New rules could make it easier to switch banks

The new banking rule will make it easier to switch banks or financial service providers, but it is already facing resistance from the financial industry.

The Open Banking Rule, approved by the Consumer Financial Protection Bureau (CFPB) last week, requires financial institutions, credit card issuers and other financial providers to unlock a customer’s personal financial data and transfer it free of charge to another provider upon the customer’s request. The CFPB said in a statement.

CONNECTED: Inflation falls to lowest level in three and a half years

Customers have long complained about the difficulty of switching banks or lenders. Transferring money can take days or weeks, and you will have to manually transfer any automatic payments coming from your account, resulting in possible late payments.

The federal agency said the new rule will promote competition and allow customers to more easily switch to financial services providers with better rates and service. The CFPB says it will also help lower loan prices “and improve customer service in the payment, credit, and banking markets.”

CONNECTED: Here’s how much money it takes to be considered middle class in every state

“Too many Americans are stuck with financial products with lousy rates and service,” CFPB Director Rohit Chopra said in a prepared statement.

What is open banking?

Open banking is the practice of banks and other financial service providers sharing customers’ financial data through application programming interfaces (APIs) with the customer’s consent, according to payments app Stripe.

Why are banks and credit card companies opposed to open banking?

The Bank Policy Institute, a bank lobbying group, and the Kentucky Bankers Association filed a lawsuit challenging the new open banking rules. The lawsuit accuses the CFPB of overstepping its authority and argues that open banking will put customers’ financial data at risk, Reuters reports.

At a recent banking event, JP Morgan Chase CEO Jamie Dimon said the industry plans to fight the new rules.

“We’re going to fight,” Dimon said at the event, The Lever reported. “We’re going to win this one too.”

If the rule survives industry challenges, it would go into effect in 2026 for larger banks and 2030 for smaller institutions.