Banks Brace for Era of Consumer Data Sharing
“This rule will ensure more people have secure, reliable access to their financial information and accelerate innovations that benefit consumers,” Plaid’s global head of policy John Pitts said in a statement.
Wall Street industry groups, however, have argued that the CFPB rule could expose them to liability if a third-party is compromised, among other concerns.
The rule requires that banks set up and maintain interfaces which allow third parties, when granted permission by consumers, access to their data. A spokeswoman for the biggest US bank JPMorgan Chase & Co. called the measure “anything but” safe.
“This isn’t open banking – it’s open season for more fraud and scams,” Trish Wexler, the JPMorgan spokeswoman, said in an emailed statement. “By mandating banks must hand over sensitive customer account data to any third party that got someone to click ‘I accept’ on their app, this rule handcuffs banks’ ability to demand high security standards from third parties.”
Privacy Concerns
Chopra said the rule institutes strong privacy safeguards. Any company authorized by a consumer to access their data can only use that data to provide products or services the consumer asked for, he said during a speech at a conference on Tuesday.
“It’s pretty simple,” Chopra said. “A company that ingests consumer’s data can use the data to provide the product or service the consumer asked for, but not for unrelated purposes the consumer doesn’t want.”
The final regulation would cover checking and prepaid accounts, credit cards and digital wallets, but not mortgages, student loans or auto loans. Chopra said he’s considering a number of other use cases, including how to reduce costs and complexity when it comes to originating mortgages.
Many firms — banks and fintechs alike — have already signed data-sharing deals to end the less-secure option of “screen scraping,” whereby consumers share their user names and passwords with third parties.
This rule also strengthens protections by accelerating a shift away from that practice — which risks inaccurate data sharing and the spread of login credentials, according to Chopra.
An additional benefit could be to small business owners or freelance workers, who can use their existing data as verification to access financial products or capital, Chopra said in the interview.
“The nature of the way this could work may not be apparent to consumers, but may just provide that boost that I think on the margins will help a lot of people,” he said.
(Credit: Shutterstock)
Copyright 2024 Bloomberg. All rights reserved. This material may not be published, broadcast, rewritten, or redistributed.
