PayPal Prevails in Case Against Consumer Financial Protections Bureau (CFPB) Regarding Prepaid Card Rule

Regulatory Update

On December 30, 2020 PayPal prevailed in its case against the CFPB challenging two specific parts of the CFPB Prepaid Card rule. PayPal focused its Complaint on two particular aspects of the CFPB Prepaid Card rule, including the requirement for companies to send customers specific disclosure forms listing any fees associated with the cards and the restriction for customers from linking credit cards associated with their prepaid card providers for 30 days after a new prepaid account was opened – a limitation the CFPB created on their own.

PayPal challenged the Prepaid Card rule requirement for prepaid card providers to send customers a specific disclosure form listing any fees associated with the card, including purchase fees or reload fees because CFPB required disclosure form confused PayPal customers, who are not charged such fees. PayPal found this requirement unreasonable because even though their consumers are not charged such fees the CFPB Prepaid Card rules requires PayPal to make such disclosures regardless. Next, PayPal challenged the part of the Prepaid Card rule which restricts customers from linking credit cards associated with their prepaid card providers for 30 days after a new prepaid account was opened. PayPal argued in its lawsuit that applying that rule to PayPal accounts unnecessarily blocked customers from linking cards issued by other companies that had business dealings with PayPal.

In a motion for summary judgment in May of 2020, PayPal argued that the mandatory disclosure requirement went beyond the agency’s authority to suggest appropriate fee disclosure forms under the Electronic Fund Transfer Act. Additionally, the company said that the CFPB was not authorized to limit when credit accounts could be linked to prepaid ones under the Truth in Lending Act, which is called a disclosure law.

On December 30, 2020, Judge Leon from the D.C. District Court agreed with PayPal stating that CFPB went too far when making these specific requirements, and that congressional silence in Dodd-Frank and the Consumer Protection Act does not equal authorization.

We will see whether this case goes up on appeal, but it is certainly a case to note and one to watch. The case is Paypal Inc v. Consumer Financial Protection Bureau et al., U.S. District Court, District of Columbia, No. 19- cv-03700.

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