Karsten Wenzlaff, Advisor
August 26th, 2025
Karsten Wenzlaff is a Crowdfunding and Fintech Expert from Germany. He is Secretary-General of Digit[...]
U.S. Open Banking Rule Lawsuit and Canada’s Implications
Open Banking | Nov 5, 2024
Image: Freepik/stockgiu
U.S. Banks Sue the CFPB Over New Open Banking Rule
Last month on October 22, the U.S. Consumer Financial Protection Bureau (CFPB) introduced a new rule that would give Americans more control over their financial information, improve consumer choice and transparency while also promoting competition (level the playing field for non-banks). However, push back from trade policy groups representing the banks came in the form of a lawsuit against the CFPB just a day later including Forcht Bank, the Kentucky Bankers Association, and Bank Policy Institute.
The lawsuit claims that the CFPB went beyond its legal powers by introducing the Open Banking rule without adequate reasoning. The plaintiffs believe that the benefits of Open Banking do not justify the costs. They also say that the CFPB didn't follow proper procedures when creating the rule since there was insufficient consulting with important groups that need to thoroughly assess the rule's impact.
See: Open Banking: Revolutionizing Financial Data Sharing
They claim the rule is random, unreasonable and not legal. They argue that it creates too many costs, raises security risks, wrongly gives regulatory power to others, sets impossible deadlines for banks to follow, and unfairly stops banks from charging fees for access. All of these problems hurt both the banks and their customers.
What the U.S. Lawsuit Could Mean for Canada's Open Banking Path
The outcome of this lawsuit could impact more than just the United States. Canada is also moving forward with open banking. Watching how this legal dispute plays out may foreshadow some future challenges that Canada needs to consider as it progresses (albeit slowly) with its own consumer-driven banking plans, such as:
1. Possible Delays and Policy Adjustments
The lawsuit might slow down the introduction of open banking in the U.S. which could influence how quickly Canada rolls out its own version of the rule. Canadian policymakers may take extra precautions to implement similar rules to proactively avoid any potential legal issues.
2. Emphasis on Data Privacy and Security
A major concern in the lawsuit is the safety of data. U.S. banks argue that being forced to share data with third parties could lead to breaches and fraud. Canada's open banking system may need stronger privacy and security measures to address risks.
See: How Fintechs Are Tackling Financial Inclusion in Canada
3. Balancing Bank Competition vs Consumer Protection
While open banking fosters competition and provides consumers with more choices and enhanced services, some worry that it will undermine financial stability. Canada will need to find the right balance that advances innovation without placing consumers at unnecessary risk. There are many jurisdictions who have successfully implemented open banking ahead of the U.S. rule where Canada can learn from such as in the UK where over 3000 banks and non-banks are currently registered and operating in the open banking ecosystem. See what the UK government recommends for next phase for open banking after several years of operating the program.
4. Cross-Border Financial Services
With the majority of Canada's export trade tied up with the U.S., any open banking policy delays may make it harder for Canadian consumers using services across the border. Having aligned regulations would help Canadians easily access financial products and services in both countries. Conversely, different approaches could lead to higher compliance costs and more complexity for cross border operations.
Outlook
The lawsuit against the CFPB’s rule brings up important issues like protecting consumers, keeping data safe, and deciding who has the authority to set the rules.
See: BoC Opens Registration for Retail Payment Service Providers
As the U.S. case progresses, Canada will need to follow developments closely and use what it learns to create open banking rules that give Canadian consumers more control over their finances while protecting their data and privacy.
The National Crowdfunding & Fintech Association (NCFA Canada) is a financial innovation ecosystem that provides education, market intelligence, industry stewardship, networking and funding opportunities and services to thousands of community members and works closely with industry, government, partners and affiliates to create a vibrant and innovative fintech and funding industry in Canada. Decentralized and distributed, NCFA is engaged with global stakeholders and helps incubate projects and investment in fintech, alternative finance, crowdfunding, peer-to-peer finance, payments, digital assets and tokens, artificial intelligence, blockchain, cryptocurrency, regtech, and insurtech sectors. Join Canada's Fintech & Funding Community today FREE! Or become a contributing member and get perks. For more information, please visit: www.ncfacanada.org
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