Trump administration should avoid price controls

In the coming weeks, the Consumer Financial Protection Bureau is expected to issue a new rule superseding a Biden-era interpretation of the Dodd-Frank Act that mandated banks provide data access to financial technology (or fintechs) at zero cost.

But rather than simply repeal the mandate, the agency is reportedly considering a hybrid price control/market regime in which some but not all transactions would have a zero price control. It would be much better for the Trump administration to simply stick to its free-market guns and leave this matter to negotiations between the banks and fintechs.

Section 1033 of the Dodd-Frank Act states banks must provide customer data to fintech firms at the request of mutual customers — including peer-to-peer lending platforms like Zelle and Venmo, or stock market brokers like Robinhood – often through data aggregators, or middlemen. What remained a point of contention up until the Biden administration was whether banks would be able to charge for ongoing, continuous access to that data beyond consumer requests.

In what amounted to a shortsighted giveaway to fintech firms, the Biden administration ruled banks could not charge for access to their customer data at all, ever — even while forcing banks to build and maintain the expensive secure APIs required to transmit it. This mandate was handed down all while preserving the fintech’s ability to monetize the same data.

While the intention was to keep costs low for customers accessing financial services, Milton Friedman informs us that there is no such thing as a free lunch. As the peer-to-peer lending economy has exploded — and services like Robinhood have grown immensely popular, particularly with younger users — banks now face sizable and rapidly growing costs associated with securely providing this data. Banks are forced to build, run, and ensure cybersecurity for enormously high-volume APIs while absorbing the entirety of the operational costs as well as the liability.

Pragmatically, this means that if the Consumer Financial Protection Bureau doesn’t change this ruling, banks will face heavy pressure to raise costs on consumers elsewhere to recoup the losses the government forces them to take on providing this service. While on its face one might think the Biden administration saved consumers money, in practice, it really just robbed Peter to pay Paul, as banks look toward other fee increases to comply.

The solution for all of this is frustratingly simple, though it’s unclear whether President Trump’s administration will be bold enough to rule as such. As it turns out, the private sector has already proven it doesn’t need any government handholding to negotiate agreements with the interests of customers in mind.

Recently, the fintech company Plaid, the largest aggregator of financial data, reached an agreement with JPMorgan Chase, the largest bank, to renew its data-access agreement. It included a non-zero pricing structure which, reportedly, would not impact Plaid’s current customer agreements and pricing models. This goes to show that fintechs are not little guys who need government help, but big players in their own right who are more than capable of negotiating commercial terms with the banks.

The fintechs surely understand the absurdity of their demands that banks continue to develop and maintain secure APIs and infrastructure to provide them with data free of charge. Where it gets very disingenuous is when fintechs push the argument that the automated pulling of customer data is indistinguishable from a genuine customer-initiated data request. It’s a real stretch, and as tech companies, no one understands the realities of data commoditization better than they do.

Fortunately for the fintechs, their business is booming. People love their products and services. Their advocacy should start reflecting that by competing fairly in the marketplace, rather than embarrassing themselves with rent-seeking behavior.

Let’s hope the Trump administration affirms its stance against price controls fully, not in an arbitrary halfway hybrid. For those who think these price controls lower costs for consumers, remember Milton Friedman.

Originally published on Cagle.