US Open Banking Rules: ’We Don’t Wanna Be China,’ Says Chopra

April 29, 2022
Bigtech and the use of big data are top concerns of the US Consumer Financial Protection Bureau (CFPB) as the agency forges ahead with its open banking rulemaking, Rohit Chopra has told Congress.

  • Open banking rulemaking to get to next step within a year
  • CFPB to provide clarity by guidance with focus on SMEs, new entrants
  • Enforcement shifting from SMEs to large repeat offenders

Bigtech and the use of big data are top concerns of the US Consumer Financial Protection Bureau (CFPB) as the agency forges ahead with its open banking rulemaking, Rohit Chopra has told Congress.

Appearing in Congress earlier this week, Chopra said his agency is “deeply engaged” with market participants and others about the future of the consumer finance ecosystem.

The CFPB will be “very focused on what the future holds and how we can collectively shape it in ways that align with American values”.

According to Chopra, the United States is currently “lurching toward a consolidated market structure where finance and commerce co-mingle fueled by uncontrolled flows of consumer data”.

This is the market structure that has emerged in China, where Alipay and WeChatPay predominate, building on their far-reaching presence in e-commerce and messaging services.

These super-apps have access to an enormous set of data about consumers, businesses and banks and developed a social scoring system which goes beyond credit performance and relies on analysing user habits unrelated to credit and banking.

“The outsized influence of such dominant tech conglomerates over the financial services ecosystem comes with risks and raises a host of questions about privacy, fraud, discrimination, and more,” Chopra stressed.

The CFPB is currently studying these issues as part of its inquiry into bigtechs’ entry into consumer payments, which is expected to inform the agency’s rulemaking process on open banking, also known as the Section 1033 rulemaking.

The Dodd-Frank Act 2010 tasked the CFPB with issuing regulations that implement Section 1033 of the act, which gives consumers the right to share their financial information with third parties.

The CFPB first started to look at Section 1033 five years ago, when it issued a request for information to market participants. That was followed by the publication of an advance notice of proposed rulemaking last November.

Chopra told lawmakers his agency is committed to ensuring that the CFPB takes “meaningful steps” to advance pending rulemakings.

Without giving an exact timeline, the CFPB director hopes to get to the next step in the rulemaking process within a year.

Meanwhile, as the CFPB is rethinking its approach to regulations, Chopra said he aims to ensure that rules are simple and easy to follow.

“I am concerned that the approach to regulations pursued by federal banking agencies is excessively complicated. I have asked CFPB staff to put a higher premium on simplicity and ‘bright lines’ whenever possible.”

He is planning to “dramatically” increase the issuance of guidance to provide further clarity and help businesses comply with the law.

In doing so, his agency’s priority will be on areas where guidance can support compliance efforts by small institutions and new entrants.

With regard to enforcement, Chopra reiterated that his focus will be on repeat offenders and large players whose misconduct can cause large-scale harm.

Chopra first spoke out against repeat offenders at the end of March and has brought two cases since then against TransUnion and MoneyGram.

His testimony was made as part of the CFPB’s semi-annual report, appearing on two consecutive days at the Senate (April 26) and the House (April 27).

The CFPB has been in the crossfire of partisan debates since its inception. As divisive as always, Chopra has been praised by Democrats for placing consumers over large banks and lashed out at by Republicans for aggressively overstepping the Congress-given authority.

“American workers need a strong Consumer Financial Protection Bureau on their side. With you at the helm, they finally have one again,” said Sherrod Brown (D-OH), chair of the Senate Banking Committee.

His statement was followed by ranking member Pat Toomey (R-PA) who said the CFPB is now more “out of control” than ever before, and “the contagion is spreading”.

See also: U.S. To Go Its Own Way In Open Banking And Finance Initiatives

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