Judge backs PayPal over CFPB in prepaid card case

A US federal judge has sided with PayPal in a lawsuit brought against the Consumer Financial Protection Bureau (CFPB) over recently introduced rules on prepaid cards and digital wallets.

PayPal sued the regulator in December 2019 in the US District Court for the District of Columbia, arguing that the prepaid rule forces it to make irrelevant disclosures that confuse customers.

Under the rule, PayPal and Venmo need to give customers “short form” fee disclosures containing categories – such as fees for ATM balance inquiries and electronic withdrawals – that are not relevant.

The suit says this has confused PayPal customers, who mistakenly think that they are being charged fees for a host of actions. PayPal says it should not have been subjected to the rule, which is designed for providers of reloadable prepaid cards.

In his decision, US District Judge Richard Leon has sided with PayPal’s argument that the CFPB went beyond its jurisdiction with the rule.

He wrote, according to Reuters, that the regulator’s rulemaking authority under the Dodd-Frank Act did not allow it to decide how prepaid card and digital wallet firm disclose fees to their customers or to limit when credit cards can be linked to new accounts.

The CFPB says it does not comment on pending litigation while a PayPal spokesman tells Reuters that the firm is supportive of the regulator and of consumer protections.

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