A long-awaited ‘opening banking’ rule, allowing US consumers to decide which financial institutions and services get access to their private financial data, was introduced by the US Consumer Financial Protection Bureau on Tuesday.
The US consumer watchdog agency said the new Personal Financial Data Rights Rule 1033 will give consumers greater rights, privacy, and security over their personal financial data by allowing more choice over the financial products they use.
Part of the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010, the rule is expected to put an end to risky practices such as “screen scraping” and “bait-and-switch data harvesting.” It will further allow an individual to revoke a company’s access to their financial data “immediately” and in a “simple and straightforward” way.
Chairman of the House Financial Services Committee Patrick McHenry, from North Carolina, championed the protections, calling on Congress to permanently pass similar legislation set forth by Republicans in 2023.
“As Republicans have said for years, Americans should have greater control over their sensitive financial data. Consumers should know where their data is going, how it’s used, and be able to terminate collection of their data by certain firms, he said in a statement released on X Tuesday.
#NEW: Chairman @PatrickMcHenry issues a statement on the @CFPB's final 1033 rule.
undefined Financial Services GOP (@FinancialCmte) October 22, 2024
While a promising step forward, Congress must pass Republicans' Data Privacy Act to make consumer data protections permanent.
👇 Read more 🔗https://t.co/KX3BkIQpOF pic.twitter.com/zUhhfrOej3
Screen scraping is a when a consumer provides account passwords to third-parties, which are then used to access even more data through online banking portals.
By prohibiting ‘bait and switch’ data harvesting, a third-party company will no longer be able to “collect, use, or retain” that extra data without the consumer's explicit permission for unrelated business reasons, such as sending targeted ads for a different financial service.
Under the rule, financial institutions, credit card issuers, and other financial providers would be required to “unlock and transfer an individual’s data to other providers, at the consumer’s request, for free,” the CFPB further noted.
This allows a consumer to share their financial data across “bank accounts, credit cards, mobile wallets, payment apps, and other financial products,” which will also make “pay-by-bank” processes more secure, the announcement said.
“Today, @CFPB finalized a rule that will make it easier to switch to a new provider when it comes to your loan or bank account, while also safeguarding against intrusive financial spying and surveillance, “ CFPB director Rohit Chopra said in a three-part post X.
The rule requires financial institutions, credit card issuers, and other financial providers to unlock and transfer an individual’s data to other providers, at the consumer’s request, for free.
undefined Rohit Chopra (@chopracfpb) October 22, 2024
The new rule, which has been in the works for 14 years, is also expected to “increase competition, lower costs for loans, and increase rates on deposits,“ he said.
“Too many Americans are stuck in financial products with lousy rates and service,” said CFPB Director Rohit Chopra. “Today’s action will give people more power to get better rates and service on bank accounts, credit cards, and more,” said Chopra.
The rule will take effect for larger fintech companies in 2026, while smaller financial companies will have until 2030 to implement the changes.
Banks with less than $850 million in assets will also be exempt from certain aspects of the the rule.
The rule has gotten mixed reviews from the industry, with some fintech's praising and others denouncing the restrictions.
Banks, which stand to lose out criticized the final rule, stating it could jeopardize consumer data security and exceeded the agency's legal powers, reported Reuters.
Payment service PayPal and financial data aggregators Plaid and Akoya say 1033 will make the transfer of consumer data more secure, while those against it, such as the Consumer Bankers Association, say the rule will enable "thousands of third parties' to access consumers' data."
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