CFPB Facing Lawsuits Over New Banking Rules As Financial Institutions Argue It Overstepped Its Authority

The Consumer Financial Protection Bureau (CFPB) recently introduced new open banking rules that would allow consumers the right to instruct their banks to transfer their financial data to other institutions at no extra charge. Now, the banks are pushing back against the decision, with The Bank Policy Institute and Kentucky Bankers Association filing lawsuits against the regulatory agency.

Banks Argue That CFPB Did Not Ensure Security Of Shared Information

The CFPB’s new rules have brought a lot of excitement to consumers who spotted numerous advantages and benefits that being able to own and control their own data would introduce. However, certain players in the financial industry have found issues with the changes that the regulator wants to implement

When the CFPB released final rules that empowered the consumers, it said that the ruling would help them switch to providers with superior rates and services, lower prices on loans, and improve customer service across payments, credit, and bank markets. Of course, this means that less competitive institutions would have to change their ways or lose their customers.

Commenting on the reasons behind the lawsuit, the BPI CEO and President Greg Baer stated that BPI supports a competitive marketplace where consumers control how their personal financial data is used, and with whom it is shared, as long as it is protected. However, he also said that the CFPB delivered a rule that treats sensitive financial information “with as little care as a consumer’s web browsing history.” 

He added that technology firms subject to little to no oversight will be able to access some very sensitive data if left unchallenged. They would have access to information such as how much money people hold in their accounts, and what they are doing with it. “Banks have a responsibility to protect customers and their data, and this rule compromises these responsibilities, putting bank customers at risk,” he argued.

CFPB Is Putting All Responsibility For Safeguarding Data On The Banks

The CFPB insisted that the new rules will allow third parties to only be able to collect, use, or retain data to deliver the product the consumer requested, preventing them from secretly using it for their own business reasons, such as targeted advertising or user-specific loans.

However, the KBA and BPI both argue that the entire responsibility of protecting users is left to banks with the new ruleset, while the regulator itself takes no accountability for the oversight or supervision of data recipients.

In other words, they are saying that mandating data sharing with no third party to protect that data sufficiently will undermine existing consumer protection laws.

The Kentucky Bankers Association’s CEO and President, Ballard W. Cassady Jr. said that the rulemaking jeopardizes the safety and soundness of the banking system and fails to protect consumer data. The lawsuits are meant to challenge the regulator to ensure that banks can still protect the consumers and the integrity of the financial system in a safe and sound manner.