The Consumer Financial Protection Bureau (CFPB) has announced it will vacate its own Section 1033 rule, which made it easier for consumers to share their financial information. The bureau’s new leadership said the rule was unlawful and should be eliminated.
The CFPB made plans to drop the rule as the bureau was preparing for a Kentucky lawsuit brought by state banking groups that argued the rule imposed heavy compliance costs and failed to address liability issues around fraud and misuse of consumers’ financial data, according to the financial news site Banking Dive.
The Section 1033 rule, which was adopted by the CFPB in October of last year, made it easier for consumers to safely share their financial data between banks and third parties via application programming interfaces (AFIs). The rule was designed to make it easier for consumers to switch financial institutions.
But since its adoption, the rule has been mired in legal challenges from the banking industry. The Bank Policy Institute (BPI), the Kentucky Bankers Association and the Forcht Bank of Lexington, Ky., filed a lawsuit against the rule in the U.S. District Court for the Eastern District of Kentucky.
The financial groups charged the CFPB with overstepping its authority and maintained the rule would put consumers and the banking system at risk of misuse and fraud.
The announcement by the CFPB to drop the rule came as the Kentucky lawsuit was moving forward. In March, Judge Danny Reeves stayed the lawsuit while CFPB Acting Director Russell Vought reviewed the bureau’s position on the rule.
CFPB officials announced on May 23 that after reviewing the rule and the issues involved in the case, the bureau had determined that the rule was unlawful and should be set aside.
The BPI wrote in a statement after the CFPB announcement that the bureau had taken the appropriate step of acknowledging Section 1033’s clear legal deficiencies, and they urged the big tech companies to do the same, rather than protracting a legal dispute that it claims endangers consumer financial data.
“Banks have already made it possible for hundreds of millions of Americans to safely access and share their data,” the institute’s statement read. “The current rule undermines and disrupts that ecosystem to the benefit of tech companies looking to profit even further from consumers’ data.”
According to BPI, a competitive data-sharing ecosystem already exists in the U.S., which the rule would disrupt. The institute noted that more than 120 data aggregators currently connect consumer financial data with banks and other financial providers.
