On December 11, 2019, PayPal, Inc. (PayPal) filed suit against the Consumer Financial Protection Bureau (CFPB) in the District of Columbia, challenging the CFPB’s Prepaid Accounts Under the Electronic Fund Transfer Act (Regulation E) and the Truth in Lending Act (Regulation Z) Rule’s application to digital wallets. PayPal, Inc. v. Consumer Financial Protection Bureau, et al., No. 1:19-cv-03700 (D.D.C.)
The Rule, which went into effect on April 1, 2019, put in place requirements for the treatment of funds on lost or stolen cards, error resolution and investigation, upfront fee disclosures, access to account information, and overdraft features, if offered, in conjunction with prepaid accounts. Although prepaid accounts are usually “general purpose reloadable cards,” the Rule also applies to digital wallets, such as Apple Pay and PayPal. In doing this, the CFPB explained that digital wallets can be viewed as prepaid accounts because “some” digital wallets can be used to store and access funds directly. To this end, the CFPB’s position is that the Rule “ensure[s] that consumers continue to receive full federal credit card protections on their traditional credit card accounts while making it easier for them to link those accounts to digital wallets that can store funds.” Some of these “credit card protections” include the disclosure of periodic fees, inactivity fees, per purchase fees, ATM withdrawal fees and cash reload fees (collectively, short form fees), “even if such fees are $0 or if they relate to features not offered for a particular prepaid account product.”
PayPal’s lawsuit challenges the CFPB’s conclusion that digital wallets operate the same way as reloadable debit cards and should be regulated in the same manner. PayPal asserts that the Rule “mandates PayPal make disclosures concerning fees that PayPal does not charge and misrepresent the actual fees paid by most customers” and places “unreasonable restrictions” on the ability of consumers to link certain credit accounts to their service. PayPal asserts that the Rule’s “mandated short form [fee] 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.”
Further, to the CFPB’s point that “some” digital wallets can be used to store and access funds, PayPal asserts that this feature, while available, is not required and most consumers using PayPal do not use this feature. Simply put, PayPal argues that the application of the Rule to its digital wallet fails to make any sense and the CFPB “unreasonably dismissed PayPal’s evidence and finalized a rule that treats identically [general purpose reloadable] cards and PayPal’s very different digital wallet products.”
PayPal requests that the District of Columbia find that the Rule’s application to PayPal is unconstitutional, and requests the Rule be vacated and declared arbitrary, an abuse of discretion and unconstitutional as a whole.
