concerns
Chopra said the rule introduces strict privacy protections. Any company authorized by a consumer to access their data may only use that data to offer services or products that the buyer has requested, he said while speaking at a conference on Tuesday.
“It’s pretty simple,” Chopra said. “A business that collects consumer data may use the data to provide the product or service the consumer desires, but not for purposes that the consumer does not desire.”
Many firms – each banks and fintechs – have already signed data sharing agreements to finish the less secure option of “screen scraping,” wherein consumers share their usernames and passwords with third parties. This rule also strengthens protections by accelerating the move away from this practice – which Chopra said risks inaccurate data sharing and credential proliferation.
An additional profit could arise for small business owners or freelancers who can use their existing data as verification to access financial products or capital, Chopra said within the interview.
“The way this could work may not be clear to consumers, but it could just be the boost that I think will help a lot of people on the margins,” he said.
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