The Trump administration is poised to reopen a Biden-era rule allowing customers to share their sensitive bank data with third-party fintechs and potentially vacate it, according to multiple sources.
The Consumer Financial Protection Bureau is leaning toward reworking its open banking rule, which allows customers to share their deposit account and credit card information with fintechs, such as online investment company Betterment or
The CFPB will likely reopen the rule amid requests from banks about potential liability for data breaches and the ability to charge for access to data, according to a source familar with the matter who wasn’t authorized to speak publicly. Banks also want to be able to block companies that abuse their access to customer data from the open banking system, the source said.
It’s unclear whether the administration will look to add to the existing rule or eliminate it altogether, but supporters of the regulation are worried about any further delays to its implementation.
“Reopening this rulemaking means stalling financial innovation and prolonging uncertainty for both businesses and consumers in America,” said Steve Boms, President and CEO of FDATA North America, an open banking advocacy organization.
Acting CFPB Director Russell Vought fired most employees in the agency rulemaking unit that would rewrite the open banking rule, as part of an April reduction-in-force plan that eliminated 1,500 of the agency’s approximately 1,700-member workforce.
A federal appeals court put a temporary hold on the workforce reduction plan in litigation launched by the National Treasury Employees Union and other plaintiffs.
“The question facing those in charge at CFPB is this: how will it be possible to manage a very significant and sensitive rule making affecting both banks and fintechs without industry experts to do the research, legal analysis and rule drafting?” said Todd Baker, a senior fellow at Columbia University’s Richard Paul Richman Center for Business, Law, and Public Policy.
Bank Challenge
The open banking rule, required by Section 1033 of the Dodd-Frank Act and in development since the first Trump administration, was immediately challenged by the Bank Policy Institute and other plaintiffs when it was finalized in October.
It’s unclear whether the CFPB will move to vacate the rule in that litigation. The CFPB and the Bank Policy Institute didn’t immediately respond to requests for comment.
BPI has a May 30 deadline to file its motion for summary judgment in the case May 30, and a move to reopen by the CFPB is expected to come before then.
Fintechs have also been seeking changes to the rule, particularly pushing to expand the open banking ecosystem to more products such as auto loans and mortgages. But financial technology companies don’t want the original rule to disappear.
The Financial Technology Association, a trade group representing fintechs such as Paypal, Block Inc., and data aggregator Plaid, moved to defend the rule in the Bank Policy Institute’s litigation out of fear that the CFPB underacting Director Russell Vought wouldn’t.
Judge Danny C. Reyes of the US District Court for the Eastern District of Kentucky denied the FTA’s motion to intervene in February, when he agreed to stay the case while the Trump administration reviewed the rule.
“Rolling back the 1033 Rule, which provides important protections for Americans’ fundamental data rights, would undercut innovation and limit choice, which is bad for consumers and businesses,” said Penny Lee, the FTA’s president and CEO.
A hearing on the FTA’s motion to intervene is set for Monday.
CFPB Cuts
The CFPB’s expected move reflects a split between Vought and his team at the bureau that are looking to eliminate the agency, and other Trump aides that don’t share that goal.
Mark Calabria, a senior official at the Office of Management and Budget detailed to the CFPB, has said the open banking rule needed to be revisited to deal with issues such as data breach liability, and expected the rulemaking office to be fully staffed ahead of Vought’s April RIF.
Calabria is expected to be a key deputy to Jonathan McKernan, President Donald Trump’s choice to serve as the CFPB’s director.
McKernan’s nomination has stalled in the Senate and it’s unclear when, or if, the chamber will vote on it despite assurances from Senate Banking Committee Chairman Tim Scott (R-S.C.) at a recent American Bankers Association conference that the vote would happen in May.
Senate Democrats are requiring lengthy debate on all nominations in a bid to slow work in the chamber, making floor time scarce.
Calabria didn’t immediately respond to a request for comment.
Republican lawmakers are also looking to significantly cut CFPB funding. The House Financial Services Committee on April 30 voted to cut the amount of money the Federal Reserve could transfer to the CFPB by around 70%.
The CFPB is funded exclusively through transfers from the Fed.
A steep CFPB funding cut would make it difficult to sufficiently staff the agency’s rulemaking office and complete its other statutory mandates, such as supervising banks and other financial companies.
Along with rewriting the open banking rule, the CFPB under Vought said it would rework a rule requiring small business lenders to collect and report borrowers’ demographic data.
The CFPB’s ability to accomplish both of those complicated rulemakings while also updating mortgage regulations and carrying out other mandated tasks is in doubt with limited staff and a tiny budget.
“Simply put, in order to move through the rulemaking process efficiently and effectively, you need to have the correct agency staff to do the work,” said Ian P. Moloney, a senior vice president and head of policy and regulatory affairs at the American Fintech Council.
