CFPB: Give Consumers Access to Financial Data to Increase Competition

Proposal would facilitate consumer access to data held by banks and credit unions, and has been questioned by both CUNA and NAFCU.

Even as its very existence is in question, the CFPB intends to issue a proposal this week that would allow consumers to have easy access to their financial data held by banks and credit unions, Director Rohit Chopra revealed Tuesday.

The aim is to increase competition among financial services providers by allowing consumers to easily close an account at one provider, and open an account at another, Chopra said at the Money20/20 fintech conference.

“For instance,” he explained, “individuals who want to switch providers will be able to transfer their account history to a new company, so they don’t have to start over if they are unsatisfied with the service provided by an incumbent firm.”

He added, “While not explicitly an open banking or open finance rule, the rule will move us closer to it, by obligating financial institutions to share consumer data upon consumer request, empowering people to break up with banks that provide bad service, and unleashing more market competition.”

This, Chopra said, would lead to “more switching and incentives for better service. In an open and competitive market, it is easy for individuals to fire, or walk away from, their financial provider for whatever reason.”

Bureau Pressing Ahead Despite Ruling

While Chopra announced the agency will issue its long-awaited proposal and solicit public comment on it, the agency’s authority to do anything is being challenged as a result of a ruling last week by the Fifth Circuit Court of Appeals. That court found that because the CFPB is not subject to appropriations, its funding mechanism is unconstitutional and, as a result, the agency may have little authority to issue rules.

While the ruling only affects states in the Fifth Circuit, defendants in cases the agency has filed in other courts have begun citing the ruling in asking that their cases be dismissed.

And the West Virginia Attorney General has asked the CFPB to stop most of its operations until its constitutionality is clear.

Nonetheless, the agency will release its proposal this week.

What Will the Proposal Look Like?

Chopra said the plan will require financial institutions offering deposit accounts, credit cards, digital wallets, prepaid cards, and other transaction accounts to establish secure methods for data sharing.

The agency, he added, will be looking at several ways to stop institutions from restricting access to data when consumers seek to control it.

He noted that federal law requires the CFPB to convene a panel of small businesses to comment on such a rule and the bureau will be releasing a discussion guide this week. The agency will then publish a report about the input received from that panel in the first quarter of 2023 and plans to release a proposed rule later that year, followed by the final rule in 2024.

CU Trades Urged Caution

In 2020, the CFPB issued a notice of proposed rulemaking seeking comment on the idea of making consumer data more readily available.

In its comment letter, NAFCU recommended that the bureau attempt to preserve the ability of credit unions to define the scope of third-party data privileges. The trade group also cited the “significant” data security and privacy risks associated with the plan.

CUNA officials said at the time that they believed the agency did not have the authority under Dodd-Frank to require financial institutions to provide a third-party with cost-free and direct access to a consumer’s account, regardless of whether the consumer authorized it.

CFPB Authority in Question

Meanwhile, the Fifth Circuit Court of Appeals’ ruling is having a ripple effect.

In a letter to Chopra, West Virginia Attorney General Patrick Morrisey said he cannot see how the agency can continue to move on, given that most of its funding comes from an unconstitutional scheme.

“Congressional appropriations might seem inconvenient to an agency that is obviously eager to impose its ideological mission without limits,” he wrote. “In addition to reassessing its future plans, CFPB must reevaluate whether its present regulations have any effect, too.”

Further, attorneys from Ballard Spahr pointed out that the defendants in three CFPB enforcement cases are attempting to use the Fifth Circuit’s decision as grounds for dismissal of the agency’s actions.

“We expect to see more similar filings by defendants in CFPB enforcement actions in the days and weeks to come,” the attorneys wrote on their Consumer Finance Monitor blog. “We also expect to see the targets of ongoing CFPB investigations attempt to use the Fifth Circuit’s decision to block such investigations from continuing.”