In this episode of Payments Pros, Keith Barnett and Carlin McCrory are joined by Jordan Wright, CEO of Atomic Financial, to discuss the Consumer Financial Protection Bureau's (CFPB) proposed 1033 rule. This rule aims to limit the misuse or sale of consumer data, and is expected to be finalized by summer 2024.
In this episode of Payments Pros, Keith Barnett and Carlin McCrory are joined by Jordan Wright, CEO of Atomic Financial, to discuss the Consumer Financial Protection Bureau's (CFPB) proposed 1033 rule. This rule aims to limit the misuse or sale of consumer data, and is expected to be finalized by summer 2024.
Jordan highlights the importance of data portability in banking, comparing it the telecommunications industry's phone number portability. He suggests that the rule will increase competition, forcing banks to offer better services to retain customers.
The proposed 1033 rule requires financial institutions, starting with the largest, to make consumer data, including bill pay data, accessible to third parties and consumers. This may necessitate significant architectural changes and costs, but ensures consumers' legal right to share their data without incurring unnecessary fees.
The discussion concludes with Jordan forecasting that the proposed 1033 rule will enhance banking services by fostering competition and simplifying the process for customers to switch banks. He foresees the emergence of earned wage access products as a tool to assist individuals in better financial management. Additionally, Jordan supports the secondary use of data for personalized financial advice and advocates for the rule's extension to encompass payroll and merchant data.
Payments Pros – The Payments Law Podcast: Redefining Banking: A Conversation on the CFPB's Proposed 1033 Rule
Hosts: Keith Barnett and Carlin McCrory
Guest: Jordan Wright
Carlin McCrory:
Welcome to another episode of Payments Pros, a Troutman Pepper podcast focusing on the highly regulated and ever evolving payment processing industry. This podcast features insights from members of our FinTech and payments practice, as well as guest commentary from business leaders and regulatory experts in the payments industry. I'm Carlin McCrory, one of the hosts of the podcast.
Before we jump into today's episode, let me remind you to visit and subscribe to our blogs, ConsumerFinancialServicesLawMonitor.com and TroutmanPepperFinancialServices.com. And don't forget to check out our other podcast on Troutman.com/Podcast. We have episodes that focus on trends that drive enforcement activity, digital assets, consumer financial services and more. Make sure to subscribe to hear the latest episodes.
Today, Jordan Wright from Atomic Financial, joins us to discuss the specifics of the proposed 1033 rule by the CFPB. We will explore the potential hurdles that this proposed regulation, designed to limit the sale or misuse of any consumer data may introduce. Jordan is the founder and CEO of Atomic Financial, a financial connectivity platform that strives to put consumers in control of their personal data. Jordan has a passion for building companies in the FinTech space. He has co-founded and led several startups from inception through successful exits. These startups include Unbill, acquired by Q2 Holdings and now rebranded as Biller Direct and CardSwap Mobile Butler acquired by Amenify and now Atomic Financial. Before we start asking Jordan questions, Keith, can you give the audience a broad overview of 1033?
Keith Barnett:
Thanks Carlin. So just to set the background on 1033, our firm has written about it and the industry obviously is speaking about it and Jordan is an expert on it. So I'll just give a very high-level overview before Carlin starts asking questions. In 2010, Congress explicitly recognized the importance of personal financial data rights in Section 1033 of the Consumer Financial Protection Act. This recognition allowed for the CFPB to propose rules concerning these personal financial data rights. But to date, the CFPB has not issued a rule to implement 1033 until October 19th, 2023. That is when the CFPB released the notice of proposed rulemaking for the required rulemaking in personal financial data rights and the comments period closes on December 29th, 2023.
As Jordan will elaborate more on, the proposed rule will require depository and non-depository entities to make available to customers and authorize third-parties’ certain data related to consumer transactions and accounts, establish obligations for third parties accessing the consumer's data, that includes important privacy protections for that data, standards for data access. The CFPB said it is doing this to promote fair, open and exclusive industry standards. What we've learned in our experience is that the CFPB, for the most part, does not make substantive changes to proposed rules based upon comments. So that's why it's important to listen to podcasts like this and listen to experts like Jordan because we expect the proposed rule to become finalized by the end of the summer of 2024, if not sooner. With that, I'll turn it back to you, Carlin.
Carlin McCrory:
Thanks, Keith. Jordan, the CFPB recently released its proposed rule on 1033 as Keith just discussed. Can you describe some of the key themes and how this empowers customers?
