Plaid Policy Pulse: Consumer data rights matter for fintech

A critical policy moment for the fintech ecosystem has arrived. Later this year, the Consumer Financial Protection Bureau (CFPB) will propose new rules on Section 1033 of the Dodd-Frank Consumer Protection and Wall Street Reform Act, which grants consumers the right to access their financial data in a usable, electronic format.

These rules matter for consumers because fintech products matter to consumers, and fintech products rely on consumers having the right to share their data. If we get this right, our ecosystem is set to flourish, as we continue to deliver data-powered apps and tools that give consumers power over their financial lives. If we don’t, we could see fintech fragmented, innovation stymied, and consumer choice and benefit hampered.

In this Policy Pulse, we will:

• Provide historical context and current impact of Dodd-Frank Section 1033

• Lay out a vision for an ideal future for financial data access, in which consumers have the right to access all of their financial data

• Outline potential outcomes from the CFPB rulemaking

• Highlight the next steps to get involved

History of Dodd-Frank Section 1033

In 2010, following the global financial crisis, Congress passed the Dodd-Frank Consumer Protection and Wall Street Reform Act to, among other things, give consumers more transparency and control over financial products and services.

Section 1033 of Dodd-Frank, titled “Consumer Rights to Access Information,” granted consumers the right to access their financial records in electronic form.  

As financial technology came to prominence in the 2010s, Section 1033 opened the door for fintech companies to develop products built on consumer-permissioned data. But different interpretations among financial services providers led to the fragmented data sharing system we have today, where a consumers’ ability to share their data depends on which financial institutions they choose to bank with.

While other jurisdictions (UK, EU, Australia) implemented regulatory structures to provide consumers financial data access rights, the U.S. allowed its market-driven structure to flourish. But as some consumers struggled to gain control of their data, calls for stronger data rights grew louder. So the CFPB held a February 2020 symposium to collect insights from stakeholders before announcing its intention to kick off rulemaking later this year.

Future vision: What does an ideal regulatory structure look like?

The U.S.’ financial technology ecosystem is already thriving, with demand for data-driven digital products surging during COVID-19.

Any rules on data access must therefore protect the choices consumers already make when it comes to managing their finances, and expand data access in ways that enhance use cases and enable more consumers to take advantage of digital finance.

An ideal regulatory structure would:

1. Provide a strong and clear right for consumers to access all of their financial information.

2. Establish protections for the consumer when they access and share their data that work for the entire industry, from start ups to Wall Street banks.

3. Let the market figure out the best and most innovative ways to deliver on those rights.

Potential futures

Two vectors shape the issues in Section 1033 rulemaking: the scope of data covered, and the strength of consumer data rights.

The below graphic maps three potential futures onto these vectors.

Current state: Consumers are currently able to share data from a variety of sources in order to power a range of use cases. But with limited regulatory guidance, providers can choose to block consumer data access without repercussions.

(1) Open Finance: The future Plaid wants for our ecosystem. Consumers have data access rights enshrined in laws and regulations, and the full scope of data is covered - not just payments or transactions data, but also investments, liabilities, mortgages, and even payroll and small business data (with some help from Congress).

(2) Open Banking: Currently the model in the UK, where the government enforces a legal right for consumers to access only a limited scope of data (payments data).

(3) Closed Banking: Worst-case scenario, in which providers can restrict consumers’ data access and consumers have no legal right to access. Consumers are stuck with the providers they choose, and cannot access the fintech ecosystem because their data is locked away.

How to take action

When the CFPB formally issues its Announcement of Proposed Rulemaking (ANPR), we need to act as an industry to advance consumers’ interests. Here’s how you can help:

1. File comments: Submit written responses to the ANPR that highlight the benefits your product brings consumers, and the downside of restricting consumers’ ability to share their data to reap the benefits of your product.

2. Compile data that shows consumer benefit: Survey your customers, conduct quantitative analysis (how much do your customers save,  how frequently do they use your product, etc.)

If you can’t do any of these things independently, do them with us. Plaid recently issued a report on the benefits fintech brought to consumers during COVID-19, and we would be thrilled to collaborate with you on similar efforts. With the ANPR expected next month, we don’t have much time, so please reach out as soon as possible.

Ben White works on Policy R&D at Plaid. He's passionate about building a financial services system that benefits everyone.