PayPal has filed suit against the Consumer Financial Protection Bureau (CFPB), alleging that the agency has dismissed its arguments that digital wallets do not operate in the same way as reloadable debit cards — and that disclosure rules mandated by the agency require the payments giant to make “misleading and confusing” disclosures about its products.
In the lawsuit, filed in in the United States District Court for the District of Columbia, PayPal said the CFPB rule that requires disclosure for digital wallets and prepaid debit cards places “unreasonable restrictions” on consumers’ abilities to link certain credit products to PayPal accounts.
The rule took effect in April of this year and is known as the “Prepaid Accounts Under the Electronic Fund Transfer Act (Regulation E) and the Truth in Lending Act (Regulation Z) Rule.” PayPal stated in the filing that the rule is an initiative to regulate prepaid or general purpose reloadable cards. But the CFPB has allegedly “arbitrarily” subjected the cards and PayPal’s digital wallet to the same levels of regulatory disclosure.
As relayed in the court filing, and reported by Law360, the company has said that in communication with CFPB in the latter’s rulemaking process, it said that digital wallets remain fundamentally different from the reloadable cards.
The disclosures, PayPal maintains, confuse consumers who use digital wallets.
“The resulting regulatory regime is fundamentally ill-suited to PayPal digital wallets and is likely to mislead or confuse consumers,” PayPal said in the filing. “The rule mandates PayPal make disclosures concerning fees that PayPal does not charge and misrepresent the actual fees paid by most customers.”
The lawsuit states that the rule itself represents a “category error” and that the bureau cited no reports or evidence that consumers acquire or use the cards or wallets in the same way. Though the CFPB acknowledged that the wallets are used “to store the consumer’s bank account, debit card, credit card, and/or prepaid card credentials,” the fact that digital wallets may be used to store funds means they should be regulated in the same way as the reloadable cards.
And in other instances, the rule forces consumers to wait 30 days before linking credit products to digital wallets., which PayPal said keeps consumers from benefitting from the core features that motivate them to get digital wallets in the first place.
“The Bureau thus seized on an occasional and incidental feature of digital wallets to impose on digital wallets a sweeping regulation designed for GPR cards,” PayPal said in the suit, going on to state that “the resulting regulatory regime is fundamentally ill-suited to PayPal digital wallets and is likely to mislead or confuse consumers” about fees that are not charged by the company. In addition, the rule prohibits PayPal from including explanatory language that would describe the nature of those fee categories.
In a series of disclosures that are mandated by the rule, according to PayPal and that do not apply to its digital wallets, terms include “periodic” and “per purchase” and “inactivity fees.” Those disclosure rules violate Free Speech protections, PayPal said.
“In other words, the Rule’s mandated short form disclosure regime forces PayPal to make disclosures that confuse consumers as to the products’ actual costs yet bars PayPal from providing the very information that would assist consumers in making an informed decision,” PayPal wrote.
PayPal has petitioned the court to rule that the rule’s application to PayPal is unconstitutional and that the rule be vacated.