In the new and often just fervor to increase competition, trust-busters such as CFPB Director Chopra sometimes forget that too much competition can lead to the Hunger Games, not to the “fair” and “inclusive” sectors they seek. Defending the new open-banking rule, Mr. Chopra said that he was willing to accept even a good deal more fraud risk for consumers because his rule humbles incumbent financial-services companies. This is like saying that one is fine with a few more dangerous drugs since that’s what it takes to loosen Big Pharma’s strangle-hold. Yes, the U.S. drug market is rife with abuses in how pharmaceuticals are priced and distributed and the FDA is problematic, but it seems irrefutable that drugs must be demonstrably safe and effective before we take them. Do you want to fly on any airline a group of speculators concocts even if it opens up pricing at your congested hub? Of course not, but that’s what antitrust zealots propose to do to banking even though we’ve learned the hard, hard way that footloose companies taking other people’s money often don’t give it back.
One of the humorless ironies of this election is the alignment between radical populists and progressives that squeezes out moderate, temperate, and – yes – imperfect policies that do the best they can for the most they can with the fewest possible side-effects. Populists want “free” markets and progressives such as Mr. Chopra want tightly-regulated ones, but the goal in each case is to cut powerful companies down to bite-size pieces that somehow return economic power to the people.
As is often the case, these radical views are in many ways the inevitable reaction to decades of policies that concentrated economic power in far too few hands at the cost of far too much economic inequality and abusive market practices. But curatives that are also violent systemic purges destroy at least as much as they restore and so it is with key aspects of populist/progressive antitrust policy.
Specifically, Mr. Chopra said when asked about fraud risk in open banking that ”that will happen … in a digital economy. We have to make sure there’s some rules. And, at the end of the day, we should be embracing competition.” In short, it is right to expose me to greater risk of identity theft or authorized fraud because account portability might earn me an extra quarter-point of interest on the deposit account thieves are about to pillage. Given that the majority of American household economies are poised on the head of a pin, this trade-off exacerbates economic inequality and even hardship.
Still, I do agree with Mr. Chopra on one of the foundational premises of his open-banking rule. As his rule expounds, my personal financial data are my personal property and it is thus It is right and fitting that my demands to see my personal data or protect it are honored without charge.
But demanding that the financial institutions to which I entrust my data also transmit it to third parties without charge despite all the authorization cost and liability risk this entails for the financial institution is like asking that a pet sitter take care of my dog for free because I own it. When my dry cleaner takes a leather jacket and then decides it needs special care to clean it as I require, I pay the dry cleaner for the service of getting my jacket to the third party and the third party for the services it provides. Personal financial data are no different but for the risk that a lost identity is far more damaging than a badly-cleaned jacket.
Stripped to its bones, this open-banking rule mandates that “data providers” including banks holding our personal data are to absorb all the costs and risks not only of giving their customers away to competitors who presumably have no other way to get them, but also of exposing these customers to risks the provider may foresee but cannot prevent.
Banks mounted a strong opposition to this open-banking conceit, but they lost. If banks lose the litigation they promptly filed, will they simply succumb and comply as the Bureau blithely expects?
Of course not. Regulators never seem to learn that actions have unintended consequences because private companies do not roll over to serve the presumptive public good no matter the cost. We have seen this in capital rules that make banks safer but also lead to relentless regulatory arbitrage and new, often-lethal risks to financial stability. We will also see it in open banking because companies such as banks that hold our data will do with it as they are told for now, but do something different thereafter to reduce the huge cost and unmitigated risk forced on them by the final CFPB standard.
Maybe the next step in an open-banking system is greater account portability and riskless, easier access to competing or ancillary services. That might be fine, but what if many banks decide that the risks of open banking so many low-margin retail customers no longer meet their return-on-capital requirements? Do what they’re told and lose a lot of money? Of course not.
Instead, many banks will accelerate the transformation already under way to far greater emphasis on wealth management because personal service makes wealth-management accounts less likely to migrate. Maybe wealth-management fees will go up a couple of basis points, but most wealth-management customers won’t notice the different. Low-balance checking accountholders, those who pay off their credit cards each month, and other low-return retail customers might, though, see a lot of differences, none of them to their good or that of economic equality.