Open banking has officially arrived in the United States, marking a seismic shift in the financial landscape. With the Consumer Financial Protection Bureau (CFPB) finalizing its Required Rulemaking on Personal Financial Data Rights (Final Rule), consumers now gain unprecedented control over their personal financial data. This landmark rule mandates that financial institutions, credit card issuers, and other data providers must transfer a consumer’s financial data to another provider upon request, free of charge.
The implications are vast, with regulators envisioning a future where switching bank accounts is as seamless providers. However, for compliance functions within financial institutions, this new era presents both opportunities and challenges. Let’s explore what the CFPB’s open banking rules entail and how businesses can adapt to meet these new regulatory demands.
Broad Scope of the Final Rule
The Final Rule has a far-reaching impact, capturing a diverse range of entities under its regulatory umbrella:
- Data Providers: This includes financial institutions, credit card issuers, digital wallets, and any organization controlling consumer data related to financial services. Even tech companies providing payment interfaces or apps may fall within this scope.
- Third Parties: These are entities, such as a consumer’s new bank or payment provider, that handle consumer data. The rule clarifies their obligations to ensure proper data use.
- Data Aggregators: Companies facilitating third-party access to consumer financial data, like API providers, are also covered under the rule. These entities must adhere to stringent data security and usage standards.
The rule’s broad scope includes “covered data”, which spans transaction histories, account balances, bill information, and payment initiation details. Importantly, there are no explicit exclusions for de-identified or anonymized data, making compliance even more critical.
Privacy Protections: A Top Priority
With vast amounts of personal financial data at stake, the rule prioritizes consumer privacy and security. Key measures include:
- Restricted Use: Third parties can only use consumer data for the specific purposes requested by the consumer. Any unrelated use, such as targeted advertising, is strictly prohibited.
- Eliminating Risky Practices: The rule discourages outdated methods like “screen scraping,” which involve sharing login credentials with third parties. Instead, it promotes secure API-based data sharing.
- Consumer Control: Consumers can revoke access to their data at any time. When access is revoked, data must be deleted unless the consumer explicitly reauthorizes its use within a year.
These provisions are designed to foster trust, giving consumers greater choice and confidence in the open banking ecosystem.
Tightening Standards for Data Usage
Regulators expect extreme care in handling transactional data. The rule emphasizes that:
- Data must only be used for the product or service the consumer requested.
- Consent for data access must be informed, explicit, and easy to revoke. Complex or manipulative processes, often referred to as “dark patterns,” are explicitly prohibited.
- Institutions must establish clear policies for data accuracy, retention, and security.
These measures align with the CFPB’s goal of safeguarding consumer interests while promoting competition and innovation in financial services.
Managing Third-Party Risks
For financial institutions, managing third-party risks becomes a significant part of compliance. The Final Rule outlines obligations for data providers to:
- Offer consumer-friendly and developer-facing interfaces that adhere to specific performance, security, and format standards.
- Publicly disclose privacy policies and procedures in both human-readable and machine-readable formats.
- Ensure third parties meet the rule’s three-part authorization process: disclosure, certification of obligations, and informed consumer consent.
Data aggregators facilitating this process are held to strict standards, limiting their ability to use data for secondary purposes like advertising or cross-selling.
Phased Implementation
To ease the transition, the CFPB has implemented a phased compliance timeline based on the size of the institution:
- Larger institutions: Compliance by April 1, 2026.
- Smaller institutions: Compliance by April 1, 2030.
- Exemptions: Certain small banks and credit unions are exempt from these requirements.
This staggered approach allows institutions to align their systems, develop robust compliance strategies, and prepare for the operational changes the rule demands.
The Path Forward: Are You Ready?
The CFPB’s Final Rule signals the dawn of a more transparent and consumer-focused financial ecosystem. However, for financial institutions, compliance isn’t just about meeting regulatory requirements—it’s about leveraging this shift to build trust, foster innovation, and stay competitive.
Connected Risk from Empowered Systems provides the tools you need to navigate the complexities of open banking compliance. Our platform offers end-to-end support for managing regulatory obligations, assessing third-party risks, and ensuring secure data handling. Don’t wait—prepare your compliance function today.
Learn more about how Connected Risk can help your institution thrive in the era of open banking.
With the right approach, open banking can become an opportunity for growth, innovation, and enhanced consumer relationships. Let Connected Risk guide your journey into this exciting new chapter.
