The Consumer Financial Protection Bureau (CFPB) plans to move forward this week with an “open banking” and “open finance” rule that is expected to boost competition in the financial sector by requiring financial institutions to provide consumers their own data.
CFPB Director Rohit Chopra, in an announcement at the Money20/20 conference in Las Vegas, provided a timeline for the bureau to create and publish rules that will allow consumers who wish to change card carriers or banks to transfer their account history to a new company. . This means they won’t have to start from scratch with a new record of their financial history, which can come in handy for taxes, disputes with merchants or insurers.
“While not explicitly an open banking or open finance rule, the rule will bring us closer to it, by requiring financial institutions to share consumer data at the request of consumers, by allowing people of breaking away from banks that provide poor service and triggering more competition in the marketplace,” he said.
“If successful, it will also reduce the ability of incumbents to build moats and intermediaries to act as gatekeepers,” he said. “It will bring big benefits to those who provide the best products, the best quality of service and the best rates,” he added.
The CFPB will release a discussion guide for small businesses this week to weigh in on the proposed rule. Over the next few months, the bureau will hear from smaller financial institutions, as well as “third-party” data brokers.
A report on the information will be released in the first quarter of 2023, with the proposed rule expected later in 2023, and finalization and implementation expected in 2024.
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 APIs. ‘apps. Chopra said he expects the rules to cover more products over time.
“In an open and competitive marketplace, it’s easy for individuals to terminate or walk away from their financial services provider for any reason,” Chopra said.
Switching bank accounts under the current system is “a huge pain”, he said. “Direct deposits must be reset, as must scheduled payments linked by [Automated Clearing House] or debit card. And consumers need to take these steps, while managing day-to-day liquidity issues. Our rule will help third-party companies that offer services to make it easier to change recurring payments.”
The CFPB was given the authority to create such rules under Section 1033 of the Dodd-Frank Act of 2010. The office clarified in May that Section 1033 regulation was on the agenda, though Chopra’s announcement on Tuesday marked the first time a timeline has been made public.
Developing the CFPB rules won’t “switch” to an open ecosystem, Chopra said, but added that he hopes “it will move us in that direction.”