The Consumer Financial Protection Bureau is preparing to change its rules on financial data, and a battle is brewing between existing financial institutions that control it, such as banks, and the upstart fintechs lookingto unlock this data.
In one of the key regulatory fintech areas under review, Section 1033 of the Dodd-Frank Act, the changes could have a major impact on how consumers can access and move their financial data between banks, fintechs and other companies — as well as which companies become consumers' go-to source for financial services. The deadline for submitting comments on changing these rules was Thursday.
Fintech companies are pushing for rules that allow consumers to access this data more easily through new fintech products.
A group of 21 companies — including Plaid, TransferWise, Dave, Credit Karma and Gusto, as well as the MarketPlace Lending Association, whose members include Affirm and SoFi — wrote a letter to the CFPB arguing that consumers be able to authorize fintech companies to access this data more freely.
Meanwhile, banks and other financial institutions are pushing back against this accessibility, arguing that there are cybersecurity risks involved with sharing data and that the costs are prohibitive in implementing this technology.
The fintech companies, which do things such as help consumers track spending, save, decrease debt, improve credit scores and access loans, say that consumers need access to their financial data in order to achieve these goals. "To use our services, consumers rely on their ability to authorize the sharing of their financial data," the group wrote.
But banks and other "data holders" that have this data through a direct relationship with consumers have not shared the data with other companies in the same way they do for their own apps, the fintech companies say. "Understandably, data holders have an advantage in this current system: as data holders they can impose limits on what type of data is shared, how it is shared, and who it is shared with," the letter to the CFPB says. "When consumers lack control over their own financial data, they are impeded from accessing financial services they want to use."
However, companies' access to this financial data could put the burden of cost on banks and credit unions, without fintech companies paying their share, the Credit Union National Association wrote in its comments to the CFPB. "CUNA is concerned about the cost of market failures if a rule develops that requires credit unions to give free access to its financial data or other proprietary intellectual property," the comment reads. "In this particular instance, financial services providers invest significant resources in time, money, and continued upkeep for their databases, online access, and organized details about transactions. If third parties can access and use this data without paying their fair share, these third parties are free-riders."
Consumers may also be confused about the difference between fintech companies and credit unions, CUNA wrote. "Credit unions are concerned that consumers will encounter businesses offering financial services similar to a credit union or bank without realizing that these non-regulated entities do not provide the same data security, privacy, and consumer protections as regulated financial [institutions]," CUNA wrote.
Cybersecurity is also a risk, CUNA wrote. "Currently, there are regulatory gaps that fintech and other companies exploit to provide financial services. This leads to less consumer protection and, at its worst, leads to the exploitation of consumers as their expectation of consumer protection has historically been based on the regulation of financial institutions and the products and services they offer."
Of course, when this data access is limited, fintech companies can't do what they want to do: create and build new products such as savings, budgeting or lending apps. The lack of access to this data could make many fintech companies' products much less useful, and therefore much less valuable. It's hard to budget on an app when the spending or savings data is days or weeks old, for instance.
The fintech companies argue that this data belongs to consumers and they should be able to share it with whichever app or company they want. "Consumers' financial data belongs to consumers, and their access to that data should not depend on who is currently holding that data," the letter says.
The group is asking that banks and other data holders not be allowed to limit this data access and data sharing. "Right now some data holders restrict consumers' ability to access their own data, which prevents consumers from benefiting from financial technology," they wrote. "The Bureau should require that a data holder can not limit any information that can be reasonably construed as belonging to the consumer for both direct and authorized access."
Notably, Plaid said it would welcome direct regulatory supervision of data aggregators such as Plaid as part of larger changes to regulating this sector. But until that happens, Plaid suggests that CFPB can exercise "supervisory authority" over companies that provide data aggregation services to banks, according to John Pitts, policy lead at Plaid.
Plaid is also asking for "full parity" between direct data access from, say, a consumer's bank and other access through another fintech company that the consumer authorizes. In other words, a consumer should be able to access the same data directly from a bank and through another provider.
Plaid isn't asking for specific types of data that should be accessible to fintechs to be named, but it is asking CFPB to create broader rights for consumers and principles for data that should be made available to consumers and fintech companies they want to authorize.
The CFPB shouldn't allow data holders such as banks to restrict access to the data just to support their competition against other companies, Plaid said. For example, some banks don't update certain data as often for aggregators as they do for their own mobile apps; some do it only once a day, Plaid said, but having continuous access to this data is needed for personal finance tools and budget tracking.
When banks limit updates to this data, for example to once a day, the data in fintech apps is "outdated" for any spending or deposits made after that point in the day. "[T]his can result in consumers making spending choices based upon inaccurate information presented in their third-party applications," Pitts said.
This is also a competitive issue, Pitts said, because "limiting updates can make third-party services ineffective for consumers, and at the very least inferior to the data holder's own services, leading to diminished competitiveness among these providers."
The Bank Policy Institute, a group representing the banking industry, said that industry groups should set technical standards for accessing this financial data, which would ensure "innovation and competition." "The CFPB should encourage market-driven solutions and avoid engaging in specific technical standard setting for consumer data sharing," BPI wrote in its comments.
In its comments, the American Bankers Association argued against the CFPB defining what data fields should and shouldn't be regulated. "A more prescriptive approach is not only unnecessary but may undermine the progress that has already taken place and risks leaving consumers exposed if undertaken too narrowly," the ABA wrote.
