TD Cowen sees new open banking rule coming in weeks

Investing.com -- The Consumer Financial Protection Bureau is expected to release a new open banking proposal in late August or early September, according to TD Cowen. The CFPB sent the Section 1033 proposal to the Office of Management and Budget this week for review, a process that typically takes several weeks.

Open banking allows consumers to direct their banks to transfer financial information to other financial firms. The Biden administration's CFPB previously adopted an open banking rule, but courts blocked its implementation.

TD Cowen expects the new proposal will be a compromise that permits consumers to order some data transfers without fees while providing banks with liability protection when fintech companies fail to adequately protect the data. The firm notes this addresses key concerns for banks about whether they can charge for data transfers and whether they retain liability for data breaches caused by nonbank financial companies.

For fintech and cryptocurrency platforms, the rule affects their ability to attract consumers to use their platforms for transactions instead of bank-offered platforms. Open banking aims to make these transitions easier and faster, though this becomes more difficult if fintechs must pay for data or face legal liability.

TD Cowen said the proposal faces potential legal challenges. The firm estimates it will take approximately nine months for the CFPB to process comments and finalize the rule, providing time for legal challenges before the next presidential election. The firm expressed concern that courts could block the rule, leaving data sharing arrangements unresolved.

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