A new era for consumer finance in the US: How the CFPB's rule 1033 will empower open banking
Summary
On 22 October 2024, US Financial watchdog, the Consumer Financial Protection Bureau (CFPB), finalised Rule 1033, a landmark rule that grants consumers greater control over their personal financial data. The rule aims to boost competition in the financial services sector, enhance consumer privacy, and unlock the benefits of open banking in the United States.
When the CMA developed its recommendations for open banking in the UK in 2016, it opened the door for a plethora of financial technology companies, such as Yaspa, to create services that offered customers back control over how they managed their money and made payments, independent of who they banked with.
Yaspa welcomes this ruling as it will offer US consumers the same level of choice and facilitate the mainstream adoption of services such as direct account-to-account payments, often referred to as ‘pay by bank’, as a viable alternative to debit and credit card payments.
From an iGaming perspective, open banking controls in the UK and Europe have enabled Yaspa to develop an innovative Safer Gambling proposition for operators and consumers, using APIs to handle sensitive financial information. Although screen scraping has pioneered the adoption of open banking in the US, the 1033 ruling will make the collection of consumers personal financial data more secure and standardised creating a more reliable consumer experience over the longer term.
At a glance
Consumer empowerment: Rule 1033 empowers consumers to easily access and share their financial data with third-party providers, enabling them to switch financial institutions, shop for better rates, and leverage innovative financial products and services. As CFPB Director Rohit Chopra states, the rule "will give people more power to get better rates and service on bank accounts, credit cards, and more."
Competition and innovation: By enabling data portability, the rule is expected to foster greater competition among financial institutions, incentivising them to offer better products, rates, and customer service. The rule also aims to promote innovation by allowing third-party fintech companies to develop new financial tools and services based on consumer-authorised data sharing.
Privacy and security: The rule incorporates strong privacy protections, ensuring that consumer data can only be used for the purposes authorised by the consumer. It prohibits third parties from engaging in practices such as ‘bait-and-switch data harvesting’ and mandates data deletion upon consumer request.
Important facts and provisions
Scope: Rule 1033 covers data associated with various financial products and services, including bank accounts, credit cards, digital wallets, payment apps, and more. Notably, the rule extends to ‘digital wallet providers who hold similar valuable data that can provide a complete understanding of a consumer’s finances’.
Data access and sharing: Financial institutions must provide consumers with access to their financial data upon request and enable secure data sharing with authorised third parties through standardised APIs or other secure methods.
Third-party requirements: Third parties accessing consumer data must obtain explicit consent, limit data collection and use to specific authorised purposes, implement robust data security measures, and refrain from using the data for targeted advertising or sale to other entities.
Implementation: Compliance with the rule will be phased in, with larger financial institutions required to comply by April 1, 2026, and smaller institutions having until April 1, 2030. Depository institutions with assets of $850 million or less are exempt.
Industry reaction
CFPB: Director Chopra views the rule as a "promising step forward" and plans to develop additional rules to further advance open banking in the United States.
Industry groups: Some industry groups, such as the Bank Policy Institute, have expressed concerns about the rule's potential impact on data security and fraud prevention.
Legislators: Congressman Patrick McHenry (R-NC) welcomes the rule but calls for Congressional action to codify financial data privacy protections.
Conclusion
The CFPB's finalised Rule 1033 marks a major development in consumer financial data rights, setting the stage for a more open and competitive financial services environment. While some industry concerns remain, the rule has the potential to empower consumers, foster innovation, and strengthen data privacy in the financial sector. At Yaspa, we are excited about the potential this will bring to consumers and businesses in the US, particularly iGaming operators, who will now be empowered to provide safer controls and payment methods for their customers.
Further reading:
View the full report at consumerfinance.org
PYMNTS.com - CFPB Includes Payment
