Monday, December 16, 2019
PayPal has taken issue with requirements that consumers using its Venmo digital wallet be provided a “short form” disclosure that includes references to fees for ATM balance inquiries, customer service, electronic withdrawals and other activities. It also disputes restrictions on credit cards being tied to its prepaid cards.
“[T]he Bureau’s rulemaking has resulted in consumer misunderstandings and confusion and has deprived PayPal’s customers of access to significant benefits offered by PayPal,” the lawsuit alleges.
“Although consumers have the ability to store money with PayPal (if, for example, the consumer receives a payment from another party and does not immediately transfer those funds to a bank account), they can make purchases or send money with PayPal without doing so. Indeed, the majority of PayPal’s customers use PayPal’s services to transfer funds and make purchases using linked financial instruments, not to store and spend cash balance,” PayPal asserted.
The CFPB’s prepaid rule, which took effect in April 2019, extended many of the federally mandated consumer protections that apply to credit and debit cards to prepaid debit card products, including general purpose reloadable cards, government assistance cards, person-to-person payment systems and mobile wallets. The rule set was controversial from the outset, and bowing to industry pressure, the agency undertook substantive changes to the final rule, and twice delayed implementation.
PayPal, in its court filing, said it “engaged extensively with the CFPB throughout the rulemaking process” on how digital wallets differed from prepaid debit cards, to no avail. “Contrary to its mission of protecting U.S. consumers, however, the CFPB unreasonably dismissed PayPal’s evidence and finalized a rule that treats identically GPR cards and PayPal’s very different digital wallet products.”
To back up its assertions, PayPal offered several examples of the confusion that ensued when it issued the mandated disclosures to customers. “It sounds like there will be more fees than there was. It was unclear if I can still transfer to my bank without a charge,” wrote one consumer. “Why do I have to have all these terms and conditions for a small amount of money in my PayPal account? This is a really anti-consumer move on your part,” complained another.
PayPal also argued that the prepaid rule violate the Administrative Procedure Act, which governs how federal agencies issue regulations. “It establishes a mandatory and misleading disclosure regime nowhere authorized by federal law,” the company asserted. And even if it had the authority, “the rulemaking process was fundamentally flawed,” PayPal added.
And in a novel twist, the payments company also asserted that the CFPB rule infringes on its constitutionally guaranteed free speech rights “by forcing it to convey the government’s chosen message without regard for whether that compelled speech meaningfully advances the government’s professed interests. What’s more, the Bureau has restricted PayPal from providing its customers with the information that would clarify potential misconceptions, a restriction that plainly violates PayPal’s First Amendment rights.”
In a blog post, Aaron McPherson, vice president for research operations at Mercator Advisory Group, described the First Amendment claim as “odd, because it is hard for us to see how disclosures, even irrelevant ones, actually harm the consumer or limit PayPal’s ability to market its products.”
While noting that he is not a legal expert, McPherson said he doubted a federal court would agree with PayPal’s First Amendment claims. “PayPal would be better served by re-examining the way it has structured its offerings, and trading off tight vertical integration for a more flexible architecture,” he wrote.
The Green Sheet Inc. is now a proud affiliate of Bankcard Life, a premier community that provides industry-leading training and resources for payment professionals. Click here for more information.
Notice to readers: These are archived articles. Contact names or information may be out of date. We regret any inconvenience.
