The CFPB is facing pressure to expand coverage of its open banking rule to include mortgage, student and auto loan, and other credit accounts that advocates say will provide people with a more complete financial profile.
The forthcoming rule, required under Section 1033 of the 2010 Dodd-Frank Act, is aimed at giving consumers more control over their finances in an open US banking framework by requiring banks to share financial data with fintechs such as budgeting and financial management apps, and online lenders.
Representatives of small banks, credit unions, data aggregators, fintechs, and other industries that reviewed a Consumer Financial Protection Bureau outline of proposals for the rule urged the agency to expand the types of data covered.
The CFPB said in its outline that it planned to limit the scope of the rule to savings and checking accounts, digital wallets, and credit cards. The agency declined to comment on whether it is considering expanding coverage.
Limiting the types of data covered by the rule wouldn’t provide the benefits for people that open banking can provide, particularly lower-income people who would be served by getting a more complete picture of their financial lives, said Jonathan Joshua of the Joshua Law Firm, a financial regulatory practice.
“The bulk of people’s financial obligations are likely not going to be included still,” Joshua said.
Without that fuller picture, advice from budgeting and financial health apps won’t be as useful, and consumers will have less access to lower-cost loan products that rely on a person’s cash flow to determine eligibility, members of the small business review panel said in a report the CFPB released April 3.
Several of the 18 small business representatives included in the review said limiting the consumer data sharing proposal to bank and credit card accounts “would limit the ability of data recipients to develop products for underserved and thin-file consumers and the ability of consumer to demonstrate creditworthiness.”
The CFPB says limiting the rule to bank accounts, digital wallets, and credit cards would still give consumers a clear idea of the money flowing in and out of their accounts.
Companies would then be able to make credit decisions, or provide budgeting assistance based on that information, open banking backers say.
“If consumers can authorize the transfer of their account data to a competitor, new providers will be able to treat new customers more like customers with longer account relationships, and may have greater ability to provide the better products usually reserved for long-time customers,” the CFPB report said.
But showing account inflows and outflows can only go so far, advocates of expanding the rule argue.
Having access to a bank account could show how much a homeowner is paying each month to their mortgage servicer, an important piece of information. But the bank account wouldn’t show the interest rate, remaining term on the home loan, or other features that can give a potential lender more data about a person’s creditworthiness, Joshua said.
Some nonbank lenders balked at the idea of expanding the number of firms and types of accounts that would be included in the rule.
The American Financial Services Association, which represents a large number of nonbank lenders, said in a February 2021 letter that “given the number and varying sizes of the many financial institutions” that will be subject the rule, “AFSA trusts the Bureau will consider excepting some financial institutions from its applicability.”
Trade groups like FDATA North America, which represents data aggregators like Plaid, and the Financial Technology Association, which represents fintechs, have long supported expanding the types of financial data included in a final open banking rule, along with banks.
“To realize the full benefits of the statute, consumers should have access to their data held by all entities offering a consumer financial product or service,” the Bank Policy Institute, an advocacy group for large banks, said in a January comment letter.
The Independent Community Bankers of America has also supported expanding the rule’s scope.
Smaller banks, which offer more personalized products and focus more on auto, student loan and mortgage lending than their larger competitors, could benefit from an expanded rule that allows for greater data sharing, said David Stein, of counsel at Covington & Burling LLP and a former top CFPB official.
Expanding the types of data covered, however, would carry a higher compliance cost than the original proposal, which the CFPB estimated could reach hundreds of thousands of dollars for some banks and other market participants.
Under the coming rule, banks and credit card firms would be required to build data portals and application programming interfaces (APIs) where third-party firms can get access to consumer data after a person consents.
Those tools would replace screen scraping, where data aggregators and other firms simply copy data from websites. Banks, the CFPB, and even data aggregators all say that portals and APIs present a much more secure way of sharing data than screen scraping.
Not requiring independent mortgage lenders and other nonbank or credit card firms to put up the costs to set up data portals and other requirements puts banks at a disadvantage, the BPI letter said.
The desire to expand accounts covered by the rule also represents an evolution in how banks are looking at sharing data.
Banks used to fight efforts by budgeting apps and other fintechs to access accounts. And while there are still court battles, even small banks are seeing the ability to share data as a competitive advantage, Stein said.
Banks realized that, even as they are required to give out consumer data, they can also receive it. And that can help grow business lines, Stein said. Customers, too, want to be able to easily share their data, he said.
“Imagine how a consumer might react if they can get their bank information from the big guys for that portal but they can’t get their information from a small bank, a community bank, or a credit union,” Stein said.