Customers should control the data that their financial activity generates – and a new proposed rule called Section 1033 will ensure that they do.
The Consumer Financial Protection Bureau (CFPB) on Thursday proposed its new Section 1033 data rule. When finalized, the proposed rule will return power to consumers by giving them control over the use of their personal financial data. By clarifying how consumers can assert their rights over the collection, use and sharing of their personal financial data, Section 1033 will level the playing field between American households, banks and Big Tech.
Many now-common practices that both hurt consumers and undermine competition in the financial services sector would be restricted under the rule. At present, your bank can make it difficult and expensive to access your data. The companies you transact with can use your data in a variety of ways you might not intend, anticipate or care for – and they don’t have to tell you much about it. The new rules would prohibit banks for charging you to access such data, restrict third-party uses of your data and create a mechanism for you to revoke a company’s access to your data, among other important changes.
A concrete example of the proposed rule’s impact is that by giving consumers ownership of their data, Section 1033 will make it easier for people to switch bank accounts. That will raise competition and lower prices. When it is easier for consumers to walk away from a bank that charges junk fees, the chances increase that markets will become fairer.
Consumers currently stay with their primary bank account for almost 18 years on average. That’s almost as long as the lifespan of the median marriage (21 years) and nearly twice the duration of the average mortgage.
Switching bank accounts is hard because there is no easy way to port your bill payments, direct deposits and recurring automatic debits to a new account. As a person’s financial life grows in complexity, the challenge mounts, and with the subscription model’s emergence, the difficulty level is accelerating for all of us.
Banks can retain your business by trapping your data. Rather than provide a simple “export to csv” tool, banks leave your data locked up. As a result, experts say it’s reasonable to spend a month porting your checking account from one bank to another because you have to leave your old account open in case you forgot to change one of your recurring bill instructions. How is this possible when consumers can qualify for a mortgage in ten minutes?
Comparing the landscape in retail banking with the markedly different experience in smartphone data plans illustrates the possibilities afforded by the expansion of consumer rights over their financial information. At one time, switching phone providers meant getting a new phone number and transferring your contact information. That’s consistent with where we stand in banking today: You must provide billers with updated routing and ACH numbers and then put your biller’s information in your new account portal. But today, it’s simple to change phone plans. In fact, because of universal standards, providers can port your number and your contacts for you. Perhaps it should come as no surprise that this affects competition. Today, providers must vie for business in a market with relatively transparent pricing information. Consumers benefit from rewards for switching.
Competition and transparency will make a difference
The liberation of people and capital described above is one of the most important specific effects of the new Section 1033 rule. At the more general and conceptual level, though, Section 1033 is a reflection of a much wider effort underway at CFPB in recent years across the full range of the agency’s work.
One of the defining goals of the CFPB under Director Rohit Chopra has been to foster competition through open and transparent markets. You can see it through a variety of actions. By completing Section 1071 of the Dodd-Frank Act, the CFPB made good on a longstanding small business lending database rule designed to provide daylight in a famously opaque market. Transparency is the essence of the CFPB’s Consumer Complaint Database and the guiding principle behind its efforts to provide simpler disclosures or make algorithmic models explainable in plain English.
The new Section 1033 proposal advances that same value in new terrain. The changes necessitated by the proposed rule would shift the consumer banking world toward greater transparency. All banks will need to provide account holders with tools to control how their data is used, not just the handful of banks who have already volunteered to create portals where consumers can see who has access to their data and for what purpose. People will benefit: almost half of consumers say they know they have subscriptions they are paying for but not using. Greater visibility into data, when complemented by the FTC’s new “click-to-cancel” proposal that mandates companies to make it as easy to cancel a recurring subscription as it is to sign up for it, should lead to savings for households.
Importantly, these rights could foster innovative price comparison services. Provided banks include price information in the data they release, some fintechs will inevitably create a service that provides a tailored comparison of account costs. Consumers will know if they should find a new bank – and when they do, the switch will be easy.
In this new environment, fees will fall. Banks that now get away with paying little or nothing in interest will lose customers. And because our data can’t be held hostage, our banks will have to start caring more about the quality of service they provide alongside their products.
Adam Rust is NCRC’s Senior Policy Advisor.
Photo courtesy of thoughtcatalog.com via Flickr.