The financial world has been abuzz about CFPB’s Rule 1033 for more than a year, with renewed interest in October 2024 accompanying the issuance of the final rule. But what does Rule 1033 really mean for financial institutions? How will this rule affect consumers’ expectations about data use?
This episode features commentary from our three hosts and Jordan Wright, CEO and co-founder of Atomic Financial, on all things Rule 1033, including surprises in the final rule, conversations around the rule at Money 2020, benefits for financial institutions and more.
Transcript
Saxon Prater (SP): Welcome to Banking on Community: A Podcast for Community Bankers. This is where we dig into the technologies, trends, challenges and opportunities in the community financial institution space. I’m Saxon Prater.
Tara Schultz (TS): I’m Tara Schultz with CSI.
Brett Glover (BG): I’m Brett Glover, and I’m the only one who has had a birthday since the last episode. So, happy birthday Saxon and Tara.
TS: Thank you.
SP: Thank you, Brett. A couple of Scorpios on here, so be careful.
BG: I was going to sing and just bust out happy birthday, but I’ll spare that part, and we won’t mention ages or anything like that, but happy birthday to you both.
TS: Good choice. Way to play it safe, Brett.
SP: And thank you. And also thank all of you for tuning in today. We’re going to be discussing Dodd Frank’s Rule 1033, and there’s a ton of stuff to cover. We’re also featuring an industry expert, Jordan Wright. But before we’re before we do any of that, we’re going to do our community bank highlight. So, Brett, I’ll kick it over to you, and you can tell us what you’re seeing.
BG: Yeah, absolutely. We had a lot to choose from but wanted to highlight F&C Bank.
F&C is in Holden, MO, and Holden is, depending on where you’re coming from in the Kansas City Metro, 35-40 minutes south of the Kansas City area. F&C is a great partner of ours and they just got recognized by the Missouri Independent Bankers Association for the 2024 Community Impact Award.
Known these folks for a long time, and what I would like to highlight and for folks to know about F&C is the way that they have embraced technology and in their digital transformation, whether that be around digital lending, small business tools, in the way that they’re leveraging digital banking to allow their teams to be even more efficient at providing excellent customer experience and customer service for their customers and their communities. So, well done to F&C.
TS: I love these stories. Obviously, it’s a relatively small asset size institution, and I think this is perfect proof that assets under management don’t always tell the entire story. And at a time where the financial landscape and the whole macro environment is challenging, I think it shows that F&C aren’t holding back on the innovation that will really widen how they serve their important customer base. They’ve maintained that community first, community-focused ethos, but they know and they’re actually executing on the importance of evolving to stay on top of those needs. So, let’s keep those stories coming. I love when these roll in.
BG: Absolutely. I think you’re spot on. I love these stories, too. And one of the things that F&C does such a good job of is educating themselves and making themselves knowledgeable about the technology and innovations that are available to them.
And then they know their customers so well, and they do a great job of executing. And I think it is just a great example of that.
SP: Brett, you mentioned that they’re always learning more and getting out in the industry. So, just a quick plug. I would be remiss if I didn’t say that CX25 registration is open. The event is March 31 through April 2, and early bird registration ends November 30. So, if you’d like to attend, it’s in Orlando. It’s going to be awesome. You can also learn a little bit about the location, the theme, special activities, keynotes and breakout sessions on the website, but you can check that out if you go to csiweb.com. There’s a little banner at the top. Just click it and you can see our registration site.
TS: Will there be goat yoga again?
SP: I don’t know. Do you happen to know, Brett?
BG: I can neither confirm nor deny goat yoga, but it was a hit last time around, so we’ll have to see.
SP: I did see a gator airboat in the Everglades, cocktail lessons and the Kennedy Space Museum. So, there are a lot of options. I don’t know about the goats. I know there’s at least going to be yoga.
TS: All right. Sounds like we’re stepping it up with gators. So, that’s cool, too.
BG: And Tara, you’ve been busy lately. I know you’ve hit several industry events. What’s going on and what are you hearing about?
