CFPB to amend or reissue 1033 open banking rule, experts say

Bloomberg News

The Consumer Financial Protection Bureau is expected to amend, or rescind and reissue, the rule on consumer financial data rights, potentially throwing out years of work under the Biden administration on a regulation that banks have long opposed, experts say. 

How the Trump administration will change the open banking rule is still unknown, but there are several paths and legal strategies that the bureau could take. The rule is named 1033 for its section in the Dodd-Frank Act mandating that consumers have financial data rights and that banks must provide access to customers' account data, which can be shared with other companies. 

The rule could radically reshape consumer finance and allow fintechs to better compete with banks.  

After issuing the final rule in October, the CFPB was sued by the Bank Policy Institute, a Kentucky bank and trade group. That lawsuit alleges Congress never intended for banks to be compelled to share consumers' data with fintechs or other third parties. It also alleges that the bureau exceeded its statutory authority and risks the safety and soundness of the banking system by limiting banks' discretion to deny third parties access to sensitive financial information.

Bloomberg first reported on the rule potentially being reopened. 

Under 1033, financial firms would have to provide their customers with access to data on checking accounts, prepaid cards, credit cards, digital wallets and payment apps. Banks are concerned the rule will expose them to greater liability and require costly oversight of third-party fintech companies. 

Fintech providers object to the rule because it severely limits secondary uses of data that fintechs rely on to be profitable. For example, though fintechs could use consumer-authorized data to improve an existing product or service, the data is prohibited for use in research and anti-fraud tools, to train underwriting models or for product development. 

It remains to be seen how the CFPB intends to balance the different concerns and lobbying of large banks, Big Tech players, fintechs, data aggregators and consumers. 

On Monday, a Kentucky judge held a hearing in the BPI vs. CFPB case to determine if the Financial Technology Association's motion to intervene could be heard. Judge Danny C. Reeves of the U.S. District Court for the Eastern District of Kentucky indicated he would rule on FTA's motion to intervene before a stay is lifted on May 26. Briefs from the CFPB and the Bank Policy Institute are due on May 12, while the FTA has until May 16 to submit its brief. 

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Penny Lee, FTA's president and CEO, said rolling back the 1033 rule goes against the historic bipartisan support giving consumers the right to access and control their own financial data. 

"A few of the nation's biggest banks shouldn't be able to dictate where and how people manage their financial lives," Lee said. "Rolling back the 1033 rule, which provides important protections for Americans' fundamental data rights, would undercut innovation and limit choice, which is bad for consumers and businesses."

Steve Boms, executive director of the Financial Data and Technology Association, said it would be a major setback if the CFPB started over by rescinding and reissuing another advance notice of proposed rulemaking.

"If the CFPB rescinds the rule and goes back to an ANPR, they're basically resetting the clock four or five years," Boms said. "It risks the progress that the industry has made collaboratively to get to this point and 95% of the rule that everybody agrees is generally pretty good."

The CFPB under the Trump administration has already moved to negate rules issued under the Biden administration. 

The bureau under acting CFPB Director Russell Vought has told financial firms that it will not enforce nor supervise major rules issued by former CFPB Director Rohit Chopra. Last week, the bureau said it will not enforce nor supervise the small-business lending rule known as 1071 for its section in the Dodd-Frank Act. Last week, the CFPB joined with two trade groups that sued the agency in January and jointly asked a federal court to vacate a rule that would remove medical debts from credit reports.

The agency also has backed off from enforcing or supervising the payday lending rule and the nonbank registry of repeat corporate offenders, reversing years of work conducted by the bureau. Separately, in another major win for banks, a judge in April threw out the CFPB's credit card late fee rule for refusing to allow banks to charge penalty fees, as allowed by law. 

Vought, whose main job is directing the Office of Management and Budget, has sought to eliminate 90% of the CFPB's workforce. Vought has been stopped by a federal court from dismantling the agency. 

Bank trade groups and open banking experts have been talking for weeks about whether and how the Trump administration would change the rule. 

"The default position under the Trump administration is that regulation is bad, and 1033 falls into that bucket by default. That's the starting point," said Eyal Sivan, general manager for North America at Ozone API, a platform that facilitates the sharing of financial data with authorized third parties.