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Defence of the US Consumer Financial Protection Bureau’s (CFPB) open banking section 1033 stepped up a gear as the Financial Technology Association (FTA) was permitted to intervene in a lawsuit challenging the rule.
The US district court in Lexington, Kentucky, granted permission on Wednesday (May 14) to the Washington-based FTA to intervene in the case.
The plaintiffs in the case, Forcht Bank, the Kentucky Bankers Association, and the Bank Policy Institute, object to the CFPB’s rulemaking on consumers’ financial data rights under the Dodd-Frank Act.
Authority questioned
In the lawsuit, they claim that the CFPB overstepped its statutory authority and finalised a rule that jeopardises consumers’ privacy, financial data and account security.
In particular, the plaintiffs challenge the CFPB’s interpretation of the term “consumer” and restrictions on banks charging access fees.
They contend that the rule allows unsafe practices such as screen scraping to continue and increases the likelihood of fraud and scams by failing to require oversight or supervision of fintechs or their data security practices, while also limiting banks’ ability to cut off bad actors from their systems.
In addition, they say it also fails to hold fintechs accountable when things go wrong, leaving customers with little to no recourse in the event of a breach.
However, the FTA insists the rule does the opposite, and also drives up competition and standards.
The CFPB had announced that it planned to ask the court to vacate the rule, which is why the FTA is stepping in to defend it.
In a statement, Penny Lee, president and CEO of the FTA, welcomed the court’s decision to allow the lawsuit intervention.
Lee said: “This is a critical step in defending the right of every American to access and securely share their financial data — and in ensuring that innovation, competition and consumer choice remain at the heart of the U.S. financial system.”
She added: “We look forward to continuing to advocate for a fair and competitive financial ecosystem that works for everyone.”
Financial data rights
The CFPB finalised a final rule on personal financial data rights under Section 1033 of the Dodd-Frank Act in October 2024, imposing new obligations on financial institutions that maintain consumer information, while giving consumers, authorised third parties and data aggregators new rights.
The rule is intended to let consumers switch between financial institutions with greater ease while maintaining their account history, as well as enable comparison shopping by consumers and protect data privacy.
Oversight and safeguards
However, amid reports that the CFPB is considering rethinking the rule, the Bankers Policy Institute (BPI) urged the agency to address the problems raised in the lawsuit.
It said fintech firms and aggregators had long resisted bank-like oversight and that their claims to be well regulated were unfounded.
In a statement, the advocacy group said: “BPI’s position is simple: fintechs that handle sensitive personal and financial data about bank customers must be required to adhere to the same rigorous standards and duties as banks,” adding: “And if fintechs want to partner with banks to help consumers conduct their financial affairs, banks have demonstrated their absolute willingness to do so, so long as proper safeguards are in place.”
The outcome of the lawsuit, and the CFPB’s attitude to the rule itself, will have a significant impact on the development of open banking in the US.
Going back to the drawing board and devising new open banking regulation from scratch would be a long and challenging process for a regulator at full strength and with clear direction — which is not the CFPB as it stands.
A reworking of the rule would be welcome to many — not least the plaintiffs in this case — and might be necessary to resolve the key issues of whether banks are entitled to payment for data access and where liability for data sits.
The FTA’s defence of the rule will ensure a full judicial evaluation of the rule’s legality goes ahead, without requiring the CFPB to defend a regulation that it no longer supports.
This means that it will not be vacated quickly, and firms interested in the progress of US open banking will have to await further news.
