Banks gaining upper hand as fight over open banking heats up

Bloomberg News

Bank trade groups are asking a federal court to halt enforcement of the Consumer Financial Protection Bureau's open banking rule and extend compliance dates while the Trump administration writes a new rule on personal financial data rights.

The latest court developments come amid an intensifying lobbying fight over how the Biden-era rule will be rewritten — and specifically, whether banks will be allowed to charge fintechs for access to customer data.

On Wednesday, the Bank Policy Institute, Kentucky Bankers Association and a $1.5 billion-asset Kentucky bank filed a motion asking U.S. District Judge Danny Reeves to address compliance with the open banking rule that was finalized last year under the Biden administration. The banks want the court to stay the rule's compliance dates, which start in mid-2026, and halt any enforcement for a year while litigation is ongoing.

The trade groups and Lexington, Kentucky-based Forcht Bank sued the CFPB last year to stop the open banking rule from taking effect. The open banking rule is also called 1033, a reference to the section in the Dodd-Frank Act of 2010 mandating that consumers have personal financial data rights.

Critically, as the Trump administration reopens the issue, it appears open to allowing banks to charge fees. One of the reasons the rule is being rewritten is because the version finalized in October under former CFPB Director Rohit Chopra prohibits banks from charging fees for data access, sources said. 

"Unless the Court acts, banks will be forced to begin investing time and resources to build systems to comply with a regulation that will soon be replaced," Paige Pidano Paridon, co-head of regulatory affairs at the Bank Policy Institute, said Wednesday in a press release.

The CFPB said on July 29 that it would initiate a new rulemaking process on an "accelerated" timeline, committing to file an advance notice of proposed rulemaking within three weeks. The bureau is relying on the Office of Management and Budget to assist in researching and writing the rule, according to sources familiar with the matter.

The open banking debate was roiled out last month when JPMorganChase began telling data aggregators — companies like Plaid, which connect consumer-facing financial technology firms to big banks — that it planned to charge them fees to access customers' data.

PNC Financial Services Group CEO Bill Demchak later said that his bank was considering similar actions.

Big banks and other stakeholders have been meeting with CFPB officials in the Trump administration, providing input as the bureau works on a new rule, according to people familiar with the discussions.

Those talks have included discussions about banks' ability to charge for data access, and  about providing more clarity on who is liable for fraud, data breaches and third-party risk management — all sticking points that led banks to sue the CFPB last year after the rule was finalized.

Meetings with big banks have included CFPB and OMB officials. The bureau's acting Director Russ Vought is also the director of the OMB, and many of the CFPB's senior officials hold dual roles at OMB as well.

As the big banks bend the ear of Trump administration officials, financial technology firms and their trade groups are pushing back. 

On Thursday, a coalition of fintech and crypto leaders sent a letter to the White House urging the administration to prevent banks from charging for data. In the letter, the group argues that imposing fees on data aggregators will "choke off access to the finances of consumers and businesses," asking the administration to "act immediately."

"This is not a dispute over fair pricing; it is an anti-competitive move designed to consolidate power," the coalition wrote. "It threatens to cripple innovative products and may cause small businesses and financial tools to shut down entirely."

The letter was signed by the CEOs of Plaid, Robinhood, PayPal, Klarna, Chime and the American Fintech Council, as well as the crypto evangelists Tyler and Cameron Winklevoss, among some 80 others.

Phil Goldfeder, president of the American Fintech Council, said in a press release that fees are "a dangerous attempt by incumbent banks to shut off consumer choice and entrench their dominance."

Goldfeder said consumers have the right to control their own financial data, and charging third-parties for access amounts to a toll on consumers who have given fintechs permission to access their bank account transaction data. Charging fees for data access is "a direct threat to competition, responsible innovation and financial inclusion," he said.

Meanwhile, big banks contend that the fees offer a way to ensure that data aggregators are only accessing data that is requested by customers. They say that the companies routinely pull consumer data without direct requests from consumers.

The fees are not expected to be a major stream of revenue for big banks, if data aggregators aren't drawing data beyond when consumers request it, said a source familiar with the matter.

Melissa Feldsher, JPMorganChase's head of payments and lending innovation, wrote in a blog post last month that data aggregators need to treat customer data responsibly.

Free access to JPMorgan's platform has led to "excessive pulls" by data aggregators totaling nearly 2 billion application programming interface calls per month, Feldsher said in the July blog post.

The nation's largest bank isn't against sharing data with fintechs, or against working with crypto firms.

Last month, JPMorgan partnered with Coinbase, which plans to allow the bank's customers to link their accounts with their Coinbase wallets next year through the bank's API. Customers will also have the option to redeem their rewards points at the bank for Coinbase rewards.

The banking groups sued the CFPB in October, on the same day that the bureau released the final open banking rule, claiming that it exceeded its statutory authority.

The plaintiffs allege the CFPB is jeopardizing the safety and soundness of the banking system by limiting banks' discretion to deny third parties access to sensitive financial information.

In May, the judge in the case ruled that the Financial Technology Association could intervene in the litigation, essentially standing in for the CFPB in defending the rule because the trade group's members would be adversely affected if the rule were vacated.