Navigating Section 1033: An Issuer’s Roadmap to Readiness

Contents

• Key Impact Areas for Card Issuers
• Rollout Path and Critical Success Factors
• Four Pillars of Successful Implementation
• Turning Regulatory Challenge into Competitive Advantage

The Consumer Financial Protection Bureau’s final rule on Section 1033, released in November 2024, marks a significant shift in how card issuers must handle consumer data sharing. While the rule promotes consumer data rights and open banking, it presents specific challenges and requirements for card issuers.

Financial institutions must prepare for a future of open, standardized, and secure data sharing. The rule mandates comprehensive changes – from technical infrastructure and API development to robust security protocols and consumer-centric design.

Section 1033 offers card issuers the opportunity to transform their approach to data, to view consumer information not as a closely guarded asset, but as a dynamic, collaborative resource that can drive innovation, improve customer experience, and create new value propositions.

In the following deep dive, we’ll unpack the intricacies of Section 1033, exploring its key requirements, implementation timeline, and the critical strategies that will separate innovative leaders from compliance followers.

Key Impact Areas for Card Issuers

As data providers, card issuers will be subject to certain data access, technical infrastructure, and compliance timeline requirements laid out in the final rule for Section 1033.

Data Access Requirements

The rule requires issuers to provide card transaction data, balances, and account terms, and necessitates real-time access to authorized transactions that may not have been settled yet. Issuers are also required to provide access to historical data for at least 24 months and share information and terms of rewards programs.

Technical Infrastructure

This data needs to be transmitted through a robust technical infrastructure the requirements of which have been specified by the CFPB in its final rule. Issuers must build and maintain the developer APIs which are required to meet the uptime requirement of 99.5%. As data providers, issuers also need to respond to data requests within a “commercially reasonable” time.

Compliance Timeline

The CFPB has announced a tiered timeline for compliance with its final rule based on the size the financial institutions that will act as data providers:

• Tier 1 issuers (>$500B in assets): April 1, 2026
• Tier 2 issuers ($100B – $500B in assets): April 1, 2027
• Tier 3 issuers ($25B – $100B in assets): April 1, 2028
• Tier 4 issuers ($850M – $25B in assets): April 1, 2029
• Tier 5 issuers (<$850M in assets): Exempt

Rollout Path and Critical Success Factors

Given the stringent data sharing and infrastructural demands placed on data providers under Section 1033, it is important for them to plan a rollout path:

Early Preparation

Open banking will necessitate a reassessment of issuers’ existing technical capabilities to better prepare them for the demands of data sharing stipulated under Section 1033. Issuers must begin the process of assessing their technical capabilities and evaluating their data infrastructure readiness as soon as possible. This would allow them to identify any gaps and shortcomings and take decisions like partnering with established card API providers.

Standard Integration

The final rule calls on data providers to make covered data available in a standardized and machine-readable format. Issuers must plan the implementation of standardized card APIs and engage with the Financial Data Exchange (FDX), the CFPB-recognized standard setting body that will set the industry format for data sharing.

Risk Management

The final rule allows data providers like issuers to deny access to third parties in case of “a specific risk”, for the “safety and soundness standards of a prudential regulator,” or under “other applicable laws and regulations regarding risk management.”

Issuers must develop strong third-party risk assessment procedures to vet fintechs and other third parties who will request financial data. They must establish clear data security protocols and comprehensive data sharing policies.

Customer Experience

The CFPB’s final rule on open banking is built around the interests of the consumer – to make personalized financial products and services easily available. In order to uphold the spirit of the rule, issuers will be required to design authorization processes that are user-friendly, develop clear communication strategies, and plan customer support and awareness mechanisms.

Tabular breakdown of Section 1033’s impact and how issuers could consider approaching them:

Four Pillars of Successful Implementation

Section 1033 represents a fundamental shift in how card issuers must approach consumer data access and sharing. While the challenges are significant, they can be strategically addressed through a thoughtful, layered approach.

Successful implementation of Section 1033 requires emphasis on the following four aspects:

Infrastructure Modernization: As opposed to viewing this as mere compliance, issuers should identify this as an opportunity to modernize their data infrastructure. Partnering with established API providers and implementing strong monitoring systems is vital to crossing the line.

Risk-Based Security: The security approach should be risk-based and layered. Token-based authentication, stronger encryption, and comprehensive third-party validation processes should be implemented not just to meet compliance but to enhance overall security posture.

Consumer-Centric Implementation: Consumer experience must be of paramount importance. User-friendly interfaces for consent management, clear communication, and comprehensive support systems will be critical for success.

Cost and Timeline Considerations: The no-fee requirement and tight timelines will put a strain on ROI. This is why issuers must budget for implementation costs, and ongoing maintenance. They may also consider partnerships and shared service models.

Turning Regulatory Challenge into Competitive Advantage

The journey through Section 1033 is ultimately about trust and technological leadership. The future of banking is open, collaborative, and customer-centric, with success defined by the speed of implementation, robustness of security protocols, quality of data insights, and excellence in user experience design. Card issuers who invest strategically, demonstrate commitment to customer interests, and view this regulation as an opportunity for innovation will be best positioned to thrive in the evolving open banking ecosystem.