TS: Yeah, I’ve been on the road a ton. I was recently at Money 2020, so I’ll hit a couple of those hot topics for some of our customers listening. First and foremost, one of the hot topics was moving AI from hype to real problem solving because it is a lot of hype right now and those investors, those that are building in AI. That was a constant conversation of yes, there is a lot of hype. And we’ve got to get down to the brass tax of the real problems that we’re able to solve and put this technology to use. So, that was one.
Faster payments to aid in all things like forecasting and cash flow, including the growing opportunity across border payments. That was a consistent conversation. And with all of that comes the importance of the ecosystem of fraud prevention and controls to both mitigate and lessen the inevitable there.
BaaS compliance was a hot topic. Shifting back to the direct to core being the best model there. I like to say forget the mistakes but remember the lessons around all of that. And I talked with several at the recent Bankers Helping Bankers event which phenomenal event for bankers and fintechs. If you’re not looking into that event, definitely do so.
But one of the things I discussed there was the CYA on the Cs and the Ts. So, compliance, making sure that you’re approaching that as a cost of the opportunity and communication with both the regulators, your partners, clarity from start to finish there. Technology and elimination of the layers and better visibility of those end funds. And then talent. Does your talent support your niche focus?
And of course, the last one being 1033, this topic was really timely for everyone there. I remember the proposed rule being announced last year at Money 2020, vividly from the stage with a lot of shock on how it initially came out. And now that final rule being issued days before this year’s Money 2020, which was certainly expected. So, I had the opportunity to recently connect and brainstorm around this with the CEO and founder of Atomic, who’s become a good friend, Jordan Wright. So, we collected some thoughts that we want to share with our listeners from Jordan.
Jordan Wright (JW): So, 1033 is a regulation from CFPB that requires financial institutions to make consumers’ data not only available, but hand it off to another financial institution. The initial proposed purpose of 1033 was to make consumer banking more competitive and to allow consumers better access to their data. If you look at the initial announcement on this going back a year and a half or so, now it was a jump start competition and consumer banking. And so, I think maybe those are some lenses to view 1033 through.
SP: I’ll say he did a much clearer job of summarizing it, in my opinion, than a lot of what I have read. A lot of the writing tends to be pretty verbose online. The actual summary says the final rule requires banks, credit unions and other financial service providers to make consumers’ data available so on and so forth. You guys get the drift. So thanks for sharing that, Tara. That’s helpful insight.
TS: Yeah, of course, Saxon. Here’s a little bit more context around some of the conversations that were happening on the floor and in meetings at Money 2020 from Jordan.
JW: It was interesting. I would say more interesting in the conversation with Director Chopra and Alex on stage was probably the conversations that I had with people off, you know, in separate conversations throughout Money 2020 on that topic. You know, if you’re talking to a large financial institution, they might say something like, yeah, they asked the blogger to interview Director Chopra. I think Alex is a smart guy, but I also think that, you know, it might have been more interesting to have somebody in the bank sector that actually is actively working on this. Taking a harder lens and maybe asking some harder questions on the impact of this on financial institutions. So, that was one takeaway. I felt like it lacked a little bit of teeth for what’s actually happening here.
Again, Alex is a smart dude, and I thought, Director Chopra explained his positions fine. But it was interesting to see the side conversations about it afterwards. I run in the community with a bunch of fintechs, but at the same time, I have 260 financial institution clients, right? And having the conversations with them. And then my view on it as a consumer, I want my data available for sure, and I think we all want our data available.
But how that’s done? Does it need to be? Anyway, but I thought that was interesting.
One key point I will make that I thought was funny was I think Chopra has asked about the lawsuit that was filed against him by an entity representing financial institutions. He said I haven’t read their lawsuit. I don’t think they’ve read our rule because they filed the lawsuit so fast. I think that that is probably an accurate statement, but there was enough signaling beforehand that financial institutions knew generally where the rule would be and what their stance would be on the rule.
TS: So, I agree with Jordan here. I think the lawsuit that hit less than 24 hours after the finalized rule and the comment from Chopra on stage shows just how much alignment that still needs to happen on this topic industry wide. We’ve had some proposed standards, but we need that solidified. And we’ve also had some pretty major political changes that have happened recently, and we can all ponder and predict, but no one really knows. What we know is what we know now and what’s within that rule. I think there’s a lot of fear around this rule for banks of all sizes, and yet so many that are taking this as the offensive play.
