CFPB Considers Rescinding rule 1033: Industry Reacts
Capital – May 9,2024 – The Consumer Financial Protection Bureau (CFPB) is considering rescinding Rule 1033,a move that could significantly impact the financial industry. The CFPB indicated it would petition a U.S. District Court to rescind the rule, which was enacted in October 2024 and began phased enforcement in January. This follows a lawsuit from several banks, with reactions from FinTechs and trade associations varying. Industry leaders are now evaluating the implications of a future without the rule, which will reshape banks’ and FinTech firms’ strategies. Read on for an expert analysis.
CFPB’s Rule 1033 Faces Potential Rescission: Industry Reacts
- Banks and FinTechs are reassessing strategies amid regulatory uncertainty.
- Potential changes to Rule 1033 could reshape partnerships between conventional banks and FinTech firms.
The future of Rule 1033 is uncertain. The Consumer Financial Protection Bureau (CFPB) indicated it would petition a U.S.District Court in Kentucky on May 30 to rescind the rule.
This action was part of a status report in response to a lawsuit filed by several banks and the Bank Policy Institute (BPI) against the CFPB and acting Chairman Russell Vought. The plaintiffs argued that the CFPB lacks the authority to mandate free, comprehensive data-sharing and that the rule could undermine private-sector open banking efforts, increase fraud, and fail to hold third parties accountable.
The CFPB stated in a court document released late Friday, 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 bureau intends to file a motion for summary judgment by May 30, 2025.
As with recent CFPB announcements, details were limited, and reactions were muted due to the holiday weekend. The industry is now evaluating the implications of a future without the rule, which was enacted in October 2024 and began phased enforcement in January.
Trade associations have voiced differing opinions on the rule’s implications.
The CFPB has taken the appropriate step of acknowledging section 1033’s clear legal deficiencies, and we urge the big tech companies to do the same, rather than protracting a legal dispute that endangers consumer financial data.
bank Policy Institute
The BPI added, Banks have already made it possible for hundreds of millions of Americans to safely access and share their data – the current rule undermines and disrupts that ecosystem to the benefit of tech companies looking to profit even further from consumers’ data.
FinTechs,however,favored the rule because manny rely on data sharing for their business models. Penny Lee, president and CEO of the Financial Technology Association, said:
Vacating the 1033 rule is a handout to Wall Street banks, who are trying to limit competition and debank Americans from digital financial services.
Financial Technology Association
Lee continued, Americans must have the right to control their financial lives, not the nation’s biggest banks. As an intervening party in the ongoing litigation, FTA will continue to defend open banking and americans’ freedom to access the financial services they want to use. We remain committed to building a financial system that is inclusive, innovative, and centered on the needs of everyday Americans.
Open banking allows third-party financial service providers to access consumer banking, transaction, and other data from banks and financial institutions through APIs.
irrespective of Rule 1033’s fate, open banking and pay by bank solutions continue to advance. Kathryn McCall, chief legal and compliance officer at Trustly, stated late last year:
When we talk about the data collection and use the rule, it allows companies and third parties like Trustly to collect and use data for payment solutions. we’re reassured that we’ll be able to collect and use the data … as long as we receive the proper authorization from the consumer.
Kathryn McCall, Trustly
she added that life under the rule, if it remained in effect, would be very similar to our current authorizations and our current [user experiance]. There will not be many changes, and we’re well-positioned to adapt to the new rule.
Though, the rule and the CFPB’s regulatory authority are now in question. The recently passed budget reconciliation bill, H.R. 1, includes provisions to considerably reduce CFPB spending.
Rep. French Hill,R-Ark., chairman of the House Financial Services Committee, told the House Rules Committee that the bill puts a firm cap on the Consumer Financial Protection Bureau’s budget, setting its funding at no more than $249 million for 2025, with an annual adjustment for inflation going forward.
According to Ballard Spahr, the CFPB had incurred approximately $755.1 million in FY24 spending as of Sept. 30, with about $480 million spent on employee compensation and benefits for its 1,755 employees. The CFPB is funded by the Federal Reserve Board from the combined earnings of the Federal Reserve system.
The trump administration has proposed eliminating over 1,400 employees at the agency, leaving around 200 workers, but this plan has been temporarily blocked by the Court of Appeals for the District of Columbia Circuit.
