Commonalities In The Disputes Over Data Access And Interchange Fees

JP Morgan Chase building in New York City.

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One policy trend that has persisted this year is the introduction and consideration, but not passage, of state legislation that would subject banks, credit card companies, and other payment processors to new restrictions on the assessment of credit card interchange fees. Such bills were filed in more than a dozen states this year, but none were enacted, keeping Illinois as the only state to have such a law on the books (though not in effect, as its implementation has been paused pending the outcome of an ongoing legal challenge).

Retailers, big box stores in particular, are among the top proponents of legislation that would subject credit card interchange fees to new state regulation. A recurring flaw with arguments made in favor of interchange fee regulation, however, is the tendency to minimize or outright ignore the considerable costs associated with securely operating global payment processing networks.

With most state legislatures now out of session for the year, statehouse debates over interchange fees have cooled for the time being. However, banks now find themselves in another policy and political fight with an industry that wants them to fully assume a major cost of data provision for third parties. In this case, it’s the billions of dollars associated with securely managing and maintaining sensitive consumer data and APIs. Whereas big box retailers are a driving force behind proposals for interchange fee regulation, data broker middlemen are major proponents of the Open Banking Rule, a Biden-era rulemaking issued by the Consumer Financial Protection Bureau (CFPB) last November that would force banks to continuously provide consumer data to third party apps at no charge.

Despite banks already having the ability to charge third parties for access to consumer bank data in existing contracts, banks had been providing that access at no charge in anticipation of the Biden era rulemaking’s implementation. That changed however, after the CFPB under Trump filed for a motion of summary judgment in court, acknowledging the agency exceeded its statutory authority in issuing the rule.

In response to JP Morgan’s recent announcement that they will begin charging data aggregators for repeated access to consumer bank data, data aggregators have lashed out with criticism, some of which has been misleading or simply false.

On July 19, Tyler Winklevoss criticized “JPMorgan and the banksters” in a statement posted to X, claiming that they “want to take away your right to access your banking data for FREE via-third party apps like @Plaid and instead charge you and fintechs exorbitant fees to access YOUR DATA.”

Winklevoss’s claim that JP Morgan and other banks are trying to “charge you and fintechs” fees is not fully accurate. JP Morgan is not going to charge customers to access their own data. Rather, the bank will charge data aggregators and other middlemen services, which for years have been utilizing JP Morgan’s API to access and then sell consumer bank data to a variety of stakeholders, including fintech companies.

What data brokerage spokesmen, executives, and investors don’t mention in their attacks on JP Morgan and other banks is the fact that data aggregators do not restrict themselves to accessing consumer data when it is necessary to service the consumer. APIs receive billions of data pull requests, far more than most customers are aware. Maintaining fraud protection, cybersecurity, and the software necessary to safeguard consumer data will naturally incur large costs for the bank.

The same inaccurate talking points employed by Winklevoss were repeated in a joint letter sent to President Donald Trump on July 23 that was signed by Chamber of Progress, the Blockchain Association, the National Retail Federation, the Financial Technology Association, and a coalition of other trade associations representing the fintech, crypto, and retail sectors. In that coalition letter, the signers claimed that banks are “moving to charge exorbitant fee for access to fintech and crypto apps,” which is not true. What banks are moving to do is charge data aggregators for repeated access to consumer bank data.

Biden Open Banking Rule Proponents Conflate Unrelated Issues

Aside from the misleading messaging about the entity to which banks would charge the data access fee, along with the nature and frequency of that access, signers of the aforementioned coalition letter have been trying to conflate the data access fee issue with the matter of debanking, which is unrelated.

The term ‘debanking’ was dropped in the letter as a complete non sequitur with no connection or evidence provided to justify the claim. The White House and members of Congress are working to end unjustified and politicized debanking, but that issue is completely unrelated to the debate over data aggregator access to consumer bank data. The only purpose of mentioning debanking in the debate over data access fees is to associate it with something the President doesn’t like, even though they’re unrelated.

“As of today, the ‘Open Banking Rule’ developed pursuant to Section 1033 of the Consumer Financial Protection Act gives you the right to access your banking data via third party apps,” Winklevoss contended in July 23 post on X, adding that the banks have been “suing the CFPB to vacate the Open Banking Rule and end the open banking era.”

The original statute of section 1033 is short and clearly articulates the intent to provide consumer bank data to the customers themselves without any mention of third parties. The law was not intended as a price control handout for data brokers. What President Joe Biden attempted to do under Section 1033 is one of numerous instances in which Biden-era rulemaking was criticized as inconsistent with statutory intent, which is why the Trump administration reversed course on the rule in court.

Questionable information about what the banks are looking to do and how data aggregators operate is not exclusive to progressives. The same talking points have been adopted by voices on the right. An article published in the Daily Wire, for example, described the assessment of data access fees for third party apps as a “direct attack on consumer choice, financial innovation, and the free market,” adding that “America’s biggest bank is effectively imposing a tax on consumers.” Neither claim is true.

Though data aggregators and fintech companies appear to have more at stake than retailers in the fight over consumer bank data access fees, the inclusion of retailers in the fintech-led coalition has some logic to it, since the debates over data access fee regulations and credit card interchange fee restrictions are so analogous. Whereas proponents of Illinois-style price controls for interchange fees want credit card companies to fully cover the significant costs associated with operating a secure global payments processing system, data aggregators now want banks to foot the entire bill for API upkeep and development, the considerable costs of which CFPB officials are aware. Despite awkward attempts to conflate the two, the same cannot be said about the debates over consumer bank data access fees and politicized debanking.

“The CFPB acknowledges that the median reported cost of an in-house developer interface per customer is estimated to be $3.37 a year,” noted a joint letter sent on August 1 by a coalition of free market groups. “This cost presents a significant potential burden for large institutions and G-SIBs serving tens of millions of customers, as well as a crushing blow to community banks and credit unions already dealing with high regulatory costs.”

“Mandating free data access for data aggregators will not empower consumers,” the August 1 coalition letter to the CFPB added. “It is a backdoor price control that unfairly subsidizes data middlemen at the expense of banks and credit unions by forcing the expropriation of sensitive data. While these brokers provide innovative solutions to their consumer niche, we do not believe that they should enjoy unfair advantages through mandates placed on other businesses.”

The Trump administration’s July 29 request for the Biden-era Open Banking Order to be stayed was subsequently granted and the Consumer Financial Protection Bureau is now in the process of rewriting the rule. Stakeholders on all sides of this issue will have plenty of time to make their case, as it will be a matter of months before the CFPB finishes this regulatory rewrite. Given the high stakes and precedent-setting potential of the outcome, expect this matter to remain in the news for a while.