So, what are our possibilities with this as a financial institution? If this comes to fruition for our customers, how does that benefit how we serve, how we improve the experience overall and the offerings we can get in their hands? So, I would say as a proud supporter of community financial institutions of all sizes, I come at this role with a very balanced mindset, seeing both the opportunity as well as some of the risks to mitigate along the way.
BG: I do think it’s interesting that even in that little piece of conversation right there, you have three different aspects or three different takes, right? You have the banking institution. He also mentioned the consumer, right? And then also the fintech world that is coming into play here, right? And all have different viewpoints and what I think is interesting, too, in working with banks on the day-to-day is that the final rule came down, but is that the final rule, right? It wouldn’t be the first time that something came down and you need to start planning for this and then you know that changes or a date moves, etc. So, I think a lot still to play out here as banks are beginning to plan and strategize around this.
SP: Right. Like if rules can be made, rules could also potentially be changed. Obviously, this is a let’s see. Dodd Frank was in 2010, and this is ultimately a 14-year running piece of rulemaking that has undergone a bunch of changes. 2016 is really when they started in earnest looking at this. And Tara, you already mentioned the 2023 proposed rule. Now there are some differences between the final rule and the proposed rule, and we can probably get to if there are any surprises as we kind of move forward, but do you think that some of the initial response or resistance or hesitation is stemming primarily from the proposed rule more than the actual language of the final rule?
TS: Some of the biggest differences are around the cut off of institution size, for example. And some of the secondary data as well. But in relation to where they cut it off at $850 million assets under management, I think that’s an interesting cut off point with really no reasoning. I think whether this entire rule survives or not, all financial institutions should really be thinking and planning for how to maximize this for their relevancy. Again, playing on the offensive. The timeline, I think I’m somewhat surprised on, you know, that the timeline that was laid out in the finality of the rule, but things like this take time, and they take infrastructure and all that. So, whether this lives on as is, whether it gets modified, whether it gets killed or drug out for years on end, I think this is the type of consumer experience that will become the norm versus just a regulatory reaction.
SP: Yeah. And to the point about Director Chopra’s comments about, I don’t know if they’ve read our rule. His comments about it, it is funny. But also probably, let’s be honest, this rule is 600 pages. I tried to read through as much of it as I can. It’s as long as a Harry Potter book and far less engaging. So, you know for some people who may skim through it, looked for the high points, maybe even plugged it into ChatGPT to get the main takeaways, or are listening to podcasts like this, that’s understandable.
BG: I’m working on a cliff notes version. I’ll be happy to share that with you when I’m done.
SP: 1033 for dummies?
TS: Brett, use ChatGPT.
BG: Yeah, for sure.
TS: So, we also talked to Jordan about some of the surprises, too.
JW: Yeah, I would say my biggest surprise came from secondary use of data. So, secondary data use is referring to how financial institutions can use data on behalf of or to market to a customer. If you think about the really exciting things that are happening now and will happen in the next decade for consumers, so much of it requires access to data and there might be an insight that you didn’t know anything about when you first got the consumer’s data that I think the expectation was based off of off of feedback from the industry, the CFPB would move a mile on secondary use of data compared to the proposed final rule, and in fact, they moved an inch.
And I think that will have negative ramifications for consumers generally, maybe not. The other side of it is yeah, but I you know there are consumers out there that say I don’t want any of my data held by anybody. It’s like well, then nobody can offer you better things than you have today. And so, you know, there’s a line here. But that was very surprising to me that there was no movement on secondary or there was some very, very little movement on secondary use of data.
TS: I think one point I would hit on there is the consumers that don’t want their data shared with anyone, and I think that’s one of the future benefits of this is the visibility of that continual control. Because if you think about it today, Brett and Saxon, how many times have you shared your banking credentials to get access to some sort of third-party fintech? You do that once, and there’s an ongoing screen scrape process, but you do not have that ongoing control and visibility of or memory of that you shared this data.
So again, I think it brings it back to one of the benefits is control and visibility and the ability to take action and make the financial decision on your own consumers behalf of if you want that data shared or not.
