Broadening Banking: Assessing the Impact of the CFPB’s Proposed Rulemaking on Section 1033 of the Dodd-Frank Act
After a comprehensive review process, the Consumer Financial Protection Bureau (CFPB) has issued a Notice of Proposed Rulemaking (NPRM) to finalize Personal Financial Data Rights, exercising its authority under Section 1033 of the 2010 Dodd-Frank Act. This step marks a significant advancement in addressing a broken market and propelling Open Banking into a progressive new era that includes innovation at the largest national financial institutions, thousands of smaller banks, and contemporary “fintech” companies. The coming implementation of the rule strengthens existing market-driven practices that have evolved since the passage of Dodd-Frank, and the new opportunities it provides will encourage further investment and innovation in the sector.
To better understand the implementation of the NPRM, the Data Catalyst Institute (DCI) convened more than a dozen independent experts in economics, law, consumer advocacy, and financial technology into a virtual Working Group to discuss the NPRM and related issues. Participants explored the rule’s potential impacts on U.S.-based consumers, small- and medium-sized businesses (SMBs) and their owners, technological innovation, and industry competition. They also discussed what steps the CFPB should continue to take to ensure clarity, equity, and opportunity are preserved in the final rule. There was broad consensus that the CFPB’s proposed Open Banking rule:
- Empowers consumers to control how third-party financial institutions, including large banks, small and rural banks, and nascent fintechs use their data. Not only does it put more information in the hands of consumers, which helps them make better financial decisions, but the underbanked have already benefited from Open Banking, and implementing the 1033 Rule will continue to help.
- Promotes broad industry competition among all kinds of financial institutions. The new implementation will strengthen data portability and interoperability, which will, in turn, encourage industry competition and innovation and discourage potential anticompetitive behavior by the largest incumbent financial institutions.
- Creates enormous opportunities for small banks, online-only banks, and fintech startups that rely on data access to offer consumers their services and compete in the broad market. When small banks and upstarts have equal access to permissioned consumer data, they can compete with incumbents to provide consumers with the best, innovative services. The CFPB’s Standard-Setting Organization (SSO) should be mindful that fair representation means meaningful inclusion of consumers, innovators, small businesses, and smaller financial institutions.
- Leaves questions the Bureau must address to avoid hindering the innovation and competition it aims to promote with this rule. These include how the CFPB will level the playing field regarding appropriate secondary data use that could restrict bank and non-bank innovators from bringing customer-friendly products to market, the broader scope of data subject to monitoring, and enforcement against anticompetitive efforts. The innovation envisioned by the CFPB’s Open Banking Rule will be stymied – and ironically disproportionately benefit incumbents – if the regulation allows large bank incumbents to engage in anticompetitive behaviors.
In conclusion, the CFPB’s forthcoming mandate for Open Banking establishes the regulatory certainty needed for competition and innovation to flourish. The CFPB has responded to industry demand for clarity by balancing existing market conditions with future innovation and consumer rights opportunities.