PayPal received a authorized victory in opposition to the U.S. client safety watchdog.

According to court docket paperwork cited in a Friday (March 29) Law 360 report, U.S. District Judge Richard J. Leon tossed out a facet of the so-called “prepaid rule” for digital wallets that went into impact 5 years in the past and have become the middle of PayPal’s case in opposition to the Consumer Financial Protection Bureau (CFPB).

In doing so, the report mentioned, the choose agreed with PayPal that the CFPB “had no rational justification” for putting digital wallets below the rule’s “short-form” price disclosure necessities.

The rule requires digital pockets suppliers and different firms providing pay as you go companies to reveal potential charges their prospects may face.

The CFPB declined to remark when reached by PYMNTS.

PayPal sued the CFPB in 2019, alleging the regulator dismissed its arguments that digital wallets don’t function in the identical method as reloadable debit playing cards — and that disclosure guidelines created by the company require PayPal to make “misleading and confusing” disclosures about its merchandise.

The go well with additional argued that the rule, which requires disclosure for digital wallets and pay as you go debit playing cards, places “unreasonable restrictions” on shoppers’ talents to hyperlink sure credit score merchandise to PayPal accounts.

In January 2021, Leon sided with PayPal and struck down facets of the CFPB’s pay as you go rule, ruling that the bureau had exceeded its authority. However, a D.C. Circuit panel reversed that ruling final winter and despatched the case again to the district court docket.

According to the Law 360 report, Leon’s newest ruling discovered that the CFPB’s short-form disclosure requirement is bigoted and capricious as a result of the regulator didn’t have a well-established basis for putting digital wallets below the identical “prescriptive regime” that applies to bodily playing cards.

But in contrast to different merchandise, “digital wallets are not primarily used to access funds or to function as a substitute checking account,” Leon’s opinion mentioned. “They do not require a consumer to preload or prefund an account before they can use it (and indeed, most digital wallet users never carry an account balance).”

“Their underlying business model does not depend on charging usage fees to consumers,” the choose continued. “And they are not available in brick-and-mortar retail locations, instead existing only in the digital space.”

The ruling comes because the CFPB proposes new guidelines to manipulate digital pockets suppliers, a transfer that critics have charged as bringing a “one-size-fits-all” strategy to funds oversight.