The controversial Personal Financial Data Rights rule proposed by the Consumer Financial Protection Bureau (CFPB) generated more than 11,000 comments.
CFPB Director Rohit Chopra said the rule “will empower consumers to move away from poor service and choose financial institutions that offer the best products and prices.”
On average, Americans have the same checking account for 17 years, he added.
“If it were easierto transfer, American families could earn billions of dollars in extra interest each year. Because many deposits and payments are now automated, people feel that if they make a mistake in transferring , they will face a terrible mistakes and compensation.
In the UK, which has had strong open banking regulations for many years, a Current Account Switch Service handles all external account links such as direct debits, standing orders and payments of the bill, and notified the direct deposit accounts of the bank change of a customer and can. the change in almost a week.
One of the CFPB’s first comments was from a customer of a West Coast money center bank who complained that the bank was fighting his efforts to transfer his money to another financial institution and charging him excessive fee.
When he switched from a bank “to a credit union it took months because the bank would only allow us to transfer a limited amount and charged fees in the process. It’s frustrating and exhausting. Allowing customers to control their banking data, switch banks more easily and get better service, saves consumers money, time and energy and frees us from strong arm tactics used in today’s big banks.
The CFPB rule could be a threat to banks in at least two ways — opening the way for other players, especially fintechs, to create advisory or investment relationships with bank customers and second , opening the way for consumers to pay directly from their bank accounts rather than using the bank’s credit card.
“Banks have an opportunity to use consumer financial information in a positive way to gain the upper hand and retain their customers,” said Brian Costello, head of Data Aggregation Strategy, ByAllAccounts, at Morningstar. Wealth Management. Many leading banks offer personal financial management (PFM) programs that allow customers to view their finances across multiple institutions. That also gives the home bank an opportunity to give customers better returns when they bring home accounts they’ve been holding back.
However, according to Costello, the banks are not taking full advantage of their PFMs and third parties, such as Mint, have moved and used the data to help the customer by offering products, and services. Third parties disrupt banks.
“When the banks started this in the beginning, they wouldn’t be in the situation they are 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 in third-party providers of financial tools, products, and services.
“FDATA America’s member companies now empower consumers to grow their retirement savings, easily and affordably manage their investments, pay off their debts, track and plan their savings, file on their taxes, access to affordable credit, and more efficient management of their public benefits,” he added. .
But access to these third-party tools has not uniformly undermined 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 less as a borrower, Costello said. Morningstar connects with big banks, including Chase and Bank of America, for customer reviews and savings data, he added, and also with smaller credit unions because advisers want to see all available accounts to get a 360-degree view of the customer.
“But our core value is connecting brokerage accounts, retirement plans, 539s, doing what a financial aggregator does. We connect, normalize the data, enhance it a little bit so that when sent us advisors it’s fit for purpose, for financial advisors and performance reporting. That’s a complex thing to do, we’ve been doing it for several decades, we’re at the forefront of that.
“But the open banking rule isn’t broad enough to include the type of accounts we’re interested in and consumers are interested in — brokerage and retirement accounts.”
He gives the CFPB limitations that accompany the art of the possible. When it comes to checking and savings accounts held by banks, “The CFPB has clear authority over these types of accounts, they have clear authority over these types 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 asked the CFPB to expand the coverage of the open data rule because for the consumer, retirement savings are another part of his finances, said Costello.
“For us the two main concerns are making sure that consumers can join the third party of their choice, but also making sure that the adviser serving the consumer has access to all the consumer’s accounts so that he has all the information he needs to give. the best advice. The customer knows he has money here, here and there, and he wants his advisor to give them advice on all of it.
Access to consumer data will also allow account payment companies to view customer information such as account balances, 24 months of transaction data and scheduled payments. bill That helps them manage the risk and price of their services.
Trustly, which has more than 20 million users in North America, provides an alternative to credit cards, said Matt Janiga, the company’s director of regulatory and public affairs.
“We provide an alternative way to pay by card, with lower costs and the same level of approval rates, and we facilitate guaranteed payments.” It works with ACH rails, which makes it less expensive, and also runs FedNow and RTP from The Clearing House, he added. Trustly has connections with more than 8,000 banks and credit unions.
Some banks respond to a Trustly payment with a message to the account holder suggesting that it is not as secure as a bank credit card. Morningstar’s Costello thinks that kind of messaging is likely prohibited by CFPB rules.
“If the bank is responsible, that’s okay, but to say that the payment account is not safe and the customer has to use a credit card is unfair because it interrupts the flow of the consumer.”
Janiga said that although some major banks discourage consumers from using direct payments from their personal accounts, they tell merchants that they offer the service.
Capital One is interesting, he added, because while it has a large card business, it also focuses on providing a good customer experience, so it offers one of the best open banking experiences, he added.
Andres Suay, vice president of sales at Trustly, said that consumer attitudes are changing.
“Young people are more used to P2P, so they are open to bank payments. Merchants see it as possible, but look at how to tie it to loyalty programs to increase the value of the lives of those customer.
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