PayPal Wins Prepaid Card Regulation Lawsuit Against CFPB

FinTech giant PayPal has won a lawsuit against the U.S. Consumer Financial Protection Bureau (CFPB) pertaining to rules regarding prepaid cards and digital wallets, Westlaw Today reported.

U.S. District Judge Richard Leon in Washington, D.C. invalidated part of the CFPB’s mandate, essentially agreeing with PayPal that the agency went beyond its jurisdiction. PayPal filed the suit in December 2019 under the Administrative Procedure Act (APA), contesting a 2019 rule regulating prepaid cards and electronic wallets. 

Leon wrote that the CFPB didn’t have rule-making authority under the Dodd–Frank Wall Street Reform and Consumer Protection Act, and therefore couldn’t direct how fees are disclosed for e-wallets and prepaid cards.

“Doubtless, this is a broad grant of authority,” he wrote of the power granted to the CFPB when the agency was created by Congress in 2010, per Westlaw. “But it is not without limitations!”

PayPal’s counsel, Wilmer Cutler Pickering Hale and Dorr, told Westlaw in a statement that the ruling will ease confusion.

PayPal spokesperson Justin Higgs told the news outlet that the San Jose-based FinTech “remains fully supportive of the mission of the CFPB.”

The CFPB said it had created the rule to extend legal protections to people who use prepaid cards. PayPal sued over part of the rule mandating that prepaid card providers send users a specific disclosure form regarding fees. The agency also ruled that users can’t link new credit card accounts to PayPal. 

PayPal argued in a motion for summary judgment in May that the mandatory disclosure requirement was not within the CFPB’s authority. Further, it said the rule was confusing to its users since they are not charged those fees. The FinTech also said the CFPB didn’t have the authority to limit when credit accounts could be linked to prepaid cards under the Truth in Lending Act.

“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.”