US EXCLUSIVE ‘open banking’ rule bogged down by privacy concerns – sources

May 4 (Reuters) – A long-awaited U.S. “open banking” rule that could dramatically boost consumer credit competition and increase Americans’ access to financial services is being stymied by privacy concerns, five people say knowing the subject.

The Consumer Financial Protection Bureau (CFPB) rule would allow consumers to easily share their financial data with third parties. This would remove a major barrier to switching service providers who might offer lower fees.

In July 2021, the White House urged the CFPB to adopt an open banking rule as part of a broader competition push, while fintech companies and lawmakers are also urging the agency to hurry, according to two sources.

These advocates say open banking will make it easier for non-banks like tech companies to compete with traditional financial institutions, reducing costs and improving access to financial services for millions of Americans. Read more

But the CFPB is wrestling with how to handle the privacy and consumer data protection issues created by the rule, the five sources said last month on condition of anonymity to discuss the non-public process.

CFPB Director Rohit Chopra’s concerns center in part on how Big Tech companies can use data, given criticism that these companies have a history of exploiting consumers’ personal data to bolster their services, the people said.

Discussions about the rule had not previously been reported.

The CFPB director is trying to balance three issues, said Lisa Ledbetter, a partner at law firm Reed Smith, who has discussed the issues with banking and fintech clients.

These include how to examine the influence of big tech on the market, how to protect consumers’ security, privacy and effective control over their data, and how to best advance competition, she said. declared.

A source from the agency said the CFPB “felt the pinch” to come up with the rule but struggled to “find the right balance”.

Chopra, who as commissioner of the Federal Trade Commission from 2018 to 2021 took a strong stance on the data privacy practices of big tech companies, is also taking the time to engage with all interested parties, said four sources.

“We are moving forward with this regulation as a priority,” a CFPB spokesperson said. “Protecting consumer privacy is an important factor in this rulemaking effort.”

“Effective control by consumers over where their data flows and for what purposes it is used is an essential part of a truly competitive landscape,” the spokesperson said.

Open banking would trigger a slew of payment, investing, lending, financing and money-saving services and apps, fintechs said. For example, Americans could share all of their bank account, debit and credit card transaction data with an app that could then provide advice on how to avoid a range of costly fees.

“Open banking means consumers pay less for better services. The CFPB should accelerate [the] rulemaking,” said Penny Lee, chief executive of the Financial Technology Association.

While banks don’t oppose the rule, they are pushing to limit its scope, arguing that open banking could put consumer data at risk because fintechs don’t have the same rigorous cybersecurity and privacy standards. than traditional businesses.

Because it is expensive to retain and protect customer data, banks are also reluctant to give it away for free, the five people said.

Europe, Britain and other countries already have open banking laws. The US Congress mandated open banking after the 2009 financial crisis, but the CFPB did not Posted a “notice of proposed rulemaking” requesting comment on a potential rule in October 2020.

The next step in the process is a review by a panel of small businesses, the people said. The CFPB will conduct the review of the commission “by the end of the year”, the agency’s spokesperson said.

The Small Business Regulatory Enforcement Fairness Act requires the CFPB to seek input from a panel of small businesses on new regulations that may affect them.

Smaller banks, data aggregators and fintech companies are all pushing to be on the panel and the agency is still determining who should have a seat at the table, five of the people said.

The panel has 60 days to submit a report to the CFPB, after which the agency can issue a draft rule.

Reporting by Katanga Johnson and Hannah Lang in Washington Editing by Michelle Price and Richard Chang

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