“What we are hearing in the marketplace, and what we feared all along, is that without this rule being finalized and codified, you will start to see some anti-competitive behavior.” — FTA CEO Penny Lee
To many — if not most — fintechs, data is a lifeblood that powers innovative underwriting, analytics, product development, and other progressive processes that help a burgeoning subsector viably square off against large incumbents. But many consumers have traditionally banked with these large incumbents, who hold much of this needed data. Open banking, which grants consumers the right to control and share their data, enables the development of a more comprehensive (and, for consumers, opt-in) ecosystem. To that end, the Dodd-Frank Act (2010) statutorily authorized the newly established Consumer Financial Protection Bureau (CFPB) to draft rules around open banking: who counts as a “consumer,” how data can be shared and stored, whether data-sharing processes should be free or priced, and other key concerns.
In October 2024, immediately after the CFPB finalized its Open Banking rule — a long, languishing deliberative process — the incumbent-backed Bank Policy Institute (BPI) filed a lawsuit against the CFPB. The suit alleged the regulator had overstepped its statutory authority and failed to institute sufficient safeguards around access to sensitive consumer information, among other shortcomings. In May, the Trump administration’s CFPB, which inherited the case from its (more fully staffed) predecessor, filed a motion for summary judgment; this effectively asked Kentucky Eastern District Court Judge Danny C. Reeves to vacate the CFPB’s Open Banking rule. The current Ross Vought-led CFPB claims the rule finalized under the prior administration “unlawfully seeks to regulate open banking by mandating the sharing of data with ‘authorized third parties.’”
The Financial Technology Association (FTA), which includes PayPal, Chime, Block, Stripe, and others as members, filed a motion to intervene in the case in February; the judge granted the FTA status as an intervening defendant in May. The Association submitted its request for summary judgment on June 29th, claiming the CFPB’s “about-face” is “meritless and entitled to no deference,” and asking the judge to “reject the CFPB’s request to adopt artificial and atextual constraints on its own statutory authority, and instead allow the ordinary administrative process to run its course.”
“If the CFPB wishes to change the Rule, it must adhere to the required notice-and-comment process, not leverage Plaintiffs’ lawsuit to end run around these requirements,” the FTA writes, adding the plaintiffs’ interpretation of Section 1033 “would return the market to one where individual consumers’ access to their own financial data has limited utility, and in which the most powerful financial institutions continue to determine who can access competitive financial services and how.”
To understand the FTA’s interpretation of open banking statutes, gauge open banking’s regulatory future as this proxy battle between fintechs and banking giants unfolds, and contextualize the court case within a larger set of Trump-administered regulatory shifts affecting fintechs and other FIs, Fintech Nexus interviewed Penny Lee, President and CEO of the Financial Technology Association.
The following has been edited for length and clarity.
In your motion for summary judgment, the FTA says there are components of the Open Banking rule that even the FTA disagrees with, but would work with the CFPB to address these disagreements if the rulemaking process were restarted. What are those components?
We continue to believe that consumers should have the right to control their data, control their financial data, and be able to permission it to whomever they choose to permission it, and that the 1033 language within the statute allows for that, allows for the consumer to be defined as an individual, but also an agent, trustee or representative. That is the crux of what this lawsuit is about: to ensure that consumers have their ability to get the best financial products that they want to use, to live their best financial life as they see fit, and to not allow this legacy of incumbency to stop innovation from coming into the marketplace.
A large part of where we disagreed on the final rulemaking was around the secondary use of data. That was the real crux: understanding the balance of wanting to make sure that people have a sense of where their data is going, which we applauded, but we thought the restrictions were too great, meaning secondary data couldn’t be used for research, nonprofits, and others. And it couldn’t be used in a non-identified way, being able to understand patterns: how consumers are interacting using different financial tools, what the health of their financial situation might be. From our own companies’ perspective, it put pretty severe limitations on what we could do for fraud protections. I would also say we have a mind not only for open banking, but open finance — the ability to bring other sectors into the open banking and open finance system is something that we’re encouraging.
Where do you see the lawsuit going from here?
The plaintiffs have 30 days to respond to our motion for summary judgment, or our response to the motion for summary judgment. We will then have 30 days after that as the intervening defendant (which is a new term we’re all learning) to then respond. Then it will go to the judge, potentially a hearing.
Industry sources have suggested banks are moving more slowly to open up their data systems in line with Section 1033, but they haven’t stopped entirely — expecting that, at some point down the line, perhaps under a different administration, open banking statutes will become enforced. What do you make of that?
There is a little bit of gray in the sense that all stays on this rule have been lifted; there’s a longer compliance deadline on the back-end, so not until August 2026 for some of that to come in. But whether or not those compliance dates will be enforced is up in the air, depending on how the court ruling proceeds, as well as appeals and how the judicial makeup of that all goes through. So the rule is in effect right now, but there are also commercial agreements in place between providers and data recipients, so those are continuing.
