US rolls out ‘open banking’ rules to make sharing financial data easier

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The top US consumer finance watchdog has finalised long-awaited “open banking” rules that it hopes will inject more competition into a market with more than 4,000 lenders and make it easier for customers to link their bank accounts to newer apps.

The rules announced on Tuesday by the Consumer Financial Protection Bureau bring the US more in line with the UK and Europe, which had previously codified rules around how financial data is to be shared.

“Too many Americans are stuck in financial products with lousy rates and service,” said CFPB director Rohit Chopra. “Today’s action will give people more power to get better rates and service on bank accounts, credit cards, and more.”

The CFPB has been working on the so-called Section 1033 reforms for eight years, which stem from a provision in the 2010 landmark financial regulation Dodd-Frank act. Since the law was passed third-party apps that are linked to an individual’s bank account have proliferated, without clear rules on how information should be best shared.

The information can be shared through an API (application-programming interface) that allows two websites to easily communicate with each other. But “screen scraping” — where consumers share their bank log-in details for bots to copy their financial information, a practice that regulators have taken a dim view of — is also still used in the US.

The CFPB’s rules will compel banks to put in place systems that will facilitate consumer access to their financial data such as transaction history, account balances and payments details. The CFPB said it was requiring this data be made available for free, and that it hoped these rules would deter the use of screen scraping.

The issue of whether banks could charge a fee to third-parties for data sharing had been an area of contention. Banking lobbyists had argued that banks should have the option to charge a fee given the costs of building systems to facilitate the data sharing.

One aim for the rules is to make it easier for customers to use third-party apps and also stimulate more competition among banks. The US has about 4,000 banks, which range from behemoths such as JPMorgan Chase with more than $2tn in deposits to local lenders with tens of millions of dollars in deposits.

Banks with more than $850mn in assets and fintech companies will be subject to these new data sharing rules.

Advocates for open banking also argue that it could pave the way for greater adoption of direct account payments in the US, known as pay by bank, as a viable alternative to credit and debit cards that typically charge higher fees.