CFPB proposes an open banking rule to boost competition in the US banking sector
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The Consumer Financial Protection Bureau (CFPB) recently proposed an open banking rule in the US — something that the local financial sector has been waiting for for a long time now.
The idea is to improve local banking and payments competition and inspire banks and fintechs to create advanced solutions.
How will the new rules impact the financial industry?
According to reports, the proposed Personal Financial Data Rights rule will activate the dormant Section 1033 of the Dodd-Frank Act. The act was enacted by Congress over ten years ago, but it spent all this time inactive, waiting for the right moment to be triggered.
As a consequence of the act, consumer financial service providers will face some new requirements, including the necessity to share data in the users’ direction with other firms operating in the financial ecosystem, even if they offer services and products that might be more attractive to users.
The idea is to force these services to step up their game and offer better solutions or lose to competitors. Rohit Chopra, the director at CFPB, stated: “With the right consumer protections in place, a shift toward open and decentralized banking can supercharge competition, improve financial products and services, and discourage junk fees. Today, we are proposing a rule to give consumers the power to walk away from bad service and choose the financial institutions that offer the best products and prices.”
The rule will also allow users to share data regarding their use of prepaid accounts, checking accounts, credit cards, and even digital wallets. The CFPB also noted that the rule would ensure that consumers can get their data free of various junk fees, abandon bad services offered by certain providers, and maintain the legal right to share their data as they see fit.
Furthermore, the CFPB noted that the rule would protect the interests of financial firms and consumers alike. This would be done through meaningful consumer control, moving away from risky data collection practices, fair industry standard-setting, and robust protections that would prevent the misuse of data or unchecked surveillance.
Compliance is expected to start within six months for the largest firms
The proposed requirements will not come all at once, but rather, they will be implemented in several phases. The compliance of the largest fintechs and banks will start after a six-month period, while smaller companies will have up to four years to comply with the new rules. Also, the rule allegedly won’t force smaller community banks and credit unions to comply, but only in cases where they have no digital interface to speak of.
The CFPB invited comments on any aspect of the rules, which can be submitted until December 29 of this year.
“Over time, I hope our work to activate this dormant authority, jumpstart competition, and promote decentralization in finance will help American families put billions of dollars in their pockets while allowing small players startups to go head-to-head with major market players,” Chopra added.
