Is US Open Banking at risk? What the CFPB shakeup means 

If you’ve been following the news, you’ve probably heard a lot is happening at the US Consumer Financial Protection Bureau (CFPB). The director has been let go, staff have been sent home, and all new work has been halted. Whatever your opinion or politics, one thing is clear: the future of US Open Banking is now less certain.  

So, what is happening? And what could it mean for the future of Open Banking? 

CFPB shakeup

Let’s start with what’s been happening. On February 1st, Rohit Chopra, Director of the CFPB, was let go. Dozens more employees were axed just over a week later. 

The new leadership’s first action was to halt all bureau operations. They requested $0 in funding for the next fiscal quarter and proposed returning $711 million in existing funds to the Federal Reserve. More than 1,500 staffers were told to stay at home and stop working. A case against SoLo Funds, a fintech sued by the CFPB for deceiving borrowers on the true cost of loans, has been dropped. 

Most reports suggest the new CFPB leadership plans to dismantle the organization. But the Justice Department has said the plans are to ‘streamline’ it instead. 23 attorney generals have joined a lawsuit which is attempting to block attempts to defund the CFPB. 

Why is this happening?

The CFPB emerged as part of the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 in the wake of the 2008 financial crisis. Prior to the CFPB’s creation, regulatory responsibilities were spread across seven different federal agencies, which reportedly left gaps in protection.

CFPB supporters argue this allowed predatory and deceptive practices to flourish—major contributors to widespread mortgage defaults during the financial crisis. Opposition, at the time, feared overregulation. 

Today, critics say the agency is a ‘duplicate’ and that consumers are protected by other government agencies (The Federal Trade Commission, for example). 

Over the years, the CFPB has helped consumers recover more than $21 billion. 

What does it mean for Open Banking?

The CFPB has been involved in efforts to regulate Open Banking in the US, aiming to standardize financial data access. On 22nd October 2024, the bureau introduced the long-awaited Open Banking Rules to give people more control over their financial data and help Americans get better rates on loans, bank accounts, and credit cards. The benefits include: 

• • Enhanced consumer access to financial data: Consumers get greater control over their personal financial data. This makes it easier for them to access and share it with third-party providers. 

• • A boost in competition: Consumers can switch financial service providers more easily. This promotes healthy competition, leading to better rates and services. 

• • Transparency and innovation: With standardized data-sharing practices, the rule is/was expected to drive innovation in the financial services industry. This leads to more choice and better services for consumers. 

• • Secure data sharing: Establishing secure, standardized methods for financial data sharing between consumers and third-party providers reduces risky practices, like screen scraping. 

These new rules should/would have helped align the US with global best practices, helping it compete with markets like the EU and India. But in light of recent events, those reforms are in limbo. 

What are the risks to US Open Banking?

There are two main risks to Open Banking: 

1. 1. The CFPB is streamlined, throwing out Open Banking rules
   2. Open Banking rules are rejected under an existing lawsuit 

The term ‘streamlining’ suggests reorganizing the CFPB’s structure and reducing its scope of operations. If the CFPB’s resources are cut or its ability to enforce regulations is weakened, it may delay or disrupt the rollout of Open Banking rules. 

For point 2, an existing lawsuit against the open banking rules could still pose a threat. The Bank Policy Institute filed a case immediately after the rules went live, arguing that the rule could compromise consumer data security and privacy. Litigation has been paused for 30 days and banks have an extra 30 days to comply with the rule, reports Bloomberg Law. 

The absence of strong regulatory oversight would mean that consumers and small businesses would have to rely on fewer protections. With leadership changes and funding cuts, it’s unclear who will be responsible for consumer data access, competition, innovation, and security in Open Banking. Without this, progress will probably slow, leaving the industry to navigate a fragmented landscape on its own. 

The question then is: Could private-sector initiatives continue to drive progress, and what challenges might arise? This could turn out to be an advantage for big banks and incumbents. Without regulation, big banks and big tech could use their market power to limit competition, making it harder for fintechs and smaller firms to thrive. 

But if regulatory uncertainty persists, it could lead to stagnation where neither strong regulatory oversight nor clear market-driven alternatives emerge.

Does Open Banking depend on regulation?

Whether regulation is needed for US Open Banking to survive is debatable, but it has played a leading role in the formation of other markets. 

The UK, for example, has seen arguably the most progress in Open Banking. Regulations require large banks to give third-party providers access to customer data (with consent). This has fueled the rise of fintech companies offering budgeting tools, personalized financial advice, and streamlined payment solutions. It’s attracted both local and international investment. And it’s shown Open Banking has the potential to fuel competition and innovation. 

Though Europe is further behind, the same is true. The introduction of PSD2 (Payments Service Directive) gave life to the Open Banking market in 2019, and PSD3, expected to launch in the next year or so, will revitalize it. 

The CFPB has helped energize US Open Banking. But the market was already growing through private, largely unregulated, market-driven data-sharing platforms. Platforms like Plaid have done well without formal regulations. That said, US Open Banking adoption has been much slower than in other regions. The Open Banking rules would provide a chance to gain some ground. 

Uncertainty on the Horizon

So, the future of Open Banking is unlikely to be at total risk. But without firm rules in place, the industry is likely to lose momentum. Open Banking will continue to evolve. Whether regulated by the CFPB or governed by private entities, it will reshape the way consumers interact with financial institutions. Will consumers have the same level of protection they currently enjoy? Or will they be left to navigate this complex system on their own? Time will tell.

Need help with Open Banking?

Speak to RedCompass Labs to stay ahead of the uncertainty. Now is the time to plan your strategy—enhancing data access, improving products, and strengthening security. Don’t wait for regulations to dictate the next move. A proactive approach will ensure you’re ready for whatever comes next. 

We’ve deep expertise in Open Banking in the UK and Europe. Reach out to the team today.