Apple Pay, PayPal, Google Wallet Treated Differently by CFPB Rule

By Kery Murakami

Aug. 5 — Come next year, digital wallets PayPal and Google Wallet could face tough new regulations, including required disclosures about potential charges and error resolution rights. Competitors like Apple Pay would not.

A proposed rule on reloadable and other prepaid cards first issued last fall by the Consumer Financial Protection Bureau would apply to digital wallets capable of holding funds, such as PayPal and Google Wallet, while exempting those that are linked only to customers’ bank and credit card accounts, including Apple Pay.

PayPal and Google have been pushing back against the rule, which they say could stifle the development of digital wallets. Changes are needed to allow “digital wallet providers to continue to drive consumer-friendly innovation,” PayPal said in the July 28 letter, seeking an exemption for more wallet providers.

At the heart of the debate is the extent to which CFPB should wrap in digital wallets as it tries to fill gaps in consumer protections in the largely-unregulated and rapidly-growing prepaid market. Much of the call for regulations from consumer groups has focused on reloadable cards, and particularly on their disclosure of fees and terms to customers.

Linda Sherry, director of national priorities for Consumer Action, a San Francisco-based consumer advocacy group, told Bloomberg BNA the proposal takes a “measured approach” in going beyond regulating the cards by not sweeping up all digital wallet providers. Wallets tied to bank accounts or credit cards are less of a concern since they are already subject to other regulations, Sherry said.

The CFPB declined comment on the issue Aug. 4, but noted in a Nov. 13 press release announcing the rules it is only proposing to regulate digital wallets that hold funds.

Apple, meanwhile, has stayed out of the fray, and did not weigh in on the proposal during the comment period, which ended in March. The company also did not respond to a request for comment.

PayPal and Google declined to comment to Bloomberg BNA. In a March comment letter to the CFPB, Google said digital wallets are so new that “they presently pose minimal risk to consumers. Therefore, there is little need for heavy-handed regulation of these products.”

PayPal said in its March comment letter that few of its customers hold funds in their account, and then only at an average of $60. The company wants digital wallets to be exempted if they are linked to at least two other payment sources, like a credit card or a reloadable card, both of which would be subject to other disclosure and consumer protection requirements.

‘Incongruous’ Rules?

Industry groups say it doesn't make sense to apply the same rules to mobile wallets as to the increasingly popular and little-regulated general purpose reloadable prepaid cards, as well as other products such as payroll cards targeted by the CFPB's proposed rule first announced in November.

“The two are incongruous,” Scott Talbott, the Electronic Transactions Association’s senior vice president of government affairs, told Bloomberg BNA Aug. 3. “At the very best, they’re second cousins to each other.”

For example, the CFPB rule would require prepaid providers to investigate errors reported by consumers and resolve them in a timely manner, applying the same sort of protections as those that exist for credit and debit cards.

If a complaint isn’t resolved within a certain period of time, providers would generally be required to temporarily credit the disputed amount to the consumer while the institution investigates.

But Richard Fischer, an attorney with Morrison & Foerster representing a coalition of prepaid card issuers, said mobile wallets don't have the same long-term relationships with customers as banks. He said customers could make a purchase, call to object to the charge, receive the credit, “and then disappear.”

That particular requirement could push providers to drop the prepaid portion of the wallets, said Fischer, who declined to name the group's members, but said it includes mobile wallet providers. “A similar final prepaid rule will make it more difficult for poor-credit consumers to obtain a prepaid account whether that prepaid account is included in a mobile wallet or not, Fischer said.

“That, of course, will make it far more difficult for such consumers to participate in our digital economy, whether through a PayPal account or another wallet program,” he said. “That, of course, will make it far more difficult for such consumers to participate in our digital economy, whether through a PayPal account or another wallet program,” he said.

The group opposed applying prepaid regulations on digital wallets in its comment letter, signed by Fischer, to CFPB this spring.

The CFPB’s proposal would also require companies to wait 30 days after a consumer registers the prepaid account before they could formally offer credit to the consumer. The waiting period would “allow consumers to get experience with the basic prepaid account before deciding whether they want to apply for a credit product,” the CFPB said.

But in its March comments, PayPal said the waiting period could mean customers could not add a credit card to their PayPal wallet for 30 days after creating an account. That would be a problem, PayPal said, because consumers who sign up for PayPal cannot immediately pre-load funds to their account, leaving only the options to link to a credit card or authorize an ACG debit to their bank account.

If the waiting period were to be applied to digital wallets “then millions of consumers would be denied critical features that PayPal currently provides at no extra cost,” the company said in its March letter.

Fee Disclosures

Also drawing fire are disclosure requirements, proposed in response to industry calls for guidance, that would require consumers to receive or have access to forms listing potential fees before they sign up for prepaid account and what they should look like.

Obrea Poindexter, co-chair of Morrison & Foerster's Financial Services Practice Group, said the disclosure requirements “are very specific” in prescribing what pixels and fonts can be used, raising the risks for providers to be found out of compliance.

In an Aug. 3 e-mail to Bloomberg BNA, a bureau spokesman said, the rules are being proposed because “it is important that all consumers, regardless of the type of prepaid account they seek to acquire, receive the fee and other information about terms before obtaining a prepaid account.”

“Receiving these disclosures will help to make it easier for consumers to have a basic understanding of the account’s key terms and, when feasible, comparison shop with other prepaid account products,” the spokesman said.

To contact the reporter on this story: Kery Murakami in Washington at

To contact the editor responsible for this story: Seth Stern at

The letter submitted by a coalition of prepaid card issuers is at$File/prepaid%20coalition.pdf.

The July 28 comment letter from PayPal is at$File/paypalJuly.pdf. The company's March 23 letter is at$File/paypalMarch.pdf.

The comment letter from Google can be found at$File/google%20comment%20letter.pdf.