Thoughts on 1033 and Open Banking

On October 31, the Consumer Financial Protection Bureau published its proposed rule on open banking. The proposed rule would require banks, credit unions, and other financial services companies to share account and transaction data with consumers and authorized third parties. It also would require that data providers create developer interfaces, which make it easier for third parties to access data. Providers are worried about liability for breaches, and the possibility that some companies could become credit bureaus under provisions of the rule. Comments were due by December 29, 2023.

The IPA has filed a comment letter on behalf of its members in response to the rulemaking. This blog is separate from that letter and sums up some of my personal thoughts about the proposal and open banking in general. A copy of the comment letter is online.

This proposal comes into a market where individuals already use multiple financial services. As Ron Shevlin, the Chief Research Officer at Cornerstone Advisors, noted in a Forbes Column that six out 10 consumers who opened a checking account in 2022 and 2023 say they have more than one checking account.

So, it is not as though open banking regulations will give people more choices. If people believe it is hard to move accounts because they have direct deposits or automatic bill payments established, that reflects their inertia (and maybe the difficulty of dealing with their employers). Alternatively, some people could simply be happy with the account products they currently have.

But the CFPB sees it differently.

In a press release in October, Director Rohit Chopra said the goal of the rule was to “to give consumers the power to walk away from bad service and choose the financial institutions that offer the best products and prices.”
That overlooks the main point: There is nothing preventing that now.

The press release goes on to say that the proposed rule will protect consumers from “junk fees” by making” personal financial data available, at no charge to consumers or their agents, through dedicated digital interfaces that are safe, secure, and reliable.”

Most people would agree that customers should have access to their data, but the CFPB seems to believe that every fee is a “junk” fee. They also seem to think that safe, secure, reliable digital interfaces are free to build and maintain, and that customer service agents, bank tellers, and account managers work for free.

There is a question of sustainability and access for consumers when no consideration is given to keeping the lights on. If we want financial products to exist, then someone must provide and maintain them.

Another fundamental question is whether a business should be required to provide its customers’ information to a competitor, even at the customer’s request. If customers want to give their data to another company, then it is their right do so, but why why should a company be compelled to provide a portal into its systems for competitors to steal their business. In any case, it certainly seems reasonable to let a bank or other provider charge their competitor for the service – just like they would charge any other business for a service provided.

It is important to protect consumers, and regulation is an important part of that. But protecting consumers also means ensuring companies can create and provide access to necessary products and services. Sustainability needs to become a core principle of regulation. Oherwise regulators risk forcing consumers into a situation where they have nothing but bad choices for financial products.