Wallets Aren’t Prepaid Cards, Says a Federal Judge in Opposing Fee Disclosure Rules From the CFPB

For the second time, PayPal Holdings Inc. has prevailed against the Consumer Financial Protection Bureau. This time, the case involved the Bureau’s effort to require PayPal to make disclosures regarding its fees associated with digital wallets. U.S. District Judge Richard Leon ruled Friday that wallets are not prepaid cards and so not subject to fee-disclosure rules.

Leon’s ruling marked the latest setback for the CFPB in a years-long battle in which the Bureau has sought to rein in what it regards as lax consumer-disclosure practices at PayPal.

The same judge in January 2021 handed PayPal a signal victory over the CFPB, granting parts of the payments company’s motion opposing disclosures, namely those having to do with the agency’s prepaid-accounts rule related to short-form disclosure and rules concerning when prepaid issuers can offer their customers credit. But the question regarding fee disclosure for wallets remained an active issue until Friday.

Leon’s latest ruling, in part, rests on what he may have seen as inadequate support for the CFPB’s argument, says Ben Jackson, chief operating officer at the Innovative Payments Association, a Washington. D.C., trade group. “What’s good is Leon is saying to regulators, you have to do in-depth analysis on this when you’re making a rule.” Jackson writes the monthly Payments 3.0 column for Digital Transactions magazine.

But the current ruling isn’t likely to be the last word on the matter, as regulators continue to eye fee practices followed by payments companies. “My expectation is the CFPB will appeal. This isn’t the end of it,” says Jackson. He argues there has also been a greater tendency among companies to move aggressively against rules they view as unfair or impractical. “I feel there is a lot more willingness on the part of companies to sue the regulator,” he says. “Before, that wasn’t done too much.”

The current case arrived back in Leon’s court following a decision by the U.S. Court of Appeals for the D.C. Circuit in February last year striking down his January 2021 ruling regarding fee disclosures related to digital wallets and asking the lower court to reconsider the matter. Leon did so, leading to his ruling Friday.

 “You would hope this would usher in a more deliberative process [among regulatory agencies], rather than, ‘we know you didn’t like our rule, but we’re going to move ahead anyway,” says Jackson.