The rule could boost competition in the consumer finance industry and increase Americans’ access to financial services.
CFPB expects to propose requiring financial institutions that offer transaction accounts to set up secure methods for data sharing and will develop requirements to limit the misuse and abuse of personal financial data.
The agency will release a discussion guide for small businesses to weigh in on the proposed rule, with the goal of formally proposing a rule in 2023 and finalising it in 2024.
The CFPB would look to strike a balance in the upcoming rulemaking between more readily offering consumers access to financial data while also protecting that data from bad actors. The agency is looking into how to ensure that when consumers opt to share their data to access a certain product, it won't be used for other purposes.
The CFPB is also exploring ways to prevent excessive control by a select few firms in the underlying data-sharing process.
The US Congress mandated Open Banking after the 2008 financial crisis, but the CFPB only issued an 'advance notice of proposed rulemaking' seeking feedback on a potential rule in October 2020.
The rules will require financial institutions offering deposit accounts, credit cards, digital wallets, prepaid cards, and other transaction accounts to set up secure data-sharing methods, such as with application programming interfaces. The rules are expected to cover more products over time.
Proponents of Open Banking argue that it would make it easier for non-banks like technology companies to compete with traditional financial institutions, lowering costs and boosting millions of Americans' access to financial services.While banks do not oppose the rule, they have been pushing to limit its scope, arguing it could put consumers' data at risk because fintechs do not have the same rigorous cybersecurity and privacy standards as traditional firms.
It was revealed that the effort to bring Open Banking to the US was stalled by privacy concerns. The main reason being the CFPB appearing to be stuck on exactly how to manage the consumer privacy and data protection issues created by Open Banking, especially how big tech companies will use the data.
As it plans for the implementation of Open Banking, it is important that the CFPB strikes this balance of enabling progress, competition, and business to thrive with the appropriate and adequate protection of citizens’ data rights in order to succeed. Even if the end game is improvement, coming at the expense of people’s privacy will only be met with resistance and non-support.
Executed with the right measures and framework, Open Banking stands to be successful both because of what it is doing and how it is protecting the American people.
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