PayPal, Google Have Stake in Fight to Kill CFPB Prepaid Rule

By Gregory Roberts

Mobile-wallet providers like PayPal and Google have their own ax to grind in the prepaid card industry’s push to have Congress quash a pending rule from the Consumer Financial Protection Bureau.

The companies are particularly unhappy with a provision that would require a 30-day waiting period before extending credit to cover overdrafts.

Such an “arbitrary delay” isn’t necessary to ensure adequate credit underwriting, executive director Brian Peters of Financial Innovation Now (FIN) told Bloomberg BNA. FIN, in Washington, comprises PayPal, Google, Intuit, Amazon and Apple.

“It ignores the fact that modern technology can assess creditworthiness in a safe and secure way in near real time, and there ought to be a greater degree of flexibility.”

The far-reaching CFPB rule, issued in October 2016 and set to take effect in October 2017, could be rolled back via the Congressional Review Act. Republicans in both chambers of Congress have introduced a CRA resolution on the prepaid-card rule amid a lobbying effort by the prepaid industry and mobile wallet providers.

The rule largely deals with fee disclosures, fraud protection, dispute resolution and credit features for prepaid cards, the debit-card-like products that are sold widely in convenience stores and other retail outlets, loaded by the purchaser with money in advance and typically can be reloaded online.

But the rule also takes in mobile wallets that allow customers to store money on the wallets. Examples include PayPal’s Venmo and Google Wallet.

Overdraft Issue Is Key

The 30-day delay also would apply to traditional prepaid cards that extend overdraft credit, as would a plethora of other requirements set by the rule for overdraft credit. The leading seller of those cards is NetSpend, whose CEO, Chuck Harris, is the president-elect of the Electronic Transactions Association.

ETA lobbyist Scott Talbott said the waiting period is a “paternalistic” policy that “ignores the rapid pace of today’s world.” Both PayPal and Google are ETA members.

Many prepaid-card consumers do not have credit cards or bank accounts, and they may rely on the overdraft provisions of a NetSpend card to pay utility bills or meet other pressing needs, Talbott said. The fees incurred may be less than late-payment penalties, he said.

“The fundamental issue here is what happens with a customer when, at the end of the money, there’s too much month left,” he said.

Consumer advocates aren’t buying it. They see the rule as helping millions of prepaid-card users stay out of financial difficulties.

“The prepaid-card rule contains common-sense protections for the extension of credit,” Christina Tetreault of Consumers Union said.

Law Provides for Repeal

The vehicle for blocking the rule is the 1996 Congressional Review Act (CRA), which was used just once before President Donald Trump took office but has been applied repeatedly since his inauguration Jan. 20.

The CRA provides for Congress to repeal a federal regulation via a majority vote in each house and the president’s signature. Most actions by Congress to do so have been empty gestures, vetoed by a president uninterested in overturning a rule put forth by his own administration. The one exception before this year occurred in 2001, when Republicans who had taken over Congress and the White House set aside a workplace ergonomics rule issued by the preceding administration of Democrat Bill Clinton.

Congress must act within 60 legislative days after a rule is finalized to override it, under the CRA, which gives lawmakers until later this year to decide whether to act. What adds extra bite to the law is a provision that says if a regulation is rejected under the law, no substantially similar rule can be issued in the future without specific authorization from Congress.

The CFPB was established by the Dodd-Frank Act, the financial industry overhaul pushed through Congress by the Democrats in 2010 as a response to the 2007-08 crisis. The prepaid rule is the only CFPB regulation currently subject to the CRA.

“The CRA is absolutely the wrong way to go for any consumer financial protection rule because it is such a blunt instrument,” Ruth Susswein, deputy director of national priorities for Consumer Action, said.

The ETA has written members of Congress to urge them to apply the CRA to the prepaid-card rule, which the association calls “overly burdensome, expansive and prescriptive, negatively impacting consumers.”

PayPal did not reply to a request for comment, while Google referred the request to Peters.

Given the press of business and the crowded congressional calendar, a number of CRA resolutions probably will not make it through the process.

To contact the reporter on this story: Gregory Roberts in Washington at gRoberts@bna.com

To contact the editor responsible for this story: Michael Ferullo at MFerullo@bna.com

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