PayPal sues US regulator over its “misleading” digital wallet rules
PayPal has filed a law suit against US regulator the Consumer Financial Protection Bureau (CFPB), challenging regulations it tabled in April 2019 requiring digital wallet issuers to guarantee the same consumer protections as prepaid credit cards, the Wall Street Journal reports.
The payments provider is arguing that the regulator has dismissed its arguments that digital wallets do not operate in the same way as reloadable debit cards. As a result, PayPal says the agency’s guidelines are forcing it to be “misleading and confusing” to customers about its credit products.
The issue lies in the fact PayPal’s service bridges both the digital wallet and prepaid card spaces. Users can link credit cards to accounts like a digital wallet, but they can also store money in their account like a prepaid card account.
In the lawsuit, which was filed in the United States District Court for the District of Columbia, PayPal says the CFPB’s conflation of the two services leads to “unreasonable restrictions” on consumers’ abilities to link particular credit products to their PayPal accounts.
One example would be the requirement for PayPal to use of a short disclosure form which references fees for balance inquiries from ATMs and for customer service, despite neither fee applying to PayPal products. The payments giant says this form has given customers the impression they will be charged to access their PayPal balance, which the company says is not the case.
PayPal cites the Prepaid Accounts Under the Electronic Fund Transfer Act (Regulation E) and the Truth in Lending Act (Regulation Z), saying in the filing that these rules should be in place to regulate prepaid or reloadable cards only, but still “arbitrarily” subject digital wallets to the same levels of regulatory scrutiny.
“The resulting regulatory regime is fundamentally ill-suited to PayPal digital wallets and is likely to mislead or confuse consumers,” says PayPal in the filing. “The rule mandates PayPal make disclosures concerning fees that PayPal does not charge and misrepresent the actual fees paid by most customers.”
Calling the issue a “category error”, PayPal argues the agency’s current rules violate Free Speech protections because they require the company to use terms such as “periodic”, “per purchase” and “inactivity fees” which do not apply to digital wallets.
The two organisations are no strangers to a legal dispute. In 2015, the CFPB sued PayPal for illegally signing up consumers for its online credit product, PayPal Credit. The agency alleged that the payments provider “deceptively advertised promotional benefits that it failed to honour, signed consumers up for credit without their permission, made them use PayPal Credit instead of their preferred payment method, and then mishandled billing disputes”.
To settle the case, PayPal was eventually forced to pay $25 million in consumer compensation and penalty fees.
In this most recent case, PayPal has petitioned the District of Columbia to rule that the agency’s application of prepaid credit card rules to PayPal is unconstitutional and should be vacated.
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