A federal judge has invalidated part of a U.S. Consumer Financial Protection Bureau rule governing prepaid cards and digital wallets, emphatically agreeing with PayPal that the agency overstepped its authority.
In the decision the court wrote that the agency’s rulemaking authority under Dodd–Frank Wall Street Reform and Consumer Protection Act did not allow it to dictate how prepaid card and digital wallet providers disclose fees to customers or to limit when credit cards could be linked to new accounts, saying those restrictions were precluded by other consumer finance laws.
“Doubtless, this is a broad grant of authority,” Judge Richard Leon wrote of the authority Congress gave the CFPB when it created the agency in 2010. “But it is not without limitations!”
A CFPB spokesperson said the agency does not comment on pending litigation. PayPal, represented by Wilmer Cutler Pickering Hale and Dorr, said in a statement that Wednesday’s decision will alleviate customer confusion.
“The company remains fully supportive of the mission of the CFPB and we are unwavering in our commitment to protect consumers,” said spokesman Justin Higgs.
PayPal had sued the agency under the Administrative Procedure Act in December 2019 challenging a final rule issued that year regulating prepaid cards, which the CFPB defined to include digital wallets that hold customer funds.
The CFPB created the rule to offer prepaid card users legal protections, such as the ability to address account errors, that already apply to other products such as checking accounts.
PayPal challenged part of the rule that requires prepaid card providers to send customers a specific disclosure form listing any fees associated with the card, including purchase fees or reload fees. The company claimed the form confused PayPal customers, who are not charged such fees.
The rule also restricted customers from linking credit cards associated with their prepaid card providers for 30 days after a new prepaid account was opened.
PayPal had 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.
The post PayPal wins prepaid and digital wallet case against U.S. CFPB appeared first on Payments Cards & Mobile.