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The Consumer Financial Protection Bureau (CFPB) and a coalition of major banking trade groups have jointly filed motions seeking to overturn the Biden-era open banking rule, arguing that the agency overstepped its legal authority and that the rule imposes an unfair regulatory burden on banks.

The CFPB, along with the Bank Policy Institute (BPI), Kentucky Bankers Association (KBA), and Forcht Bank NA, petitioned U.S. District Judge Danny Reeves of Kentucky to vacate the rule, which requires banks to make certain customer account data freely available for secure, consumer-authorized sharing with third parties.

Originally finalized under former CFPB Director Rohit Chopra, a Biden appointee, the rule outlines how consumer financial data should be shared and restricts its usage. However, the CFPB now contends that the data-sharing mandate exceeded its statutory authority and violated the Administrative Procedure Act. Similarly, the banks describe the rule as burdensome, irrational, and unlawfully vague.

"This case involves an agency that drastically overstepped its statutory authority, replacing a thriving private ecosystem with a risky and burdensome regulatory framework," the plaintiffs said in their filings.

Paige Pidano Paridon, Executive Vice President of BPI, stated, "The CFPB is right to prioritize the law over defending bad policy. Claims that vacating the rule will end data sharing ignore that many fintechs depend on bank-driven data sharing that exists without this rule."

The banking coalition argues that Congress never authorized the CFPB to implement such expansive mandates. They further claim the rule compels banks to share sensitive customer data with any third party that obtains customer authorization, effectively forcing banks to subsidize a flawed system that threatens consumer privacy.

Following a Trump-era executive order requiring agencies to review their regulations for legal consistency, the CFPB concluded that the open banking rule is unlawful for several reasons, including exceeding statutory authority, prohibiting data providers from charging fees, jeopardizing consumer data security, and imposing unreasonable compliance deadlines.

In response to doubts about the CFPB's defense of the rule, the Financial Technology Association (FTA) was granted intervenor status by Judge Reeves. FTA, representing fintech leaders like Plaid, Stripe, and PayPal, supports the rule as vital for consumers, innovation, and financial institutions. FTA President Penny Lee said, "Americans must have the right to securely control and share their financial data. We will continue to defend this right and uphold financial freedoms."

The case, Forcht Bank NA et al. v. Consumer Financial Protection Bureau et al., case number 5:24-cv-00304, is currently pending in the U.S. District Court for the Eastern District of Kentucky.