PayPal Holdings and the Consumer Financial Protection Bureau have refiled legal claims in their ongoing court battle over disclosure requirements for digital wallets in the bureau's prepaid card rule.
The CFPB and PayPal filed a round of legal arguments late last month with the U.S. District Court for the District of Columbia to resolve remaining claims stemming from a lawsuit PayPal filed in 2019. The case is now moving quickly with oral arguments expected on July 6 and a decision expected by year-end or early 2024, experts said.
In February, a federal appeals court ruled in favor of the CFPB, finding that the bureau's prepaid card rule did not mandate specific fee disclosures for digital wallets. A three-judge panel of the U.S. Court of Appeals for the D.C. Circuit said the CFPB had complied with requirements of the Electronic Fund Transfer Act and remanded the remaining claims back to the district court.
U.S. District Judge Robert J. Leon originally sided with PayPal in late 2021, claiming the Dodd-Frank Act did not grant the CFPB any additional statutory authority to issue mandatory disclosure clauses.
PayPal, a multinational company with $25 billion in annual revenue based in San Jose, Calif., continues to challenge the CFPB on three issues. The payments giant claims that the prepaid card rule "imposes onerous and ill-fitting regulations" on providers of digital wallets and is therefore arbitrary and capricious, in violation of the Administrative Procedure Act.
PayPal also alleges the CFPB failed to conduct a cost-benefit analysis as required by the Dodd-Frank Act to determine whether the costs of complying with the prepaid rule outweigh the benefits and impact on consumers. PayPal also claims the prepaid card rule's short-form disclosure requirements violate its First Amendment rights to free speech by forcing the company to make "misleading and inapplicable" disclosures to its consumers.
"Under the rule, PayPal must highlight to consumers the highest possible fee amounts even if, in the vast majority of cases, PayPal customers will pay lower fees or no fees at all," the company said in a court filing on May 26.
The CFPB countered by saying the court "should reject those challenges."
The bureau said it declined to carve out digital wallets with asset accounts from the prepaid rule because consumers can use the accounts in the same way as other prepaid products — to store funds for use in a wide variety of transactions — "so they should receive the same protections," the CFPB said in its filing, also on May 26.
An appeals court is expected to rule by summer whether, as PayPal argues, digital wallets are excluded from the Consumer Financial Protection Bureau's fee disclosure rule for prepaid cards. If the CFPB loses, its ability to mandate disclosures on a range of financial products could be in jeopardy.
The prepaid rule requires that providers of prepaid cards, mobile wallets and peer-to-peer payments deliver three disclosures before consumers can use the products to allow them to comparison-shop on fees and other factors. PayPal, Venmo, Alphabet's Google Pay, Apple Cash and Square's Cash App are covered by the rule because the products store funds, according to the CFPB.
Separately, CFPB Director Rohit Chopra
The CFPB published a
