Banks face repeat of data-sharing fight with CFPB move

Frank Gargano

A U.S. consumer watchdog looks poised to tear up a rule on customer financial data sharing and start all over again — but with a depleted staff, a potentially drained budget and all of the same thorny issues.

The Consumer Financial Protection Bureau is likely to scratch and rework its open-banking rule, which requires banks to share their customers' deposit account and credit card information when they request it with fintech firms for free. While such a move is ostensibly a win for large banks including JPMorganChase, which lobbied against the measure, it could re-open the fight and risk expanding its scope at a time when the CFPB's fate is in doubt. 

"Open banking pits two sides of industry against each other, with consumers somewhere in the middle," Dan Murphy, who managed the CFPB's open banking program during the Biden administration and is now an independent consultant, wrote in a post on Friday. "Want to give the banks the ability to charge fees for consumer-permissioned data access? Good luck explaining that to fintechs. Want to let fintechs do whatever they want with consumer-permissioned data? Good luck explaining that to banks."

Going back to the drawing board on the rule — finalized late last year in a near 600-page document — risks dredging up numerous issues. Even though banks bristled at open banking, arguing the requisite data-sharing arrangements would stoke fraud and expose them to greater liability, some appreciated the clarity once it was instated and made investments to comply. The Financial Data Exchange said last month that 114 million secure customer connections have now been established between fintechs, banks and other financial firms compared to 76 million a year ago. 

"Millions and millions of dollars have been spent on this," said Cathy Brennan, a partner with the law firm Hudson Cook, who counsels financial companies. 

Representatives at the CFPB didn't immediately respond to a request for comment. 

Reworked 1033 rule

The agency is leaning toward fully vacating the rule and aims to rewrite it, Bloomberg Law reported earlier this month. But how it could rework it is unclear.

If the CFPB allows banks to charge fees for sharing data and limits their liability for breaches, that would be a boon for those firms. But the watchdog could also expand the measure's scope, requiring banks share data on other financial products beyond deposit accounts and credit cards. 

Fintechs, which argue the open banking rule empowers consumers and boosts competition, have been pushing to include products such as auto loans and mortgages. 

JPMorgan Chief Executive Officer Jamie Dimon voiced opposition to the open banking measure, saying at an October conference that it creates risk for customers and for payment systems. 

His bank also made a private push, engaging more frequently with the CFPB than other large banks as it deliberated on the rule under the Biden administration, according to a person familiar with the matter. PNC Financial Services Group CEO Bill Demchak said during an October 2023 earnings call that customer data must be shared "in a secure manner."

A representative for PNC declined to comment. Representatives for JPMorgan didn't immediately respond to a request for comment. 

Reworking the rule poses a potential issue for smaller banks. Currently, firms with less than $850 million in assets are exempted from having to comply. A reconfiguration raises the possibility that threshold is scratched.

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CFPB's fate

The question of whether the CFPB even has the ability to overhaul the measure remains. The rule took years to finalize — passing in October some 14 years after the statute introducing it was completed. A pair of bank lobby groups immediately sued the CFPB to block it. 

The Financial Technology Association, an industry group, has since challenged that, potentially allowing it to defend the CFPB's open banking rule if the agency opts not to. A federal judge in Kentucky is expected to decide whether the FTA can defend the rule by the end of the month. Both the CFPB and the bank plaintiffs said they weren't opposed to the FTA intervening in the litigation to defend the open banking rule in Monday court filings.

Under Trump, the agency has been curtailed, with its work overseeing financial companies largely suspended. A bid by CFPB Acting Director Russell Vought to fire just under 90% of the CFPB's roughly 1,700 employees is being litigated. 

Amid the uncertainty, many senior CFPB staffers have voluntarily left the agency, including the Biden-era general counsel Seth Frotman and open banking liaison Murphy. How that litigation plays out is unclear, but even if opponents of Vought's cuts win, the agency's budget is also likely to tumble under legislation being advanced by House Republicans.

The agency's fate was further clouded Friday with a surprise announcement that Trump's pick to lead the agency — Jonathan McKernan — was instead going to the Treasury Department. 

Back in court

Writing the open banking rule while fully staffed took more than five years, according to Dan Quan, a former CFPB senior adviser on technology issues and the founder of venture capital firm Nevcaut Ventures. Rewriting it with a skeletal staff and a shoestring budget will be daunting, he said.

"It's just impossible to undertake a rewriting of this rule," Quan said.

Even if the CFPB is able to finalize a new rule that satisfies banks' concerns, fintechs are likely to head to court arguing the agency exceeded its authority in the rewrite, said Todd Phillips, an assistant professor of legal studies at Georgia State University's Robinson College of Business and a former Federal Deposit Insurance Corp. attorney.

"If they're going to rewrite the rule, it's just going to end up back in court," Phillips said.