CFPB proposes banking rule to jumpstart competition for customers

On Friday, the Consumer Financial Protection Bureau (CFPB) announced it had proposed a rule that would accelerate the shift toward open banking.

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The Personal Financial Data Rights rule would activate a provision of law enacted by Congress to jumpstart competition between banks by forbidding financial institutions from hoarding a consumer’s data, and requiring companies to share that data, at a customer’s direction, with other companies offering better products. The CFPB said the proposed rule would allow customers to “break up” with their banks if they provide bad service and would forbid companies receiving data from misusing it or wrongfully monetizing it.

“With the right consumer protections in place, a shift toward open and decentralized banking can supercharge competition, improve financial products and services, and discourage junk fees,” CFPB Director Rohit Chopra said. “Today, we are proposing a rule to give consumers the power to walk away from bad service and choose the financial institutions that offer the best products and prices.”

The agency said that currently, access to financial data is inconsistent from one financial institution to another. Even among companies that do share data at the customer’s request, the agency said, the terms of sharing vary greatly. This lack of standards allows financial institutions to hide or obscure important data points like prices and undercuts the ability of small or upstart institutions to compete with larger, more established ones.

Under the proposed rule, people would have the power to share data about their use of checking and prepaid accounts, credit cards and digital wallets which would allow them to access competing products and services without worrying their data might be collected, used or retained to serve the financial institutions commercial interests instead of their own. Additionally, people would be assured their data would only be used for their preferred purposes, not for financial institutions or tech companies to manipulate or watch.

The rule would ensure bank customers could get their data free of junk fees, be granted a legal right to share their data, and be able to walk away from bad service.

The proposed rule will be open to public comment through Dec. 29, 2023.