A court ruling has given banks breathing room from the CFPB’s open banking rule, but the debate around data is not over yet.
A judge has temporarily blocked enforcement of the Consumer Financial Protection Bureau’s (CFPB) open banking rule, pausing compliance deadlines for banks and other financial institutions.
The ruling, issued on October 29 by US District Judge Danny Reeves in Lexington, Kentucky, followed a lawsuit filed by Forcht Bank, the Kentucky Bankers Association and the Bank Policy Institute.
Fnalised last year under the Biden Administration, plaintiffs argued the rule exceeds the CFPB’s authority and imposes costly burdens on banks.
The rule in question is the Personal Financial Data Rights (PFDR) rule, which was designed to give consumers greater control over their financial information. It allows them to access and share data from bank accounts, credit cards, mobile wallets, payment apps and other financial products at no cost.
Judge Reeves agreed with the plaintiffs, stating: “The plaintiffs and their members are being compelled to incur expenses that would be unrecoverable and unnecessary.”
Banks gain breathing room
The Bank Policy Institute, Kentucky Bankers Association and Forcht Bank welcomed the ruling, stating it “ensures banks won’t be forced to invest time and resources preparing for a rule that is currently being rewritten”.
This pause gives banks and credit unions a reprieve from a regulation many view as heavy-handed and expensive to carry out. Institutions have argued the CFPB’s plan could create new security and privacy risks while forcing smaller lenders to invest heavily in systems which may not benefit them.
America’s Credit Unions (ACU), a national trade body, has been among the most vocal critics.
In its submission to the CFPB last week, the group warned the rule “does little to assuage industry concern about managing data security or privacy risks” and could “drive further consolidation within the credit union industry,” strengthening the position of large technology companies.
ACU and other groups have asked for more flexibility. They want the option to charge reasonable fees for data access to offset secure API costs, more time for implementation and more transparent accountability rules for third parties which mishandle consumer data.
Fintechs, crypto advocates and technology firms have taken the opposite view. They say open banking is key to giving consumers more choice and driving innovation.
The Crypto Council for Innovation said open banking supports Web3 and digital asset activity by giving users control over their own financial information. Apple has also supported models which focus on consumer consent, transparency and privacy.
Not the end
The injunction is a win for banks, but it is only a pause. The CFPB is expected to revisit the rule and may rewrite it under new leadership, meaning the broader debate around data in the US will continue.
The rule has been viewed as a foundation for financial access, similar to systems already in place in the UK and Europe. It is meant to make switching between banks or connecting payment services easier, while giving consumers more control over their data.
