In October, the Consumer Financial Protection Bureau (CFPB) proposed a set of rules that if implemented would transform how financial institutions handle personal data about their customers. The rules put control of that data back in the hands of ordinary Americans, while at the same time undermining the data broker economy and increasing customer choice and competition. Beyond these economic effects, the rules have important data security benefits.
The CFPB’s rules align with a key security idea: the decoupling principle. By separating which companies see what parts of our data, and in what contexts, we can gain control over data about ourselves (improving privacy) and harden cloud infrastructure against hacks (improving security). Officials at the CFPB have described the new rules as an attempt to accelerate a shift toward “open banking,” and after an initial comment period on the new rules closed late last year, Rohit Chopra, the CFPB’s director, has said he would like to see the rule finalized by this fall.
Right now, uncountably many data brokers keep tabs on your buying habits. When you purchase something with a credit card, that transaction is shared with unknown third parties. When you get a car loan or a house mortgage, that information, along with your Social Security number and other sensitive data, is also shared with unknown third parties. You have no choice in the matter. The companies will freely tell you this in their disclaimers about personal information sharing: that you cannot opt-out of data sharing with “affiliate” companies. Since most of us can’t reasonably avoid getting a loan or using a credit card, we’re forced to share our data. Worse still, you don’t have a right to even see your data or vet it for accuracy, let alone limit its spread.
The CFPB’s simple and practical rules would fix this. The rules would ensure people can obtain their own financial data at no cost, control who it’s shared with and choose who they do business with in the financial industry. This would change the economics of consumer finance and the illicit data economy that exists today.
The best way for financial services firms to meet the CFPB’s rules would be to apply the decoupling principle broadly. Data is a toxic asset, and in the long run they’ll find that it’s better to not be sitting on a mountain of poorly secured financial data. Deleting the data is better for their users and reduces the chance they’ll incur expenses from a ransomware attack or breach settlement. As it stands, the collection and sale of consumer data is too lucrative for companies to say no to participating in the data broker economy, and the CFPB’s rules may help eliminate the incentive for companies to buy and sell these toxic assets. Moreover, in a free market for financial services, users will have the option to choose more responsible companies that also may be less expensive, thanks to savings from improved security.
Credit agencies and data brokers currently make money both from lenders requesting reports and from consumers requesting their data and seeking services that protect against data misuse. The CFPB’s new rules—and the technical changes necessary to comply with them—would eliminate many of those income streams. These companies have many roles, some of which we want and some we don’t, but as consumers we don’t have any choice in whether we participate in the buying and selling of our data. Giving people rights to their financial information would reduce the job of credit agencies to their core function: assessing risk of borrowers.
A free and properly regulated market for financial services also means choice and competition, something the industry is sorely in need of. Equifax, Transunion and Experian make up a longstanding oligopoly for credit reporting. Despite being responsible for one of the biggest data breaches of all time in 2017, the credit bureau Equifax is still around—illustrating that the oligopolistic nature of this market means that companies face few consequences for misbehavior.
On the banking side, the steady consolidation of the banking sector has resulted in a small number of very large banks holding most deposits and thus most financial data. Behind the scenes, a variety of financial data clearinghouses—companies most of us have never heard of—get breached all the time, losing our personal data to scammers, identity thieves and foreign governments.
The CFPB’s new rules would require institutions that deal with financial data to provide simple but essential functions to consumers that stand to deliver security benefits. This would include the use of application programming interfaces (APIs) for software, eliminating the barrier to interoperability presented by today’s baroque, non-standard and non-programmatic interfaces to access data. Each such interface would allow for interoperability and potential competition. The CFPB notes that some companies have tried to claim that their current systems provide security by being difficult to use. As security experts, we disagree: Such aging financial systems are notoriously insecure and simply rely upon security through obscurity.
Furthermore, greater standardization and openness in financial data with mechanisms for consumer privacy and control means fewer gatekeepers. The CFPB notes that a small number of data aggregators have emerged by virtue of the complexity and opaqueness of today’s systems. These aggregators provide little economic value to the country as a whole; they extract value from us all while hindering competition and dynamism. The few new entrants in this space have realized how valuable it is for them to present standard APIs for these systems while managing the ugly plumbing behind the scenes.
In addition, by eliminating the opacity of the current financial data ecosystem, the CFPB is able to add a new requirement of data traceability and certification: Companies can only use consumers’ data when absolutely necessary for providing a service the consumer wants. This would be another big win for consumer financial data privacy.
It might seem surprising that a set of rules designed to improve competition also improves security and privacy, but it shouldn’t. When companies can make business decisions without worrying about losing customers, security and privacy always suffer. Centralization of data also means centralization of control and economic power and a decline of competition.
If this rule is implemented it will represent an important, overdue step to improve competition, privacy and security. But there’s more that can and needs to be done. In time, we hope to see more regulatory frameworks that give consumers greater control of their data and increased adoption of the technology and architecture of decoupling to secure all of our personal data, wherever it may be.
This essay was written with Barath Raghavan, and was originally published in Cyberscoop.
