The recent finalization of data-sharing rules may have sharpened the debate over risks and rewards of Section 1033 — to consumers, banks and FinTechs — and the rule has drawn its share of critics and legal actions.
But during a discussion at Money 20/20 held this past weekend, Rohit Chopra, director of the Consumer Financial Protection Bureau (CFPB), said the rule will standardized how data can be shared and protected, and spur competition in financial services that will ultimately benefit consumers.
“It’s been over a decade since we passed a law saying that consumers would be able to really get some control over the data that’s been locked up by some of the biggest financial incumbents — who wanted to keep a very tight grip on that,” Chopra said Sunday night (Oct. 27), adding that “there was a very effective effort by the incumbents to stop the rule from being put into place, but this week we finalized it.”
As reported by PYMNTS, the final rule implementing Section 1033 of the Dodd-Frank Act now includes digital wallets and payment apps, in addition to banks, credit unions and other financial institutions that will be required to make consumers’ financial data available upon request to both consumers and authorized third parties.
This data covered by the rule includes information about transactions, costs, charges and usage related to consumer deposit accounts, credit cards and payment services.
Challenges quickly massed against that rule. A lawsuit filed against the CFPB last week charged that, per the plaintiffs, the Bank Policy Institute and the Kentucky Bankers Association, the Bureau is “overstepping its statutory mandate and injecting itself into a developing, well-functioning ecosystem that is thriving under private initiatives.” And, said the lawsuit: “Worse yet, the framework the agency has adopted is fundamentally unsafe, so the primary result of its overreach will be to harm the very consumers it is charged with protecting.”
On Sunday, Chopra said, “I haven’t read their lawsuit and I don’t think they’ve read the rule.”
With some discussion over fraud and various consumer protections, he said that in terms of payment networks — governing credit cards and ACH payments, for example — “we need to make sure that those private rules are actually updated for modern day generative AI fraud and more.” He contended that the ongoing process of setting standards — and defining the open banking standards-setters — is one where “we want to make sure … that in those standards being set that the incumbents don’t have veto power. So what our rule will do was it will ask those standard setters to come to us and we will inspect what they’re doing in order for them to be recognized and for their standards to be the fabric of the ecosystem.”
The banks, in the lawsuit noted above, have alleged that the new rule would not address the risks inherent in data sharing, and that the incumbent financial institutions (FIs) would not be able to stop that sharing even when concerns over risk arise.
“I do think there is a place where banks or other FinTech companies should be able to deny certain requests if they have a real sense that it looks suspicious,” Chopra said at the Money 20/20 conference. “What the rule does is it says you have to send the data, but if you have some indicia that there’s problems, you can block it, but you’ve got to record it. You can’t just … do it indiscriminately.”
He remarked that, with a nod to larger incumbents Big Techs that are seeking to make inroads into financial services (recent lawsuits against Visa and Apple, alleging anti-competitive actions, were referenced), “we’re really at a precipice right now when it comes to payments. If you look in China, you really have a couple of actors that really dominate all retail payments. And I don’t want that. I think we really want there to be a world without that kind of power, surveillance and censorship. So I think the more we can create lots of different rails and lots of choices for merchants and for consumers, that’s good.”
Chopra was asked about how the rule might impact credit scoring over the long term. He replied that key focal points will tie into improving the liquidity of loans and the ways in which “we create a sense of standardization without relying one or two companies that monetize and tax every transaction. So I’m hoping that the way the rule and digitization overall will facilitate that is there will be more data that you can obtain at a lower cost that will allow some degree of different scoring algorithms and ideally create that … standardization. The jury is going to be out on this, but it may require really different thinking on credit scores.”
Later in the discussion he added that the rule will “offer an important step forward for privacy. It’s going to offer really some roadmaps for a future that’s not dependent one or two credit scores … [and] is going to lower customer acquisition costs for a whole set of players that I think is going to be very good for families in this country. “
As Chopra elaborated: “This is just one step toward a more open and decentralized and competitive market. Our rule will do a little bit, but I hope everyone is thinking about what else we need to do to lower barriers to entry, to protect privacy and … to have more people challenge some of these big incumbents who have ruled for so long.”
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