Jordan Wright:
If you look at the initial announcement, the title states, CFPB proposes rule to jumpstart competition and accelerate shift to open banking. So as Keith mentioned, there's originally a line 1033 Dodd-Frank Act that referenced the fact that consumers have a right to their financial data, but it wasn't nearly as broad and as expansive as we're looking at in this proposed rulemaking from the CFPB. If we look at some of the comments made by the current chair of the CFPB over time, he's made it very clear he feels it's necessary for consumers to be able to have portability of their banking relationship. There have been references made by people on the advisory committee to the CFPB and others, that similar to what happened in the cell phone telco space with portability of phone numbers. I would say that's a key element of what you're seeing in this proposed rulemaking.
I think there's also concern about how the data is utilized. If I grant access to this data, is that data then resold? What is that data being used for after my data is pulled in? I think that's another key theme here. There's a lot around secondary uses of data. For example, under the proposed rulemaking, I would need to use the data only for the explicit purpose for which I got that data. I couldn't go and use it for secondary purposes.
Some of those are harmful to consumers, the secondary use cases buried in terms of use somewhere. They're going to go sell this data to a third party or something like that. But in other ways, it might be helpful to you for the financial institution or the FinTech that is using that data to be able to help you in other ways and not require you to come in and see a screen that says, yes, I'm allowing you to do this every single time. So I think a lot of what we're seeing here is around how data is utilized, how do we give consumers more portability in their banking relationship? I would say those are two key themes that we've noticed so far on this.
Carlin McCrory:
Thanks for that. And then what new challenges does 1033 bring and how are financial institutions responding to those challenges?
Jordan Wright:
1033 outlines a certain time period that financial institutions will have, to get in line with this regulation. The earliest timeline is for the largest financial institutions in the United States, and then over a period of time, the smaller financial institutions will have to adopt those things as well. And so if you look at the people that will be most impacted by this, think about Bill Pay as an example. Bill Pay has been a staple of financial services in the United States since the late 80s. Some banks started providing Bill Pay for free and it's been a very, very sticky element of financial services over time. For example, some of the large core providers in the United States have Bill Pay offerings. The data that is within those, is oftentimes trapped by the current services and the architecture that is built into those services. This new ruling would require them to do a significant amount of work to make that data available to the third parties and to the consumers themselves.
Another critical part of this proposed rulemaking for 1033 is that consumers have a legal right to be able to share their data and there shouldn't be junk fees associated with them sharing their data. I think that those groups may be pushing back and saying, "Hey, this is going to cost us a ton of money to make this available, and our architecture has not supported that in the past. How are we going to make this worth our time to go and do this work?"
Carlin McCrory:
Why is the ability for consumers to switch their primary banking relationship so fundamental?
Jordan Wright:
I think the telco industry is a really good example of this. The Director of the CFEB has pointed this multiple times as have others, writing about the topic. Prior to the portability of phone numbers, your carrier had you locked in such a way that your lack of ability to change made them able to charge you exorbitant fees, and largely because of the inconvenience of having to go to all my friends and family and say, "Oh, I got a better rate, so I got a different phone number." That is just really brutal on the consumer experience. I think you see the same thing in banking.
So when I go to change my banking relationship, I have to go to all the merchants that I have engaged for monthly fees. I have to go to all those merchants and I have to tell them, okay, there's a new way to get money from me. I have to go to my employer and I have to say, "Hey, you need to now send this money over here." But in the meantime, for most people that are living paycheck to paycheck, it's the question of, okay, how do I time my mortgage payment or my rent payment? How do I time my auto insurance payment? How do I time all of this with the fact that I'm floating $200 per paycheck. I'm floating a few hundred dollars per paycheck. So I can't just move everything over here because bills are going to happen over time. Did I forgot about my other account and suddenly my lights flicker and turn off one day because I forgot to move over my electric bill?
There's an ease-of-use component to this that is important, but that ease of use component, leads to me being trapped in a financial relationship that's not good for me. So the phrase we've been talking about internally and the way that I think about this in the future is this makes the future of banking less about, oh, I'm just interest rate shopping, which is what most people do today, and it's more about how do you as a bank help me be better with my money? And if you help me be better with my money, then you get my loyalty. Anyway, that's my thought on that piece.
Keith Barnett:
Interesting. Is there anything else that you'd like to add or what you see upcoming in 2024? Because as part of our podcast, we like to predict things. So given your expertise background, what do you see in 2024 for the legal FinTech space?
