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The obscure rule of thumb that could help Americans shun big banks

Two of the progressive movement’s intellectual centers are closely watching how President Joe Biden’s administration chooses to write and implement a new rule governing consumers’ access to their financial data, seeing it as a first test of the administration’s desire to break with business. – usual approaches to financial regulation.

The rule, an obscure provision of massive Dodd-Frank Wall Street reform legislation passed over a decade ago, united both Wall Street watchdogs and antitrust crusaders who began to play a more prominent role. important in the intellectual firmament of the Democratic Party since. the end of President Barack Obama’s administration.

Both groups have been largely happy with Biden’s staff selections so far – he has chosen Rohit Chopra, an ally of Massachusetts Senator Elizabeth Warren (D), to head the Consumer Financial Protection Bureau, which will draft the rule on consumer data; and chose senior antitrust lawyer Lina Khan to replace Chopra at the Federal Trade Commission – and see the rule, officially known as Section 1033, as an early measure of the administration’s willingness to take more aggressive positions .

“People are hopeful about most of the regulators that have been appointed so far,” said David Segal, executive director of Demand Progress. “But it will be an early sign of the administration’s willingness to fight against the power of the financial sector.”

The goal of the rule is to give consumers control over their financial data, which should make it easier for them to switch between banks and other financial institutions, which could make Americans less dependent on larger banks and the most politically powerful in the country. For example, it would be easier for consumers to switch banks if they could do so without having to reset their automatic bill payments and direct deposit information.

Graham Steele, director of the Corporations and Society initiative at Stanford University’s Graduate School of Business, said a strong rule has the potential to reshape large swathes of the country’s financial landscape.

“It does a lot to break the Wall Street cartel and their control over a bunch of this space,” Steele said, potentially defying not only the big banks but also the Big Three credit bureaus and the Mastercard duopoly. and Visa on payment processing. “It could really help attract new players to challenge these different structures.”

Steele, a former senior aide to Ohio Democratic Senator Sherrod Brown, said the rule could help lower costs for consumers and also “demystify” financial products for ordinary Americans.

When the CFPB called for comment on the rule earlier this year, consumer and liberal groups lined up behind a strong rule. The Center for American Progress called it “the easy choice for consumers”.

Chopra seems inclined to agree with them.

“I don’t want to see a banking system or a financial services system where new entrants to the market can’t come in, can’t compete and win the day,” he said during his confirmation hearing in front of the Senate Banking Committee. “Dominant players shouldn’t be able to stifle competition and that’s something we should always keep in mind.”

But a strong rule will almost certainly meet strong opposition from Wall Street. The Clearinghouse, whose members include JPMorgan Chase, Citigroup and Bank of America, suggested that CFPB issue guidance on the matter rather than creating a formal settlement. They also suggested that giving consumers more control over their data could create security risks, a concern consumer groups have downplayed.

In recent years, incumbent banks have faced challenges from fintech companies, which have pushed for better access to data. In 2019, for example, some PNC Bank account holders were prevented from using the Venmo money-sending app. When account holders complained, PNC asked them to register for Zelle, a similar app co-founded by PNC, Wells Fargo and other major banks.

“This consumer data and information is an extremely valuable commodity,” Steele said, noting that it provides key insights into the spending habits and financial situation of consumers. “The incumbent banks want to keep this information very close. They will fight very hard not to have to hand anything over to consumers or their competitors. ”

It is not known when the CFPB can issue a final rule. A final vote on Chopra’s confirmation is likely tied to the status of Khan’s FTC nomination to prevent Republican-appointed commissioners from gaining a majority on the commission. Some Democrats who are watching the rule-making process closely believe the bureau is unlikely to make a final decision on the rule until Chopra is sworn in.

Yet progressives have warned that a final rule is only the beginning of the end of corporate concentration in the financial sector.

“Data portability is important, but it’s not a panacea,” Segal said. “The technological space is monopolized. There has been a wave of concentration in the financial sector which has yet to be resolved. ”

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