The Critical Importance of Liability Account Inclusion in the CFPB’s 1033 Rule

Earlier this year Method shared our commitment to engage directly with policymakers in Washington. Our timing couldn’t be better.  The Consumer Financial Protection Bureau (CFPB) is currently drafting a proposed regulation (Section 1033) that will define the parameters of open finance- the structured sharing of data by consumers with and between financial services providers. In other words: how in charge will you be over your own financial decision making? As we recommended in January, any Section 1033 regulation must: 

1. Codify a consumer’s legal right to access and share access to their financial data;

2. Include the broadest possible span of financial accounts;

3. Require data holders establish and maintain third-party access portals; and, 

4. Require third parties to adhere to industry standards on data security and privacy.

The Importance of Payment Access

We’d like to dig more into point 2- allowing access to the broadest possible span of financial accounts. (“Access” in this instance encompasses the right of consumers to share and permission sharing of their data). Recently, Method attended FDATA’s Open Finance Summit where CFPB Director Chopra reiterated his view that the CFPB’s forthcoming Section 1033 rule will likely be limited to deposit, transaction and credit card accounts only. Here’s why this is a critical mistake. 

Limiting scope of access would exclude crucial account data- like mortgages, personal loans, title loans, student loans and other liability accounts- on which a litany of existing use cases rely and on which customers today depend to get out of debt faster and more easily. It’s these very use cases that led us to found Method in the first place, after making a simple payment to a student loan turned out to be a patchwork of physical check mailing and integrations with brittle technology. Today, our technology enables one-click payments to almost any liability account, making money movement for debts as simple as paying your friends on Cash App or Venmo. Unfortunately, it’s a lot easier to get yourself into debt today than it is to actually pay that debt. At Method, we believe that consumers should be able to pay their debts as easily as possible, using whatever tool they choose. Just as a financial services provider shouldn’t block customer-permissioned access, nor should a liability provider block repayment from a customer-permissioned account. Both use cases are critical to the financial health of Americans- and both are in jeopardy should the CFPB limit the scope of account access under Section 1033.

Democratization of Access

The CFPB has rightly emphasized the potential of open finance to spur competition in the financial services ecosystem. In fact, Congress passed Section 1033 into law in 2010 to help address concentration in the banking industry. It wasn’t so long ago that banks were a consumer one-stop-shop for deposits, payments and lending. This allowed them to control personal data, creating barriers to competition. 

Over the last decade especially, digital technology upended the traditional system by transforming how financial services are provided and who provides them. Big banks, fintechs, incumbents, and small start-ups all now jockey for consumers’ business. While customer demand has increased data access, significant silos persist. Section 1033 is meant to remove remaining hurdles, with Director Chopra stating that “dominant firms shouldn’t be able to hoard our personal data and appropriate the value to themselves.” Unfortunately, limiting access to deposit, transaction and credit card accounts undercuts this mission. The exclusion of liability and a litany of other accounts doesn’t neutralize data gatekeepers- it just makes more of them.

Open Finance for Financial Inclusion

Access to permissioned customer data is critical to reaching unbanked consumers outside of the financial system (six percent of Americans, according to the Federal Reserve) and underbanked consumers inadequately served by it (13 percent). Rural and poorer communities are particularly underserved by the traditional banking and payments systems. The CFPB recently found that rural communities are 10 times more likely than urban communities to live in so-called “banking deserts,” where access to traditional financial services tools and products are few and far between. The same CFPB report found that rural areas of the United States have the highest rates of consumers without “usable credit,” leading them to depend on non-bank credit options, which often don’t provide easy payment opportunities, to manage their finances. And data shows that low-income families are six times more likely than higher-income families to be under or unbanked.

The CFPB recently found that rural communities are 10 times more likely than urban communities to live in so-called “banking deserts,” where access to traditional financial services tools and products are few and far between.

Beyond the obvious challenges for these communities associated with affordable access to credit, these consumers often face significant challenges in servicing their debts once they’ve been approved for a loan. These populations face several financial difficulties, like lack of access to credit or interest-accruing savings tools, and risk of losing money to predatory financial service providers. Method’s products offer liability repayment and management solutions, so we know a thing or two about financial inclusion. This is why payment access is particularly important. If Section 1033 excludes liability accounts, customers may lack the ability to manage their debt most effectively according to individual need. As noted, liability providers often require that an individual use only the repayment tool they originally register with. Not only does this hinder access for the 19 percent of unbanked and underbanked Americans, it removes flexibility for those whose financial journeys are not entirely linear.

Conclusion

Section 1033 stands to be the most consequential financial regulation of our time by creating a marketplace where nascent firms can use consumer-permissioned data to offer products and services that can compete with incumbents. Consumers could switch to a provider who offers a better deal. In this marketplace, companies would have to keep and attract customers through competitive prices and improved products- but only if Section 1033 provides access to the broadest possible span of financial accounts.