A column in Bloomberg Law written by the CEO and co-founder of Petal, a New York-based credit card company, is bullish on the opportunity of open banking in the U.S. ‘Open banking’ as described here means financial institutions sharing data permissioned by their customers with fintechs, neobanks, and other players in the financial services marketplace. The author comments on the opportunities this offers to those individuals who struggle to access credit and other products.
Dodd-Frank Wall Street Reform and Consumer Protection Act, The White House, and the CFPB all play a role in how the rules around consumer data sharing begins to take shape. This includes what protections will be in place to assure privacy and safety of data in addition to defining which parties will bear liability when activity goes awry. Having this structure in place and defining the risks will help the concept of open banking to expand.
Over the past 12 months, the Consumer Financial Protection Bureau received nearly 100 public comments as it moved closer toward issuing rules to govern an open banking framework. President Biden included open banking as one of 72 policy initiatives advanced in a July 2021 Executive Order on competition, and Congress dedicated an entire hearing to “preserving the right of consumers to access personal financial data.” In December, the CFPB featured open banking as part of its upcoming rulemaking priorities for 2022.
These are welcome developments that lay the groundwork for 2022 to be the year that open banking finally becomes a reality in the U.S.
Open banking is the simple idea that consumers are the ultimate owners of their financial data, free to access and share that information however, and with whomever, they choose. The legal basis for open banking in the U.S. flows from Section 1033 of the Dodd-Frank Wall Street Reform and Consumer Protection Act, which requires that banks make available to their customers, upon request, data concerning “the consumer financial product or service that the consumer obtained from [the bank]…in an electronic format usable by consumers” and directs the CFPB to issue rules necessary to fulfill that promise.
Overview by Sarah Grotta, Director, Debit and Alternative Products Advisory Service at Mercator Advisory Group