Digital Transactions Authoritative, insightful and timely information for payments professionals
Digital-wallet disclosures will change with the end of the long-running legal battle between the Consumer Financial Protection Bureau and PayPal.
Last month, Bloomberg reported that the CFPB and PayPal filed a joint stipulation to end the Bureau’s appeal of a 2024 ruling that exempted PayPal from some of the disclosure requirements of the 2019 prepaid-accounts rule.
In March 2024, Judge Richard Leon ordered the Bureau not to force PayPal to provide the short-form disclosure required under the prepaid-accounts rule to customers using its digital wallet. Judge Leon agreed with PayPal’s argument that digital wallets are different from general-purpose reloadable prepaid cards—especially those bought in a retail setting—and so should not need the same kind of disclosures.
The industry should be careful as they interpret what this means, for two reasons. First, the end of this appeal does not automatically resolve every product’s disclosure issues. Second, there is a bigger opportunity here, but the industry will need to move quickly to make the most of it.
Looking at the first consideration, the ruling is specific to PayPal, but it is reasonable to think that other digital-wallet providers will not need to provide the short-form disclosure.
Still, digital-wallet providers should consider the totality of the circumstances when they think about what disclosures they should give their customers. If a digital wallet has a companion card, or even a digital card provisioned into a mobile wallet, the short form might be relevant.
One way to approach this question would be to ask whether any of the fees disclosed in the short form become relevant when the customer tries to use the product.
It’s tempting to stop worrying about compliance as the new administration adopts a deregulatory posture. Still, as I have pointed out in other columns, states may pick up the slack, and certainly plaintiffs’ attorneys will be happy to find opportunities to enforce the rules on behalf of consumers.
But even without a regulatory mandate, providers should make sure that their customers have the information they need to use their products well. Unhappy and broke customers are not profitable customers.
More important, this resolution offers the opportunity to argue for taking a broader look at the prepaid-accounts rule.
Instead of sorting through court decisions and product descriptions, it would make more sense to update the rule to reflect the current realities of the financial-services landscape.
A formal review of the rule should include defining what products are actually prepaid, and thus covered by the rule’s requirements. The review should also look to level the playing field between prepaid accounts and other deposit accounts. For example, the special warnings on payroll cards might be eliminated. In addition, restrictions on when prepaid cardholders can access credit would be worth updating.
The simplest fix would be to eliminate the rule entirely and explicitly state that Regulation E applies to all deposit accounts. But it would be worth examining whether the short form does allow for better comparison shopping for direct-to-consumer products. Nonetheless, the industry needs to move quickly to push for updates to the rule. The CFPB is shifting its enforcement focus to rules covering the products that receive the most complaints. On top of that, the administration is reducing staffing across all government agencies. This means there may not be an appetite, or the in-house expertise, to open up a large and complex rule to fix its problems.
—Ben Jackson bjackson@ipa.org