SP: Yeah, speaking as a consumer, the some of the language in the rule is it provides the appropriate balance to ensure consumers are giving a meaningful choice before engaging in, in targeted advertising, cross selling data sales and they’re shielded from signing up for purposes they do not understand or do not request. I’m sure all of us on this call at some point have clicked like an iTunes terms of service without reading through all of it, because who knows what’s in there? From my perspective, if I could individually approve where my data is going, that’s sounds like a win to me.
BG: Yeah, absolutely. I don’t view it any different than, you know, our experience day-to-day with other technology and really it’s catching up to that right as a consumer, I want to be in control and I want to give permission over what I share and who I share it with, and I think it’s really just as simple as that.
TS: I agree. So, let’s hear from Jordan on some of the opportunities as it relates to financial institutions for Rule 1033.
JW: The exciting thing that we see coming out of this rule is that for those financial institutions that really embrace this, there will be an opportunity to get consumer data like never before for customers that you attract and to be able to help them like never before. I’ll give one brief example on this. So today, if you’re trying to sign up for somebody for a new account at your community financial institution, it’s extremely difficult to know all of the payees from their other account to know who’s paying them their paycheck, whether it’s coming from all the services they’re connected to. Is it a PayPal wallet? CashApp wallet customer? How does this customer look? That’s very difficult to get today.
Post this rule and post-implementation which we should probably talk about, which maybe that was another surprise to me. I was surprised they pushed off until April 2026, I think it is, on some of the ruling there but on this specifically if financial institutions embrace this data access, I think they’re going to be able to create wicked cool experiences for customers based on that data coming to them. And I think that that’s going to be somewhat magical for some customers.
I think it can lead to far better ongoing customer experiences. One comment that the director made at Money 2020, and has made in other places, is that he makes reference oftentimes to the portability of cell phones. And before the portability of cell phones, before you could change your number and take it with you to the next provider. Obviously, that was a huge hindrance to a lot of consumers wanting to take advantage of deals and things like that.
But actually, what we see now that’s normalized is that I mean I don’t know about you, Tara, but I have not moved my phone number for 15-20 years, right? It’s not like we’re switching every six months to take advantage of a deal. I think that once this normalizes in banking, I might see a little bit of churn in that first little bit, but if you’re providing great experience for customers, then I don’t think there’s going to be a huge amount of concern here. I think that’s both positive for banks, but I do think that those that embrace the data connectivity aspects and think about how can I use this data to provide like a 2-3x better customer experience? I think it’s going to be very exciting for those financial institutions.
BG: So, there’s a lot to unpack there. Who’s going first? I think where my mind instantly goes is when we mentioned it before that that the rule is targeted at an asset size. I would think and encourage financial institutions underneath that asset size to consider very strongly what their strategy and approach is going to be here, because I do agree that it does offer the ability for a financial institution to provide a much better customer experience.
Just speaking of besides what I do with customers and in the industry, I’m a dad. I have a 21-year-old and I have a 19-year-old, and I can guarantee you that those are the experiences that they’re used to, right? They expect that if they’re going to go to open an account somewhere, somebody is going to already know and help them. Here’s the things that that you need access to. Let’s go ahead and set this up for you right now. And that is a challenge currently. So, I think those are some of the things that looking at it from a practical standpoint for a financial institution that is like, OK, how do we embrace this to provide that better customer experience?
SP: Yeah, where my head goes is just thinking about from the business perspective. If you think about potential customers that might potentially have two banks or maybe they use one bank, but they also use Venmo, PayPal, Cash app. All these other things, right? Wouldn’t you, as a banker, want to know where exactly they are allocating their funds? Are they potentially going to take out a mortgage at some big bank? You probably want to know that, especially if you might have a competitive rate, right?
So, I think this could be a kind of segue into giving these smaller institutions access to data that these, that larger institutions that are maybe better funded or have a stronger, larger infrastructure have been hoarding for a long time.
