CFPB Proposes Rule to Accelerate Shift to Open Banking

Regulatory Developments

CFPB Proposes Rule to Accelerate Shift to Open Banking
On October 19, the CFPB released a proposed rule to implement section 1033 of the Dodd-Frank Wall Street Reform and Consumer Protection Act regulating personal financial data rights (the Proposed Rule).  The Proposed Rule would require data providers to make available to consumers and authorized third parties certain data relating to consumers’ transactions and accounts; establish obligations for third parties accessing a consumer’s data, including privacy protections for the data; and provide basic standards for data access. Examples of such data include basic account information, historical transaction information, and terms and conditions.

In-scope products and services would include consumer checking, savings, and prepaid accounts; credit cards; and the facilitation of payments from these products. The CFPB has indicated it intends to include more products over time.  

The Proposed Rule would apply to a data provider that “controls or possesses covered data concerning a covered consumer financial product or service.” Depository institutions without a digital consumer interface would be excluded from coverage.

CFPB Director Rohit Chopra described the Proposed Rule as a measure that would “accelerate a shift toward open banking.” Other objectives include providing consumers with more control over their financial data as they “break up with banks;” protecting consumers against the misuse of their data; and encouraging the adoption of fair, open, and inclusive industry technical standards for data-formatting.

“A more decentralized market structure will give consumers more control and minimize the ability for companies to take customers for granted.”
‒ Rohit Chopra, Director, CFPB

Agencies Issue Final Rule for Community Reinvestment Act Regulations
On October 24, the Federal Reserve, the OCC, and the FDIC (collectively, the Agencies) approved long-awaited final rules to modernize the Community Reinvestment Act (CRA) regulations. The new regulations completely overhaul the existing CRA evaluation framework and potentially make the achievement of Satisfactory and Outstanding ratings more difficult.

Under the new CRA regulations, the thresholds for sized-based classifications applicable to banks other than limited purpose banks are revised as follows:

• Small banks are those with total assets under $600 million (up from under $376 million);
• Intermediate banks are those with total assets between $600 million and under $2 billion (up from $376 million to under $1.503 billion for an “intermediate small bank” classification); and
• Large banks are those with total assets of at least $2 billion (up from at least $1.503 billion).

The new CRA regulations replace the existing tests generally applicable to large banks (the Lending, Investment, and Services Tests) with four new tests and associated performance metrics: Retail Lending, Retail Services and Products, Community Development (CD) Financing, and CD Services. Intermediate banks will be subject to the Retail Lending Test and, at their option, either the new CD Financing Test or the existing CD test applicable to intermediate small banks. Small banks will be able to choose between the new Retail Lending Test or the existing Lending Test. Most banks (not including military banks, for example) will continue to delineate assessment areas based on where they have branches and deposit-taking ATMs (facility-based assessment areas). Banks other than branch-based banks (those with 80% or more of retail lending within their facility-based assessment areas) subject to the Retail Lending Test will now also be required to designate “retail lending assessment areas” where they originate at least 150 closed-end home mortgage loans or at least 400 small business loans. 

Banks will now be able to seek credit for their CD financing activities nationwide. The new regulations also include more detail on qualifying CD activities, including activities focused on disaster preparedness, weather resiliency, and financial literacy. The regulations include a list of factors the Agencies will use to evaluate the impact and responsiveness of CD activities. Large banks will be required to meet new annual data collection and reporting requirements, with the full set of requirements applying only to large banks with over $10 billion in total assets.

The option to request a limited purpose bank designation and be subject to a tailored version of the new CD Financing Test will be available. Banks will also continue to be able to apply for evaluation under a strategic plan based on a nontraditional business model.

The new regulations will be effective on January 1, 2026, with reporting requirements beginning in 2027.

Agencies Announced Extended Comment Period for Large Bank Capital Proposal and Related Data Collection
On October 20, the Agencies announced that they would be extending the comment period on their large bank capital proposal until January 16, 2024. The proposal applies to banks with $100 billion or more in total assets, and is designed to build in initial reforms and make additional changes in response to the 2007-2009 financial crisis.

The Federal Reserve also announced on October 20 that it would be launching a data collection to gather more information from the banks affected by the large bank capital proposal, in order to clarify the estimated effects of the proposal and inform any final rule. 

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SEC EXAMS Division Announces 2024 Priorities Ahead of Schedule
On October 16, the SEC’s Division of Examinations (EXAMS) published its exam priorities for 2024. The timing is notable, with the release coming several months ahead of the typical timeline and only eight months after EXAMS announced its 2023 priorities. The priorities letter addresses this specifically, noting that EXAMS is “aligning the publication of our priorities with the start of the fiscal year with the hope that it will better inform investors and registrants of the key risks, trends, and examination topics that we plan to focus on in the upcoming year.” Although the priorities are issued by EXAMS, they provide meaningful visibility into the SEC's overall priorities for the coming year, including those of the Division of Enforcement. EXAMS and Enforcement staff work closely with one another, with the former often making referrals to pursue remedial efforts, monetary penalties, and other sanctions. To read more on the 2024 priorities, click here. 

Upcoming Event: Digital Currency & Blockchain: Regulatory Perspectives from Both Sides of the Pond
On November 9, Goodwin's global Digital Currency and Blockchain team will be hosting a client event in the London office that will feature a panel discussion about the recent wave of US and UK regulatory developments. Please reach out to events@goodwinlaw.com for more information or to register. 

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