Today’s banking sector is too concentrated and failing to serve the needs of communities. As locally rooted banks have shuttered, nothing has replaced them. As a result, many consumers and small businesses are turning to online banking, mobile payment services, and fintech to meet their banking needs. But these platforms are also consolidating, which will only enhance the power of financial actors, rather than bring affordable capital and banking services to the communities that need them.
The Consumer Financial Protection Bureau’s (CFPB) Personal Financial Data Rights proposed rule, also known as the “open banking” rule, establishes important guardrails for these services, giving consumers and businesses more control and privacy over their financial data, while also establishing interoperability among traditional banks and other banking models. The rule is intended to “jumpstart competition” and lessen concentration in the financial sector, where “a handful of very large banks and financial firms control much of the market.”
ILSR submitted a comment letter supporting the principles and goals in the proposed rule, which aims to promote competition by facilitating the ability to switch banks, safeguarding consumers’ rights to their data, and holding non-bank financial entities to the same privacy and data protection standards as banks.
The letter, however, also raises concerns that, without additional provisions in the rule and additional regulatory steps, open banking on its current trajectory is likely to enhance the position of powerful incumbents rather than decentralize our financial system. We outline ways in which dominant players in this space, such as Visa, Intuit, and PayPal, could gain more ability to exploit and enlarge their market power — an outcome that is not consistent with the CFPB’s aims or the public interest.
While facilitating open banking may loosen the grip of the largest banks, absent additional measures, it does not necessarily follow that smaller, relationship-oriented and place-based financial institutions will access fair competition. There is more that the CFPB and the banking regulators must do to ensure community-rooted banking institutions can survive and serve their communities.
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