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As the US is heading towards creating an open banking framework, regulators have no intention of "micromanaging" open banking, Rohit Chopra wrote ahead of an expected heated congressional hearing.
The Consumer Financial Protection Bureau (CFPB) is working to set up a regulatory framework for open banking which will help consumers control their personal financial data to enable them to better manage their finances and switch their providers more easily.
A consumer’s right to share their financial data with third parties is enshrined in a post-financial crisis 2010 law, but these rights will become “a practical reality” after the CFPB implements the open banking rule and “sets expectations for the market”, CFPB director Rohit Chopra wrote in a blog post.
“But the agency must not micromanage open banking,” Chopra emphasises.
This means that the CFPB will let the market develop standards leveraging the agency’s open banking rule where “consumers can vote with their feet”.
The upcoming proposal will therefore “recognise that the CFPB must resolve certain core issues because system participants are either deadlocked or existing approaches do not put consumers fully in the driver’s seat”.
“But many of the details in open banking will be handled through standard-setting outside of the agency.”
Chopra, a fierce advocate for consumer protection issues, however, warned that standard-setting organisations “must not skew to the interests of the largest players in the market”.
Although the CFPB “intends for the market to play a significant role in developing and maintaining open banking standards, it will pay close attention to any attempts to limit consumers’ exercise of their data rights, particularly where such attempts proceed from coordinated efforts by dominant firms”.
Industry players welcomed the statements.
“We support the approach of balancing government regulation with industry to set the policy framework for open banking,” Scott Talbott, SVP of government relations at the Electronic Transactions Association (ETA), told VIXIO.
This allows open banking to develop “with the best of both worlds”, he added.
A spokesperson for the Financial Technology Association (FTA), whose members include fintechs such as Block, Stripe and PayPal, said they are pleased to see the CFPB continue to prioritise open banking rulemaking.
The agency first announced a request for information under its ongoing rulemaking exercise in 2016, but the work has been accelerated only in recent years as many parts of the world have moved to adopt various forms of open banking regulations.
The US framework will be different from the rules in the EU and UK in the sense that it will not support payment authorisation/initiation, at least not initially, as reported by VIXIO.
The agency is expected to publish a formal proposal in a few months that will be finalised in 2024, following a public consultation.
The writing was posted on the CFPB blog one day before a two-day congressional hearing, which will see Chopra appear for the first time before the Republican-controlled House Financial Services Committee.
During the hearing, Chopra is anticipated to face a harsh dress-down from Republican lawmakers who have often decried regulatory overreach and abuse of power by the Chopra-led agency.
The CFPB chief will likely be questioned over various controversial regulatory actions such as his review into credit card late fees and other so-called “junk fees”, while lawmakers may also press him on Supreme Court proceedings that may threaten the existence of his agency.
Moreover, a recent data leak that exposed information of more than 250,000 consumers is also likely to come up during the congressional scrutiny.
When the agency made the incident public, several top Republican members of Congress raised the alarm about whether the CFPB can properly safeguard the information shared by financial institutions and why it took five weeks for the agency to inform legislators about the data breach.
