The 2010 Dodd-Frank financial “reform” bill may be tied with Obamacare as the most destructive piece of legislation passed between 2009-2011, when Democrats controlled the White House and both chambers of Congress. The legislation codified the “too big to fail” doctrine and imposed costly regulations on the financial sector. These regulations hit small banks the hardest, causing many of them to merge with big banks and thus increasing concentration in the banking industry. If that weren’t bad enough, Dodd-Frank also created a new federal regulatory agency: the Consumer Financial Protection Bureau (CFPB).
The CFPB’s mission is to “promote fairness and transparency for mortgages, credit cards, and other consumer financial products and services.” The CFPB is funded by the Federal Reserve, so it does not have to go through the congressional appropriations process. This funding mechanism was created to insulate the CFPB from being accountable to Congress. One of the regulations the CFPB is charged with enforcing is Section 1033 of the Dodd-Frank Act. Section 1033 directs “covered persons”—defined as “any entity offering consumer products or services, including banks, credit unions, and financial products or services”—to ensure that consumers have access to “information regarding transactions, accounts, and related data available to the consumer upon request.” Section 1033 also labels as covered persons financial technology companies, also known as fintechs, such as Visa, PayPal and Block (owner of Cash App).
However, under President Biden, the CFPB drafted a rule enforcing Section 1033 that forced private financial institutions to turn over their customers’ data to private companies including fintechs and data aggregators (companies that collect data from multiple sources and aggregate them into an ordered and accessible format). The rule also required “covered persons” to provide this data to these businesses free of charge. Of course, the covered persons will find a way to make their customers pay for this subsidy to fintechs, data aggregators, and other businesses. Even worse, the rule allows fintechs and others to obtain consumer data without adopting adequate safeguards to protect against data breaches—making these consumers vulnerable to data theft, identity theft, and fraud.
Fortunately, the U.S. Court for the Eastern District of Kentucky has enjoined the government from enforcing the rule until the CFPB finishes drafting a replacement for the Biden-era rule. The new Section 1033 rule should follow the clear language of Dodd-Frank. This means properly defining consumers as individuals who use a bank’s services. Fintechs and other financial service companies should be defined as covered persons—not as customers. The CFPB should also fulfill its statutory responsibility to consult with the Federal Trade Commission (FTC) and other federal agencies who play a role in financial regulations regarding the rule.
Several banks and credit unions have already made agreements with fintechs and data aggregators regarding the sharing of customer data. These agreements should not be voided or changed by federal regulators. The market can ensure companies have the data they need without risking the security of consumers, and does not need the help of Biden-era CFPB head (and ally of Massachusetts Senator Elizabeth Warren, who came up with the idea for the CFPB while still a law professor) Rohit Chopra.
Failing to reverse the Biden-era Section 1033 regulation would set back the progress the Trump Administration has made in limiting the CFPB’s power. Under the leadership of Office of Management and Budget (OMB) head Russ Vought, the Trump Administration has dramatically scaled back the CFPB’s activities. It has also tried to defund the agency using the (correct) argument that the funding mechanism is unconstitutional.
While the Administration did agree to partially fund the CFPB, Director Vought continues to work to limit its powers and funding. If Director Vought and his allies in the Administration and Congress cannot kill the CFPB—which is unlikely, as that would require congressional approval and there are not currently enough votes to overcome a Democrat filibuster restricting the agency’s regulatory authority would be the next best thing.
This is especially the case when the CFPB’s regulations claim powers exceeding those granted to it by Congress, as the agency did when it drafted the first rule implementing Section 1033, violating the contracts and property rights of financial institutions. Reversing the Biden-era Section 1033 regulation would be another good step by the Trump Administration toward freeing us from the monster created by Dodd, Frank and Elizabeth Warren.