TS: Yeah, absolutely. On Jordan’s comments, I got hives on the cell phone portability. If you know about my latest cell phone experience. It was a six-day saga, so I just had to say that real quick. But yes, Saxon, while the business side is excluded from the regulation itself right now, the inevitable experience and the benefits lean heavy on the ability to monetize and win as an organization leaning into that data flow of what’s out there that you don’t know about. And I think holistically, just more visibility into the entirety of your customers’ financial lives, more data and insight for the eventual use cases of better underwriting methods. Not there yet, but that’s the intent and better visibility for the right product. So just in general, more transparency to where customers are sending their data and vice versa. And it goes back to what we said earlier. Have you shared your credentials and then completely forgotten that you did that? It brings into the ecosystem that ongoing control. They forgot, they question it, they shut it off, or they’re seeing value in that exposed ecosystem of what was really previously disjointed financial experiences.
SP: What we’re talking about is essentially a truly open banking system, right? I mean it’s similar that as I understand it, a lot of this was based off of certain things that may be a more European structure of our definition of open banking and it’s kind of a push for more of that. Tara, we will need to return to your phone story at some point because now it’s like in the back of my head.
TS: No, we’re not going there. Oh, so anyway, back to the story. Let’s hear from Jordan on how 1033 will influence consumer expectations along this path.
JW: Yeah, my customer expectation, I think it’ll actually come in terms of signing up for financial products will become much easier than it has been in the past. It’s always interesting because once we have these things, then all of us expect them to be the default. And so, once my phone, once my car opens up, when I approach my phone, when I’m in my other car, my wife’s car doesn’t do that. I go what the heck you have to get your keys out of your pocket and press the unlock button like this is ancient history, right? And I think that very quickly you will see consumers expecting experiences that are far more fluid in onboarding because those experiences will be built out with this data.
I would say that that’s one piece. I also think that you will find consumers that are, and this is where the secondary use of data comes in. If you ask for the right to use this data appropriately upfront, consumers are going to start getting a magical experiences in the back end of this because all the data is available. Today or I guess in the past, we’ve looked at the primary banking relationship as kind of the hub for all of my finances. But in the future, it’s going to be able to tie in so many more sources of data, so if you are that primary hub of financial data, why couldn’t you go and pull a consumer credit card that maybe you don’t have access to today? And it’s going to become more natural to pull those pieces in and provide a great, cohesive experience across all of financial services. Within a single experience, I think that is going to spoil all of us, but we deserve it after the hell we’ve been through it for the last while, in terms of the difficulty on the financial services side.
TS: Well said by Jordan there. I think the entire ongoing control and transparency to where the customers are sending their data today and vice versa, that’s a massive benefit. So, they can gain things like easier and smoother account switching. Sure, it creates some hot money again, but I talk about this far wider than 1033. Do you want a customer to stay because they’re handcuffed and because of a contract? Or because you’re helping them glean value and they value your relationship and the services that you’re offering within their lives? And I think that’s a big difference. What do you guys think?
BG: Absolutely. I think also on the competitive landscape, I mean, we know for a fact in years past we’ve heard it, and we know it to be true that part of what has limited community banking, financial institutions from being more competitive is the difficulty that it takes for a consumer to switch that account and to get it going. It’s kind of painstaking, and in today’s world, that just doesn’t work well. And so, I think the ability to have onboarding and help the consumer to have that seamless experience. 10 years ago, if you were talking about this and you were, you know, highlighting like our parents’ generation, yeah, they’re not expecting that. But everybody else these days and today it’s really just catching up with the experience they’re already used to. And so, I think it will happen very quickly where this is the type of experience that a consumer, you know, they may not know the rule. They’re never going to walk into a bank and say, do you guys participate in 1033, and can I give you access to my data? That’s not going to happen. But it’s like, hey, I’m interested in what you have to offer. Can you help me onboard, and do that seamlessly? Something to that effect is going to definitely become the standard.
TS: So, let’s hear from Jordan around the risks and the challenges as we see it related to the newest rule.
JW: I have some concerns. For example, consumers have to reinitiate access to their data every year. I think is what the rule states, that they have to reapprove access to data. I feel like that could quickly become a fraud vector, especially if it becomes normalized behavior for people to say yes, yes, yes on accessing systems and data. How that’s communicated to customers is really important. We also didn’t touch on the fact that financial institutions under $850 million in assets have been excluded from this, and I see the need for that. They don’t have oftentimes the resources to be able to pull off what’s being asked of them. In these cases, I think that’s important. I wonder about if that becomes an incredible help to them, or if it becomes a hindrance that they’re not part of that ecosystem. So, I do worry about that.
