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The U.S. is looking at the United Kingdom to learn about open banking, but it is working on a solution that is tailored uniquely to the needs of U.S. consumers, the head of the open banking rulemaking agency told Congress.
Just two weeks after being appointed as the director of the Consumer Financial Protection Bureau (CFPB), Rohit Chopra appeared before the House Committee on Financial Services to testify on his plans on how to reinvigorate consumer protections in the country.
One of the long-running actions that the agency has been working on is the creation of the relevant rules to implement Section 1033 of the Dodd-Frank Act 2010, which allows consumers to share their financial information with third parties, such as fintechs. Fintechs currently need to enter bilateral agreements with banks to be able to provide their services to U.S. customers.
At the Wednesday hearing, Chopra told the members of Congress that he has looked at the UK’s open banking system, as well as at other jurisdictions, to learn from what they have done to give consumers more control over their data.
“I have been personally trying to learn about the UK’s open banking system and I really see it as a great opportunity for all of us,” he said.
He underscored, however, that he is not looking at the UK as a model. Although the U.S. should learn from all of those countries that already have open banking, “we have to do something that works for our people,” he said, pointing out that “we have a much more diverse country, we have a large country.”
“I am not going to replicate what the Chinese or the British are doing. We need to do something that is uniquely ours, that suits our people and our financial system,” he added.
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.
Without giving an exact timeline on how the agency intends to proceed with the rulemaking, Chopra confirmed he has engaged with the responses, but before any rules are drafted, his agency first must understand how payment networks work and how they use the data in their possession.
“I think Section 1033 holds promise to really make sure there is a more competitive environment and that consumers have more choices and that there is not just a handful of incumbents who control everything,” he said, adding that although competition is good, "we are going to make sure we protect privacy, security and other things that are critical.”
For this reason, last week, the CFPB sent out information requests to the four bigtech companies (Amazon, Apple, Google and Facebook), as well as to payment firms Square and PayPal, to enquire more about their payment platforms.
In addition, Chopra confirmed that his agency will look at data aggregators, which are a key part to understand the implications of the Section 1033 rulemaking. They will also take into consideration private sector solutions, which have made significant progress in consumer privacy issues, specifically in moving away from screen-scraping to APIs, he said.
To realize “a lot of the benefits of any Section 1033 rulemaking, we are going to look at systems, protocols, and technologies that are already being used and how they are working or not working,” he stressed.
“I am going to look at it with the eye of competition, security, privacy, and in many cases, open APIs will be a huge vehicle to do so.”
The rules that the CFPB makes to implement Section 1033 will govern how consumers can share their financial information with innovative financial service providers. Banks have long been worried that rules do not apply to fintechs in the same way as they do to banks and that non-bank financial institutions do not provide the same level of consumer protection, privacy, or security.
Addressing these concerns, Chopra agreed that although Section 1033 can unlock more competition and opportunities, regulators also need to make sure “banks and non-banks are operating under the same set of rules and there is no regulatory arbitrage.”
