U.S. court revives CFPB prepaid rule on fees, in defeat for PayPal
PayPal objected to fee disclosures it viewed as mandatory
Appeals court says regulator did not overstep authority
This story has been updated to include a comment from PayPal
By Jonathan Stempel
Feb 3(Reuters) -A U.S. appeals court has revived a U.S. Consumer Financial Protection Bureau rule governing how providers of digital wallets disclose commonly used fees to prepaid customers.
The U.S. Court of Appeals for the D.C. Circuitrejected an argument by PayPalPYPL.O Inc, one of the largest digital wallet providers, that the CFPB overstepped its authority by making fee disclosures mandatory, not optional.
Friday's decision reversed a Dec. 2020 ruling by U.S. District Judge Richard Leon in Washington, D.C., who said the CFPB lacked power under the federal Electronic Funds Transfer Act or the 2010 Dodd-Frank financial reforms to impose a mandatory "model clause" for the fees.
Kannon Shanmugam of Paul, Weiss, Rifkind, Wharton & Garrison represented PayPal, while CFPB senior counsel Christopher Deal represented the regulator.
The CFPB created its Prepaid Rule to offer consumers legal protections on prepaid accounts similar to those on products such as checking accounts, including the ability to challenge payment errors, unauthorized transactions and fraud.
Among the charges to be disclosed were ATM withdrawal and balance inquiry fees, and fees for holding accounts, reloading cash, account inactivity and customer service.
The appeals court said the CFPB's disclosure requirement was not a mandatory model clause because financial providers were free to use language "substantially similar" to what the regulator proposed.
Though there may be only a "limited range of permissible wording," Circuit Judge Neomi Rao concluded that "the fact the Prepaid Rule requires the disclosure of certain content does not, standing alone, mandate a model clause."
Chief Judge Sri Srinivasan and Circuit Judge Cornelia Pillard joined Rao's decision.
A PayPal spokesperson said the company "remains unwavering in our commitment to protect consumers and in our efforts to alleviate confusion that would be created by this rule."
The San Jose, California-based company had said that there were "significant differences" between digital wallets and prepaid cards, including that the cards' small size arguably necessitated "formulaic" disclosures.
The appeals court returned the case to Leon to consider PayPal's other challenges to the Prepaid Rule, including constitutional and administrative law claims. PayPal was not challenging its obligation to disclose fees altogether.
A CFPB spokesman said the regulator was pleased with the decision and will continue defending the rule.
The case is Consumer Financial Protection Bureau et al v Paypal Inc, D.C. Circuit Court of Appeals, No. 21-5057.
For Paypal: Kannon Shanmugam, of Paul, Weiss, Rifkind, Wharton & Garrison
For CFPB: Christopher Deal
Reporting by Jonathan Stempel in New York
Related Assets
Latest News
Disclaimer: The XM Group entities provide execution-only service and access to our Online Trading Facility, permitting a person to view and/or use the content available on or via the website, is not intended to change or expand on this, nor does it change or expand on this. Such access and use are always subject to: (i) Terms and Conditions; (ii) Risk Warnings; and (iii) Full Disclaimer. Such content is therefore provided as no more than general information. Particularly, please be aware that the contents of our Online Trading Facility are neither a solicitation, nor an offer to enter any transactions on the financial markets. Trading on any financial market involves a significant level of risk to your capital.
All material published on our Online Trading Facility is intended for educational/informational purposes only, and does not contain – nor should it be considered as containing – financial, investment tax or trading advice and recommendations; or a record of our trading prices; or an offer of, or solicitation for, a transaction in any financial instruments; or unsolicited financial promotions to you.
Any third-party content, as well as content prepared by XM, such as: opinions, news, research, analyses, prices and other information or links to third-party sites contained on this website are provided on an “as-is” basis, as general market commentary, and do not constitute investment advice. To the extent that any content is construed as investment research, you must note and accept that the content was not intended to and has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such, it would be considered as marketing communication under the relevant laws and regulations. Please ensure that you have read and understood our Notification on Non-Independent Investment. Research and Risk Warning concerning the foregoing information, which can be accessed here.