The other thing that I would say that I worry about is the biggest challenges or risks getting out ahead of this. I worry about the largest banks moving fastest and pulling things off the quickest and being the biggest beneficiaries of this. And that’s concerning to me. In order to have a healthy ecosystem, we want lots of financial institutions in the United States, and we want them flourishing. And so, those would be a couple of the bigger challenges or risks that I see.
TS: Yeah, I think Jordan said it really well there, and he brought up a great point. I hadn’t really thought about was the revalidation or reapproving their access rights to that data. When we look at that, I think training customers to constantly click yes without thinking. I think it really centers in on how are you communicating and making sure that’s clear to the consumer what that process is? Versus like if you look at the entire fraud ecosystem you welcome the necessary friction along the way, for the right points of that journey to create safety for the entire financial service journey. But this could do the opposite of that if they get in a in a habit of, you know, constantly clicking just to get through. He brings up a great point. What do you guys think?
SP: Yeah, I hadn’t thought about that either. My mind did immediately go to well, this is another thing that the bankers have to make sure that they are staying on top of every year. And I’m sure that some could see that as burdensome as well. Yeah, considering it a fraud vector, that wasn’t on my radar.
BG: Yeah, I agree. That’s part of the, you know, looking at both sides as it is with any new technology or any rule that comes down, there’s benefits. But then there’s also, you know, procedural and operational things that are going to have to be taken into consideration that is going to definitely burden some financial institutions. And I think his point about the larger financial institutions being able to pivot quicker is definitely a valid point. I just think that’s important why financial institutions need to be represented and speaking with each other, but then also technology providers that can help bring resources. So, I think the jury’s still out on some of that, right? Obviously, still new and we don’t know what we don’t know, but it’s a very valid concern that I think a lot of banks are going to be wrestling with.
SP: And if you look, they have a tiered rollout of this where it’s in different phases based on their asset sizes. We’ve already talked about this. For the largest institutions, it’s April 1, 2026. From $850M to $1.5B, that’s April 1, 2030. I don’t know why they chose April Fool’s Day for all of these, but that’s 2030. And then anywhere under $850 is exempt under the way that it’s currently written. But it sounds to me based on what he said, that even if you are at a later date, if you have the ability to start making moves in this direction, or even if you’re under $850 million, it might be something you want to consider.
TS: Yeah, I think we should wrap it up with a quick round of wrap up advice for the financial institutions around Rule 1033. And I think my advice would just be think about the strategic advantages and the potential benefits to your financial institution as a whole, the pros and the cons of what this brings to your FI and your customers, no matter if your asset size is under or over that $850M mark.
BG: Yeah, absolutely. I think from my perspective, and what I’m already hearing for customers, is embracing the rule while also thinking about, yes, we have to figure out how this is going to work for us and the infrastructure and all those things that go along with that. But how do we embrace it? One of the things that community banks and financial institutions are known for is their service. That’s where they win, right?
How they know their customer, that relationship. And so, how can we lean into that more with this and how does this help us to do that even more effectively? And I think that’s the starting point. And then the strategy point and then obviously dotting the Is and crossing the Ts procedurally and then what kind of partners they may want to bring into that to help them do it more efficiently is going to be, you know, kind of the second piece of that.
SP: All right let’s leave it there. This has been a great conversation. We don’t have any questions submitted this week, but I do want to just remind everybody we want to encourage you to submit your questions if there’s a topic that you want us to explore, even just a basic question you want us to answer on air, you can use #BankingonCommunityPod or send your questions to at @CSIsolutions on X. Or you can also comment on one of CSI’s LinkedIn posts. So, a bunch of options. Send your questions if you have them or topic ideas if you have those.
Be sure to tune into our next episode. We’re going to be digging into CSI’s Banking Priorities Executive Report. There’s going to be a ton of interesting data.
BG: And it is December, so that means ugly Christmas sweaters.
TS: Oh, I gotta shop.
SP: Which reminds me, we’re also on video on YouTube as well as on the CSI website if you want to see us. In the meantime, thanks for listening.