PayPal won its lawsuit against a rule requiring it to disclose fees associated with digital wallets, after a judge ruled the U.S. Consumer Financial Protection Bureau had no basis for treating the accounts the same as prepaid cards.
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U.S. District Judge Richard Leon in Washington, D.C. ruled on Friday that the part of the rule requiring prepaid card providers to use a specific format to disclose fees for actions such as withdrawals and balance inquiries does not apply to digital wallets.
The decision does not affect how the rule applies to prepaid cards, which are sold in brick-and-mortar stores alongside gift cards.
A CFPB spokesperson did not immediately have comment.
A PayPal spokesperson did not immediately respond to a request for comment.
The CFPB created the rule in 2019 to offer consumers legal protections on prepaid accounts similar to those on products such as checking accounts, including the ability to challenge payment errors, unauthorized transactions and fraud.
PayPal sued that year challenging the rule’s inclusion of digital wallets. The San Jose, California-based company argued that the required disclosures would confuse customers.
Leon blasted the CFPB’s “arrogance” in applying the rule to digital wallets based not on a cost-benefit analysis or evidence of consumer harms, but on speculation that they could someday be subject to fees similar to those used in prepaid cards.
The CFPB “tried to solve an imaginary problem with no real evaluation of what the ‘solution’ would cost,” he wrote.
Last November, the CFPB unveiled a bigger proposal to regulate tech giants’ digital payments and smartphone wallet services, saying they rival traditional payment methods in scale and scope but lack consumer safeguards.
The proposal would subject big tech companies to bank-like supervision, with CFPB examiners inspecting their privacy protections, executives’ conduct and compliance with laws barring unfair and deceptive practices.
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