The Consumer Financial Protection Bureau kicked off a rule-making process Thursday to give consumers more control over their financial data, a step toward an open-banking concept that director Rohit Chopra told Protocol he hopes initiates a "race to the top."
"Our country has always benefited when markets were more decentralized, when they're not dominated by a handful of incumbents," Chopra said in an interview Thursday. "I want a financial market where consumers can switch products more seamlessly, and where financial companies have to constantly compete to keep them.”
Chopra announced the kick-off of the long-awaited rule-making process in a speech on Tuesday at the Money20/20 conference in Las Vegas. Congress tasked the CFPB with creating the data-sharing standards under the 2010 Dodd-Frank law, but the agency had yet to activate its authority.
“Our goal is to accelerate the shift toward open banking and ultimately give more leverage to consumers to find the products best for them," Chopra said.
The CFPB released a 71-page outline of its priorities in the rule-making process, which starts with a review by a small business panel, as required by law. A formal proposal would come next year and could be finalized by 2024.
The rule would focus on transaction accounts, such as deposit accounts, credit cards, and digital wallets. As described in the outline, one goal is to allow consumers to move their data as needed, including pulling transaction history from one account to another.
Fintech trade groups cheered the announcement, while banks have offered support for open banking in concept but insist there need to be equal standards for all players. Some financial institutions have already taken steps to ensure secure data sharing, as the American Bankers Association trade group said in a statement Thursday .
"I think [financial institutions] rightfully have raised concerns about certain ways in which data is scraped or harvested," Chopra said. "And so our goal would be to create a consistent set of safeguards and rights for consumers to be able to take their data and use it in ways that really benefit everybody."
Chopra said the CFPB wants to build off what the market is already doing well, "and at the same time, we also want to make sure that incumbents who hold a lot of data aren't playing any games when it comes to sharing."
The details of that will be driven by the review process, he said. Security is of top concern, Chopra added, and extends beyond just preventing data breaches.
"I think it's also a question of: What are people doing with the data once they get it?" Chopra said. "Are they actually using it to provide a product or underwrite a loan? Or are they going to monetize it by reselling it or resharing it? Making sure that people are only using it for the limited purpose that the consumer wants it to be used for is a key question for us."
The rule-making effort comes as the CFPB is facing a significant legal threat. A federal appeals court ruled last week that the CFPB's funding mechanism is unconstitutional, potentially undermining several of its most important rules.
Asked about the decision's potential impact on this rule-making effort, Chopra said the agency is forging ahead.
"This is a dormant authority that's over a decade old," Chopra said. "I think it's one of the most important rules the CFPB is working on, or will ever work on in its history. There's a lot of appetite from all across the industry and the advocacy community to get this one done. We're reviewing every court case that involves the CFPB. We've been doing that since day one. But we're forging ahead with this one."
The CFPB also announced this week in a press conference with President Joe Biden new guidance aimed at cracking down on " junk fees ," including overdrafts. Chopra said there are connections between the battle against junk fees and the open-banking push.
He pointed to a recent Federal Deposit Insurance Corporation report that found that unbanked U.S. households reached a decade low but still totaled about 6 million.
The report "cites some reasons about why people don't want to have a bank account in the first place, and some of it relates to junk fees," Chopra said. "I think in a world where there's more seamless switching, you'll see a race to the top when it comes to customer care, when it comes to fees, and when it comes to new features that really help people.”
