A lot of people stick with their bank for years. Many, many years.
That may be because they’re satisfied with the services they get. But in some instances it may be because it’s just too much of a hassle to move their money, especially if they have automated bill payments set up.
“Too often, customers stay with a checking account that doesn’t fit their needs because it’s too complicated to switch and risk being charged an overdraft or late fee if they miss a recurring bill,” said Adam Rust, director of financial services at the Consumer Federation of America.
A new regulatory rule finalized this month by the Consumer Financial Protection Bureau aims to reduce that hassle and make it easier, more secure and always free for customers to switch accounts or to simply transfer or share their financial data from their banks, credit card issuers and other financial service providers upon request.
“Too many Americans are stuck in financial products with lousy rates and service,” said CFPB director Rohit Chopra in a statement. “[The new rule] will give people more power to get better rates and service on bank accounts, credit cards and more.”
But the rule, which isn’t scheduled to go into effect until 2026 for large financial institutions and 2030 for smaller ones, is already facing a potential roadblock in the form of a lawsuit filed by banking associations.
How the rule would work
If you have a checking account, credit card or mobile wallet, there may be times when you want to transfer some of your data — such as transaction history, online bill paying information or any other information needed to facilitate a payment, apply for a loan or set up a new bank account.
Currently, you probably have to do some work to get your data transferred from one institution to another or to a personal finance management app or any other fintech service.
“The problem the CFPB (rule) is addressing is the paperwork required of consumers to change accounts. … (C)onsumers will want to port their bill-pay directory and their recurring ACH orders, and for the moment, that can only be done manually,” Rust said. “It’s three hours on a Saturday.”
Specifically, under the rule according to the CFPB, “consumers will be able to access, or authorize a third party to access, data such as transaction information, account balance information, information needed to initiate payments, upcoming bill information, and basic account verification information. Financial providers must make this information available without charging fees.”
The rule will also restrict how third parties may use and retain the data consumers request be shared. It will, for instance, require companies receiving a person’s data to act on behalf of that consumer but only for what the person requests.
“That means companies can’t offer you a payment product that uses your data, but then use your data against you by feeding it to a personalized models that ends up charging you more for an airline ticket or other service. That’s not what you were in the market to get,” Chopra said in a speech at the Federal Reserve Bank of Philadelphia.
And, he added, it may make it easier for consumers to get the loan products they want without having to rely so heavily on credit scoring. “If a consumer chooses, they could allow mortgage lenders to use data from their checking account on their income and expenses in the underwriting process. This data could help supplement and improve the accuracy of traditional credit histories and help more people obtain credit on better terms. Over the long run, this could reduce the system’s dependence on credit scores,” Chopra explained.
Banks push back
The banking industry wasted no time in expressing its displeasure with the new rule — known as the personal financial data rights rule. “(I)t is clear that our longstanding concerns about scope, liability and cost remain largely unaddressed. This is disappointing after so many years of good-faith efforts by parties on all sides to improve consumer outcomes,” Rob Nichols president and CEO at the American Bankers Association, said in a statement.
It’s possible no institution may be subject to the new rule if a lawsuit filed to block it succeeds.
The suit — filed by the Bank Policy Institute, the Kentucky Bankers Association and Kentucky-based Forcht Bank — alleges that the CFPB overstepped its statutory authority and that its rule puts at risk consumer privacy, their financial data and account security — effectively upending what the banks assert is an already “well-functioning ecosystem that is thriving under private initiatives.”
Jaret Seiberg, financial services policy analyst at TD Cowen Washington Research Group, said he thinks the banks may stand a chance of prevailing. “Dodd-Frank only requires banks to provide financial data to consumers. It does not mandate that banks provide data to thousands of commercial entities with unknown credentials or security protocols,” Seiberg said last week in a daily research note. “The CFPB also expects banks to ensure third parties have robust security practices, but restricts the ability of the banks to enforce standards.”
The CFPB has not issued a formal response to the lawsuit, although Chopra, speaking at a conference in Las Vegas on Sunday, said he is not surprised that some of the “largest players are the ones who want to slow it and stop it. They actually had like a 50-page lawsuit ready within hours of us being finished. I haven’t read their lawsuit and I don’t think they’ve read the rule.”
