The United States Law Week

PayPal Sues CFPB, Alleging Disclosure Mandate Confuses Consumers (1)

Dec. 12, 2019, 3:29 PMUpdated: Dec. 12, 2019, 10:00 PM

PayPal Inc. sued the Consumer Financial Protection Bureau, seeking to block a rule that requires it to make disclosures that allegedly confuse consumers.

The “Prepaid Rule” requires that customers of PayPal and Venmo, its subsidiary peer-to-peer payments app, be given a “short form” fee disclosure that includes categories not relevant to PayPal’s products, the company alleges in a suit filed Dec. 11 in the U.S. District Court for the District of Columbia.

The form includes references to fees for ATM balance inquiries, customer service, electronic withdrawal and other categories, the complaint asserts.

The disclosure has confused many PayPal customers, who mistakenly believe the company charges fees to access funds stored as a balance with PayPal, to make a purchase with a merchant, or to send money to friends or family in the U.S., PayPal alleges.

The CFPB made PayPal subject to the rule after it erroneously lumped PayPal together with providers of reloadable prepaid cards, the company says.

The full title of the rule is the “Prepaid Accounts Under the Electronic Fund Transfer Act (Regulation E) and the Truth in Lending Act (Regulation Z) Rule.”

Industry Lobbying

The CFPB’s rule, which went into effect on April 1, was the subject of vigorous lobbying by PayPal and other tech and finance companies. The companies worried the rule’s disclosure and other requirements didn’t easily fit with the parameters of digital wallets, which they view as a different product than traditional pre-paid cards.

Among the concerns were that the rule’s “rigid” short form disclosure requirements prevented product differentiation in the market and is confusing customers, said Scott Talbott, senior vice president for government relations at the Electronic Transactions Association, a payments industry trade group.

“Our members are concerned that the fee structure disclosure mandated in the short form does not fit clearly with their fee structures. The rule is written as a one-size fit-all since you can only list the fees, but not with further explanation,” he said.

Causes of Action: Administrative Procedure Act, commercial free speech under the First Amendment of the U.S. Constitution.

Relief: Declaratory and injunctive relief, attorneys’ fees and costs.

Response: The CFPB didn’t immediately respond to a request for comment.

Attorneys: Wilmer Cutler Pickering Hale and Dorr LLP represents PayPal.

The case is PayPal Inc. v. Consumer Fin. Prot. Bureau, D.D.C., No. 19-cv-03700, 12/11/19.

(Adds industry comment on prepaid rule.)

To contact the reporter on this story: Peter Hayes in Washington at PHayes@bloomberglaw.com

To contact the editors responsible for this story: Rob Tricchinelli at rtricchinelli@bloomberglaw.com; Patrick L. Gregory at pgregory@bloomberglaw.com

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