Jordan Wright:
People have to submit commentary by the end of December on the proposed rulemaking. So a lot of people are very active in that right now, and we're submitting some commentary in that regard. And then we should expect by summertime, hopefully, finalization of this proposed rulemaking. And so that's one thing that I predict and with government, you can never tell, but fairly confident that will be happening middle of next year. But I think what this will lead to is, this will make all of our banking services that we use every day far better in the next three to five years. Because when competition increases, banks have to say, what is it that we really offer consumers? And if it's just a safe place to store money and we have a poor interest rate, then we're going to start losing customers because it's going to become easier and easier for them to change their banking relationship.
We work with four of the top 10 banks in the United States. We work with six of the top 20 banks in the United States. We work with, I think, seven of the top 10 neobanks in the United States, FinTech banks in the United States. We see that already moving in this direction that they're trying to figure out, how do I actually provide services to these consumers that say to them, oh, I'm helping you be better with your money.
A good example of this is, though little bit of a hot topic maybe, but earned wage access came out several years ago. It's been a major topic of conversation in FinTech, but if you think about the programs like, we'll spot you 50 bucks here, we'll spot you a hundred dollars there. Those are helping people be better with their money instead of them putting that on a high interest credit card, instead of them doing something like that, in some cases, it's helping them be better with their money.
Now, initially they were charging, I think, exorbitant fees in some cases and things like that that were unwarranted, but I think we will see a ubiquity of earned wage access sorts of products. They will become ubiquitous in the market in the next few years, and that will give financial services providers the opportunity to help people be better with their money. So that mid pay cycle, I'm not having to take out a loan to cover any issue with my car or something like that. I'm actually able to get money at little to no cost. That's far better access than I had before. Those are a couple of predictions, not for next year per se, but for the long run. Hopefully I'm allowed to go a little farther out.
Keith Barnett:
That's fine for you to go a little bit further out. One of the things you mentioned is that you and your team plan to submit comments to the CFPB briefly. If there's anything you want to share with our audience that you have not already shared regarding your commentary, we'd love to hear it.
Jordan Wright:
The secondary use of data is an interesting thing for us. That's been something we've been looking closely at because if we want to help a consumer be better with their money, we need to review their transactions on a regular basis, and we need to come to them and say, "Hey, it looks like you might be overpaying here." Or the dream use case that our team internally talks about is, okay, I sign up for a new streaming service because my favorite TV series moved over there, but I don't watch it for anything else. When that season ends, what if my bank were to tell me, it looks like you're done watching. Would you like us to pause this until the next season of X, Y, Z comes out? That's my bank helping me be better with my money and avoid paying eight, 10, $12 a month between now and the next season that comes out.
I've interviewed dozens of people and I've had somebody that I'm sitting across from, that lives very tight paycheck to paycheck, and they say, "I know I've got $50 a month savings sitting inside of my cell phone bill. Unfortunately, I'm too lazy." I look at myself and I'm too. I'm too lazy to make the switch to go down and get that done. Those are the sorts of things I think your financial services provider should be offering to you, that without the secondary use of that data, you can't come in and make a recommendation like that. So it's a double-edged sword. I would be totally fine with them coming out and saying, you cannot resell this data. That's all fine and dandy with me. But being able to derive insights for that person to help them is important. And right now, I think as it stands, there's some concern that would not be allowed under the current one. So that's some commentary we will be making.
Right now, it applies very strictly to financial services. So bank's data and things like that. I believe that they have mentioned that in the future, others will be added to this. Payroll data, merchant data is another one. There are other areas for this that we think should be included within this because it doesn't get more financial than the data that sits inside of a payroll system. That's how you get a loan for a mortgage. They don't care that you spent $3 and 86 cents for a McDonald's Happy Meal. They care how much money you make, and they care that you're employed and they care about those sorts of things, which all reside inside your payroll system. So those are a couple of comments we'll be making.
Carlin McCrory:
Well, Jordan, thank you so much for joining us today, and thanks to our audience for listening to today's episode. Don't forget to visit our blogs and subscribe so you can get the latest update. Please also make sure to subscribe to this podcast via Apple Podcast, Google Play, Stitcher, or whatever platform you may use. We're looking forward to next time.
Copyright, Troutman Pepper Hamilton Sanders LLP. These recorded materials are designed for educational purposes only. This podcast is not legal advice and does not create an attorney-client relationship. The views and opinions expressed in this podcast are solely those of the individual participants. Troutman Pepper does not make any representations or warranties, express or implied, regarding the contents of this podcast. Information on previous case results does not guarantee a similar future result. Users of this podcast may save and use the podcast only for personal or other non-commercial, educational purposes. No other use, including, without limitation, reproduction, retransmission or editing of this podcast may be made without the prior written permission of Troutman Pepper. If you have any questions, please contact us at troutman.com.