The Consumer Financial Protection Bureau followed through Friday on a plan to let its open banking rule die.
The federal agency filed a motion for summary judgment in U.S. District Court for Eastern Kentucky in a case brought by bank groups last year challenging the rule. In its Friday filing, the CFPB conceded the rule was unlawful.
The rule “unlawfully seeks to regulate open banking by mandating the sharing of data with ‘authorized third parties,’” the CFPB’s 27-page filing asserted. The rule also unlawfully prohibits financial institutions providing the data from instituting fees for sharing the data and unlawfully sets deadlines for compliance without a consensus on how standards will be developed, the filing said.
The CFPB’s position is an about-face by the Trump administration on the open banking rule crafted by the agency’s former director, Rohit Chopra, during the Biden administration. The agency had put the rule in place last October to give consumers more control over sharing their financial data, such as bank account information, with other financial service providers.
The move toward open banking was an attempt to let consumers opt to send their financial data to other financial institutions or any one of a number of young fintechs offering new digital financial services. Open banking has already gained traction in Europe and advocates have pushed for it in the U.S. for years, leaning on Section 1033 of the Dodd-Frank Wall Street Reform and Consumer Protection Act.
The Bank Policy Institute, which represents most of the big U.S. banks, and the Kentucky Bankers Association brought the lawsuit against the CFPB last October, along with Kentucky-based Forcht Bank, immediately after the rule was finalized the same month.
A week before the agency’s latest filing last month, the bureau’s chief legal officer, Mark Paoletta, signaled the CFPB’s plans in a court filing. “After reviewing the Rule and considering the issues that this case presents, Bureau leadership has determined that the Rule is unlawful and should be set aside,” the agency wrote in a May 23 filing.
The federal agency’s filing echoed arguments made by plaintiffs in a longer, 50-page filing Friday also seeking summary judgment and outlining arguments against the rule. That court filing argued that the agency exceeded its authority in establishing the rule; that the framework for the mandated data-sharing was “arbitrary and capricious”; and that the rule was unlawful for a number of reasons, including that banks wouldn’t be allowed to charge fees for application programming interfaces they would provide to facilitate the data-sharing.
The Financial Technology Association, which supports the rule, was last month granted leeway by U.S. District Judge Danny C. Reeves to intervene in the case and defend the CFPB open banking rule. The trade group, which represents companies that would benefit from the third-party data-sharing, said in a statement Friday that it will continue to fight to protect the rule.
“Americans must have a right to securely control and share their financial data to access the apps and services of their choice,” FTA CEO Penny Lee said in the statement. “FTA will continue to defend this right and work to uphold Americans’ financial freedoms.
The FTA’s members include digital payments pioneer PayPal, neobank Chime and financial technology provider Block.
The association contended in its statement that big banks are trying to limit competition and short-change consumers’ control of their data. It also noted that the rule was initially put forward during the first Trump administration with “broad bipartisan support.”
The Financial Data and Technology Association’s North America arm also protested the bureau’s court arguments against the rule. That association, which represents the fintech Plaid, processing giant Fiserv and other fintechs, said in a Friday statement that it “strongly” rejects the CFPB claim that Dodd-Frank doesn’t allow for the sharing of consumers’ data with third-parties.
