Opinion

A CFPB Rule-Making Worth Keeping

By Steve Boms
January 12, 2021 at 5:00 am ET

According to the National Federation of Independent Business, the number of small-business owners expecting improved operating conditions over the next six months took a plunge at the end of 2020. That is no surprise. Rising COVID-19 case numbers caused state and local officials to enact new restrictions on capacity and working hours.

President-elect Joe Biden has said new pandemic economic recovery measures will be his top priority after his inauguration on January 20. Several of the women and men that Biden has chosen to lead his economic team also have indicated they will focus on addressing economic inequality and financial inclusion.

The Biden administration can ensure the success of whatever measures it proposes to advance these critically important priorities by completing a single initiative begun first by President Barack Obama’s Consumer Financial Protection Bureau and continued by President Donald Trump’s administration: enacting regulations to implement Section 1033 of the Dodd-Frank Wall Street Reform and Consumer Protection Act.

Under Section 1033, Congress gave the CFPB the power to ensure Americans have a uniform right to access and use their financial data however they see fit. If adopted, a rule implementing Section 1033 would be a major building block toward a consumer-centric open finance ecosystem in the United States that would allow consumers and small businesses to have unrestricted access to technology-based tools that can help them improve their financial well-being.

How?

A wide range of technology applications rely on the ability of consumers and small businesses to grant access to their financial data to power innovative products and services that meaningfully improve their customers’ financial lives. Online lending platforms leverage the availability of data for more expansive underwriting decisions, payment apps access customers’ accounts to enable faster and more efficient payments, and financial management applications advise consumers and small businesses on options to improve their financial outlook, just to name a few.

The decade since Dodd-Frank was enacted has seen an explosion of growth and competition in financial technology, including in the market for data-driven financial products and services. A July 2018 U.S. Department of the Treasury report noted that from 2010 to the third quarter of 2017, more than 3,330 new technology-based firms serving the financial services industry were founded. The financing of such firms reached $22 billion globally in 2017. Treasury also found, as of 2018, lending by fintech firms made up more than 36 percent of all U.S. personal loans, up from less than one percent in 2010.

Since they are staying at home, and since many bank branches have been closed, consumers have become even more interested in fintech tools during the COVID-19 pandemic. And, as Deloitte has noted, these companies have risen to the challenge, enabling millions to access the U.S. Small Business Administration’s Paycheck Protection Program and Emergency Injury Disaster Loans, for example.

Deloitte also noted fintechs are well-positioned to help improve financial inclusion in the United States. In a recent report, the firm said, “Fintechs can play an important role, perhaps through strategic partnerships across a broad ecosystem of players — including financial institutions, retailers, and the government sector — in distributing benefits to more vulnerable populations. Indeed, many fintechs made it their mission to democratize financial services by providing basic financial services in a fair and transparent way.”

Fintechs’ mission-driven outlook also is why implementing Section 1033 will help the Biden administration achieve an important goal leftover from the president-elect’s last White House tenure: ensuring retirement advisers act in the best interests of their clients and put their clients’ interests above their own.

The Obama-era Department of Labor’s fiduciary rule fell to judicial challenge, but the president-elect may try to resurrect it. Enacting Section 1033 regulations would help advisers fulfill their fiduciary duty by giving them a wider window into their clients’ financial health. This knowledge would enable advisers to provide more tailored, long-term recommendations based on the unique financial health of each of their clients.

The CFPB’s advance notice of proposed rule-making is subject to public comment until early February. It is impossible for the Trump administration to finish the rule.

But Joe Biden should.

 

Steve Boms is executive director of the North American arm of the Financial Data and Technology Association, a trade association coordinating the campaign for the delivery of Open Banking across the globe.

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