The CFPB takes another look—while CUSOs & credit unions prepare for a rule that may (or may not) take shape.
The regulatory rollercoaster ride of the CFPB’s Personal Financial Data Rights rule, commonly known as its open banking rule, has had many twists and turns along the way. The process to implement this on-again, off-again rule is back to being on-again…sort of.
The CFPB finally finalized the open banking rule in October 2024 after being directed by the Dodd-Frank Act (of 2010!) to issue rules that grant consumers greater control over certain financial data. The rule was also intended to promote fair, open, and inclusive industry standards to facilitate open banking. The day the rule was finalized, a lawsuit was filed asserting that the CFPB had exceeded its statutory authority in issuing the rule. The CFPB under the Trump administration ultimately moved to stay proceedings, essentially halting the lawsuit. It promised to reconsider the rule to address some of the agency’s major concerns. On August 22, the CFPB released a notice of proposed rulemaking to reconsider its open banking rule. The agency is seeking comment on four issues it has determined are pressing in its reconsideration of the rule:
- Understanding who can request data on behalf of a consumer;
- If and how fees can be assessed by the entity responding to the consumer’s request to share data (typically, the financial institution);
- How to address data security concerns with sharing such data; and
- If the current rule provides adequate protections for consumer privacy.
Got all of that?
So what is all of the hubbub about?
What even is “open banking”?
It happens to be an increasingly popular data sharing framework in banking across the globe. As stated by the CFPB in its October 2024 final rule, it is essentially a network of entities that share personal financial data (typically through application programming interfaces or APIs) with a consumer’s prior authorization. This includes financial institutions and other types of non-depository institutions (i.e. fintechs).
Why is it all of this important for credit unions and CUSOs? First of all, even though the CFPB is currently reconsidering the parameters of its open banking rule, its statutory obligation to issue a rule to grant consumers greater control over their financial data has not changed. Therefore, although the implementation timeline is murky, it is industry expectation that there will still be some sort of final open banking rule. Further, even though the rule is currently in a gray area, credit union member demand for frictionless, easily portable, innovative financial digital solutions remains. So there is an opportunity here for credit unions and CUSOs to get ahead of the curve by continuing to assess, develop, and implement member-driven consent frameworks. It has been industry mantra for over a decade, but it also remains essential to understand and categorize member data. In anticipating potential compliance requirements under this rule, it is best practice to understand what member data your institution shares with third parties, how your institution shares member data with third parties, how that data sharing access is secured, and how these responsibilities are addressed in your agreements with these third parties.
Although there is currently no clear end in sight for this regulatory rollercoaster ride, the uncertainty does create an opportunity for credit unions and CUSOs to leverage their collaborative relationships to offer, and to even create, better products and services for their members in a secure manner.
“uncertainty does create an opportunity for credit unions and CUSOs to leverage their collaborative relationships”
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