The bland-sounding Personal Financial Data Rights rule proposed by the Consumer Financial Protection Bureau (CFPB) has generated more than 11,000 comments.
CFPB Director Rohit Chopra said the rule would “give consumers the power to walk away from bad service and choose the financial institutions that offer the best products and prices.”
On average, Americans have had the same checking account for 17 years, he added.
“If switching were easier, American families could earn billions of dollars more in interest each year. Since many deposits and payments are now automatic, people feel that if they make a mistake when switching, they’ll face a nightmare of errors and fees.”
In the UK, which has had strong open banking regulations for years, a Current Account Switch Service handles all the outside account links like direct debits, standing orders and bill payments, and notifies direct deposit accounts of the change in a customer’s bank and can make the changeover in about a week.
One of the early CFPB comments was from a customer at a money center bank on the West Coast who complained the bank had fought her efforts to move her money to another financial institution and charged her excessive fees.
When she changed from the bank “to a credit union it took months as the bank would only allow us to move limited amounts and were charging fees in the process. It was frustrating and exhausting. Allowing customers to take control of their banking data, more easily switch banks and secure better service, would save consumers money, time and energy and free us from strong arm tactics employed by major banks today.”
The CFPB’s rule can be a threat to banks in at least two ways — opening the way for other players, especially fintechs, to develop an advisory or investment relationship with the bank’s customers and second, opening the way for consumers to pay directly from their bank accounts rather than use the bank’s credit card.
“Banks had the opportunity to leverage consumer financial information in a positive way to gain the upper hand and keep their customers,” said Brian Costello, head of Data Aggregation Strategy, ByAllAccounts, at Morningstar Wealth Management. Several leading banks offered personal financial management (PFM) programs that allowed customers to see a view of their finances across several institutions. That also gave the home bank an opportunity to offer customers a better return if they brought home accounts they held away.
But, Costello said, banks didn’t take full advantage of their PFMs and third parties, like Mint, moved in and used the data to help the customer by offering products, and services. The third parties disrupted the banks.
“If the banks had started this in the beginning, they wouldn’t be in the situation they’re in now, but it’s not too late.”
Steve Borns, executive director of the Financial Data and Technology Association of North America (FDATA), said the proposed rule would give consumers “the right to access and securely share their financial data electronically with third-party providers of financial tools, products, and services.
“FDATA America member companies today empower consumers to grow their retirement savings, easily and affordably manage their investments, pay their debts, track and plan their saving, file their taxes, access affordable credit, and more efficiently manage their public benefits,” he added.
But access to these third party tools is inconsistent which impairs the ability of third-party providers to compete with incumbents.
The 1033 proposed rule focuses on the retail consumer as an earner and spender, and a bit as a borrower, said Costello. Morningstar connects to large banks, including Chase and Bank of America, for the customer checking and savings data, he added, and also to small credit unions because advisors want to see all available accounts to get a 360-degree view of the customer.
“But our primary value is connecting to brokerage accounts, retirement plans, 539s, doing what a financial aggregator does. We connect, normalize the data, enrich it a a little bit so when we send to advisors it is fit for purpose, for financial advisor and performance reporting. That is a complex thing to do, we have been doing it for a couple of decades, we are the leader in that.
“But the open banking rule doesn’t go far enough to include the type of accounts we are interested in and consumers are interested in — brokerage and retirement accounts.”
He attributes the limits to CFPB going with the art of the possible. When it comes to checking and savings accounts held by banks,“CFPB has clear authority over these types of accounts, they have clear authority over these type of institutions.”
However, retirement accounts fall under the Department of Labor, asset accounts fall under the SEC and annuities fall under state insurance regulators. Morningstar has asked the CFPB to expand the open data rule’s coverage because to the consumer, retirement savings are simply another part of her finances, Costello said.
“For us the two top concerns are making sure that consumers can engage with the third party of their choice, but also making sure that the advisor who services consumers has access to all of that consumer’s accounts so she has all the information she needs to give the best advice. The customer knows she has money here, here and there, and she wants her advisor to be able to give them advice across all of it.”
The consumer data access will also allow companies that offer account to account payment a view of customer information such as account balance, 24 months of transaction data and scheduled bill payments. That will help them manage risk and price their services.
Trustly, which has over 20 million users in North America, provides an alternative to credit cards, said Matt Janiga, the firm’s director of regulatory and public affairs.
“We deliver an alternative payment method to card, with lower costs and the same level of approval rates, and we facilitate guaranteed payments.” It works on ACH rails, which makes it very inexpensive, and also runs on FedNow and RTP from The Clearing House, he added. Trustly has connections to more than 8,000 banks and credit unions.
Some banks will respond to an Trustly payment with a message to the account holder suggesting it isn’t as safe as the bank’s credit card. Morningstar’s Costello thinks that sort of messaging will probably be banned by CFPB rules.
“If the bank is stepping in responsibly, that’s okay, but saying account to account payments are unsafe and the customer should use a credit card is unfair because it is interrupting the flow of the consumer.”
Janiga said that even while some large banks are discouraging consumers from using direct payment from their personal accounts, they are telling merchants they offer the service.
Capital One is interesting, he added, because while it has a large card business, it is also focused on providing a good customer experience, so it offers one of the better experience in open banking, he added.
Andres Suay, vice president of marketing at Trustly, said consumer attitudes are changing.
“Younger people are more used to P2P, so they are open to bank to bank payments. Merchants see this as viable, but are looking at how to tie it to loyalty programs to increase customers’ life-time value.”