WASHINGTON—The U.S. District Court for the District of Columbia has granted PayPal’s motion for summary judgement in a lawsuit challenging the CFPB's prepaid card rule.
In 2019, PayPal filed a complaint against the CFPB over the rule, which went into effect in April of that year.
The rule created requirements for prepaid accounts under Regulations E and Z and required financial institutions to provide short form disclosures before a consumer acquires a prepaid account.
PayPal’s complaint contended that the prepaid rule was originally designed with only products such as prepaid cards in mind and asserted that the extension of the prepaid rule to “digital wallets” – which include services like PayPal and Venmo – exceeds the statutory authority of the CFPB, noted NAFCU, which previously urged the Bureau to rescind the rule or exempt credit unions from it.
As of Dec. 30, 2020, the order issued by the district court vacates two parts of the Bureau’s prepaid rule:
- The mandatory disclosure clauses in the short-form disclosure requirement in Regulation E
- The third-day credit linking restriction in Regulation Z
The Allegations
On the disclosure requirements, PayPal had alleged that the Electronic Funds Transfer Act (EFTA) does not authorize the CFPB to mandate particular disclosure terms. The court found that the EFTA specifically directs the Bureau to issue “model clauses” for “optional use” and contains no authority to issue mandatory clauses. The court also found that the bureau’s authority under the Truth in Lending Act (TILA) is limited to the disclosure of terms of credit.
Regarding the credit linking restriction, which had required a creditor to wait 30 days before linking a credit product to a prepaid product, the court found that the restriction regulated the access and use of credit, rather than regulating the disclosure of the terms of credit, NAFCU said.