PayPal Wins Lawsuit Against Consumer Financial Protection Bureau (CFPB)
You can’t fight city hall, but apparently, you can fight the Consumer Financial Protection Bureau (CFPB).
PayPal recently won its lawsuit against the CFPB, invalidating part of the agency’s 2019 rule governing prepaid cards and digital wallets. PayPal said the agency had overstepped its authority, and U.S. District Judge Richard Leon agreed in what Reuters called “. . . a decision studded with exclamation points.”
Judge Leon said that the CFPB’s rule-making authority did not extend to making rules about how prepaid card providers and digital wallet providers had to disclose their fees to customers or to limit when credit cards could be linked to new accounts. The judge said those functions were precluded by other consumer finance laws, so he invalidated those parts of the CFPB’s new regulations.
According to Westlaw Today (owned by Thomson Reuters):
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 rules went into effect in April 2019, after five years of consideration and public comment. As soon as they took effect, PayPal filed their lawsuit saying they were forced to make consumer disclosures that are irrelevant and confusing. That is, there was no need to disclose anything about certain fees because PayPal didn’t assess those fees in the first place.
The CFPB said they put those disclosure requirements in the rule so consumers could more easily comparison-shop prepaid cards.
So they required that companies like PayPal also include language about ATM balance inquiry fees and electronic withdrawals, neither of which PayPal actually does. PayPal said many of their customers believed they were being charged fees that didn’t exist. They also argued that the CFPB was infringing on their First Amendment rights by dictating what they must say in their disclaimers.
“That dog won’t hunt!” Judge Leon wrote in his decision. (Note the exclamation point. That’s not our embellishment; that’s part of Judge Leon’s interjection-studded ruling.)
According to Greensheet.com, Judge Leon also wrote:
When Congress created the CFPB, under the Dodd-Frank Act, it “directed the Bureau to ‘issue model clauses for optional use by financial institutions.’ The bottom line is thus clear: Congress did not provide statutory authority – under either the EFTA or the Dodd-Frank Act – for the Bureau to issue mandatory disclosure clauses. And the Bureau’s attempt to transform its general rulemaking power into such an authority runs afoul of basic principles of statutory construction.”
PayPal argued that not only was the mandatory disclosure requirement not within the CFPB’s authority but that they also didn’t have the authority to limit when prepaid cards could be linked to credit accounts. The original rule said that customers could not link their credit cards to their digital wallets until their wallet accounts had been opened for at least 30 days.
But it’s not over yet. DigitalTransactions.net says the CFPB is expected to appeal the decision, since this loss will otherwise lead to a lot more challenges to the CFPB’s authority.
Photo credit: U.S. Government (Wikimedia Commons, Creative Commons 0)