PayPal Squares Up with U.S. Regulator Over New Prepaid-Card Rule

PayPal Holdings sued federal banking regulators alleging that its new rule has hampered the company’s ability to offer credit products and has created confusion among users of its popular digital-payment services PayPal and Venmo with a new regulation on prepaid accounts that was rolled out by the Consumer Financial Protection Bureau (CFPB) in April of 2019.

The rule’s primary aim is to improve protections for consumers on prepaid payment cards. A side effect of the rule is it also extends to any financial products capable of holding cash balances directly on cards or electronic devices, better known as “digital wallets.”

As a result, the rule umbrellas digital-payment tools such as PayPal, Venmo, Alphabet Inc.’s Google Pay, and Square Inc.’s Cash App. Even though digital wallets are fundamentally different from prepaid cards, which are often sold at grocery and drugstores. Apple Cash comes under the rule’s oversight, while Apple Pay, which doesn’t store money, does not.

The regulation instills complex requirements on issuers to disclose fees and other terms of services, while placing limits on their ability to offer credit products to customers.

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