For several months, Consumer Financial Protection Bureau (CFPB) Director Rohit Chopra has reiterated that the agency will issue a proposed rule to accelerate a shift toward Open Banking, promote competition, and further protect consumer data rights under Section 1033 of the Dodd-Frank Act.
“A key priority for the CFPB is to help accelerate the shift to open banking and payments in our increasingly digital world. Over time, this can help people get paid faster, access more attractive rates on deposits and loans, switch more easily, avoid intrusive surveillance, and minimize the consequences of inaccurate credit reporting,” explained Chopra during a conference in September.
Today, the CFPB officially proposed the new Personal Financial Data Rights Rule. We’ve summarized the new ruling, why it’s important, and its impacts on the Open Banking movement.
What is the Personal Data Rights Rule?
The Personal Data Rights Rule “forbids financial institutions from hoarding a person’s data and requiring companies to share data at the person’s direction with other companies offering better products.”
Under this rule, consumers can share the data associated with their checking, savings, prepaid accounts, credit cards, and digital wallets. This will allow consumers to access competing products and services without the worry that their data might be retained or used for commercial reasons the consumer did not consent to.
More specifically, the ruling includes:
- A cease on junk fees during data sharing: Banks and other financial institutions are required to make personal financial data available at no cost to consumers or third parties.
- A legal right to data-sharing: Consumers would have a right to grant third parties access to financial data associated with their accounts.
- A right to refuse bad service and a ruling against data hoarding: Consumers can shift their data from one provider to another without repercussions in the form of data hoarding or fees.
What Does the Rule Mean for Consumers?
Historically, American consumers have been met with limitations when trying to access better products for making payments, managing their finances, applying for loans, etc. These limitations are often due to a lack of interoperability or ‘junk fees’ that discourage consumers from using alternative financial services.
This ruling will protect consumer control of data and introduce a shift from risky data collection practices by preventing the surveillance and misuse of data by FIs for the sake of money-gorging or prevention of the use of new products. Instead, this ruling reiterates that FIs do not have authority over a consumer’s data and should limit themselves to the collection and use of data necessary to provide their products and services.
This freedom to use, share, and revoke their data at/from FIs and providers gives consumers new control in the country’s financial landscape. Instead of their data being used to benefit institutions, the power of financial data will now be in the hands of the consumers who rightfully own it.
What Does This Mean for Open Banking in the U.S.?
Trustly is committed to progress for Open Banking, or the ability for consumers to securely share financial information from their bank accounts. The CFPB rulemaking helps remove obstacles to the Open Banking movement, like unnecessary data sharing fees, that undermine Open Banking innovation. The rulemaking also represents an essential step toward standardized data-sharing policies that foster competition. We are thrilled by this proposal and what it means for future progress in Open Banking and Open Finance.