But what we are hearing in the marketplace, and what we feared all along, is that without this rule being finalized and codified, you will start to see some anti-competitive behavior. And I would say it’s not all banks. There are a lot of banks that have embraced open banking, embraced open finance, that do see the benefit for consumers to share and also to receive that information back so they know where their consumers are interacting, or understand the health of their own consumers. I would say it is a little bit isolated to some of the larger banks that are wanting to protect their own competitive moat. Consumers won’t be able to have as robust access, won’t be able to fully enjoy some of the tools and products that are out there in the marketplace, if these restrictions start coming into play.
What were conversations like among FTA member institutions when it came to gearing up for this legal intervention?
We were concerned immediately when the BPI filed within hours of this rule being finalized. In reading through their complaint, we were worried if they prevailed on certain aspects. There were severability clauses and other issues that would really put America on its back foot as far as allowing for innovative products into the marketplace. And then, when the Trump administration made the public announcement that they were not going to be enforcing or supporting many of the rules that had been promulgated under the prior administration, and potentially not defending the 1033 rule, that was when we filed the motion to intervene. We appreciate the judge allowing us to grant that motion to intervene, to be a voice to protect that rule.
Do you see any constructive potential in regulatory changes under this administration?
We’ve enjoyed some very constructive conversations with this administration. It’s an administration that is open to innovation, that is open to new ideas, that is thinking through whether or not the status quo is punitive, and they do want to move the US forward. And so you’re seeing that in digital-asset acceptance and the moving through rules and regulations around digital assets. You’re seeing that in the conversations that we’ve had with some of the prudential regulators around re-opening up de novo chartering or allowing for ILC chartering, or thinking through what our payment modernization systems need to look like, like getting rid of checks. There’s just a different appetite to embrace innovation, not out of fear, but using rules and regulations to enhance that ability to continue to put us forward as far as financial services go.
You know, for the last four years, you didn’t have one charter approved. You didn’t have the ability for innovative companies to come in and talk with regulators, to talk through whether they’re in line or what they need to do. It was unfortunate for the last four years.
How do you then make sense of an interest in innovation, but at the same time a reluctance to enforce open banking?
It feels like a dichotomy. I don’t know all the motivations behind the decision that they made to urge a vacancy of the rule, other than to say that we’ve also had good conversations with the administration about their desire to see that consumers have control of their data to be able to have innovative financial services. And so I would say the desire is there, whether or not it’s through the current version of open banking or a modified version, reopening it and crafting it in a way that they actually think would help move the US forward. Those are the kinds of conversations that we had. I think their approach is one that is pro-consumer and wants to ensure innovation occurs: They just want modifications to the 1033 that was promulgated under Rohit Chopra.
To return to the question of charters: The latest applications are for national trust banks, national banks, and ILCs, but not for fintech charters or payments charters — conduits that had previously been floated. Does it seem like those first three conduits will remain the most promising paths, or will the latter two charter pathways open up in the future?
The first round of applications seems to suggest that some are moving into a trust charter. I think that’s on the heels of the stablecoin-focused GENIUS Act being passed [in the Senate]. And so those who want to custody digital assets are going into the trust charter. There are others that will pursue a de novo OCC charter based on the type of business in which they want to engage, and we’re also seeing Nissan and others pursuing an ILC. We’ve seen some pursue a Georgia state charter for the level of activities in which they want to engage. So I think it’s just that opening up to say we have chartering options that are there. I think it’s just the first wave, and you’re going to see a lot of chartering activities in a lot of different realms.
When it comes to stablecoins: The Bank Policy Institute, for instance, is concerned about what would happen if stablecoin providers gained access to Fed master accounts — the systemic risk involved in uninsured digital assets sort of being able to tap into a system that processes trillions of dollars every day. Is that a concern the FTA shares as well? Are there additional frameworks or guardrails that the FTA would want when it comes to the use of stablecoins in banking?
We still don’t know what the final rule will look like, but irrespective of it, the SEC, CFTC, OCC, and other regulators will make it robust. It’s in their interest to ensure the safety and soundness of the new products, processes, and rails coming online, ensuring that they do not put United States financial institutions at harm. I have full faith that the prudential regulators, similarly to how they have been regulating banks, will provide for that same amount of rigor and robust oversight and supervision, and enforcement to ensure that our system is safe.
It’s an interesting time. As the United States moves more digital, we want to be responsible players in that conversation and in the ecosystem. As we think through this, I think the US has been behind some other jurisdictions globally, and we have the opportunity to lead once again. We have developed the most innovative products, yet our regulatory system holds us back on its full potential. Allowing consumers and small businesses to be able to settle faster, to be able to clear payments, and to be able to have faster achievement payments is a great thing. At the same time, we have great state and federal regulatory systems, and bank-fintech partnerships that have brought in a lot of innovation. We’re looking forward to working with the administration and Congress on reaching its full potential.
