The issue is that most PayPal users link their credit cards to their accounts to facilitate payments, in what the industry describes as a digital wallet. However, users can also store money in their PayPal account, which regulators say makes the accounts similar to prepaid credit cards.
PayPal complains that regulations from the CFPB obliges it to make disclosures to its customers which are "misleading and confusing," such as the use of a short disclosure form which includes references to fees for balance inquiries from ATMs or for customer service, neither of which apply to PayPal. Some customers have the impression from the form that they will be charged to access their PayPay balance, which is not the case.
The company maintains that digital wallet systems like PayPal accounts are fundamentally different from prepaid cards and that they should therefore be regulated differently.
This is not the first time PayPal has clashed with the Consumer Financial Protection Bureau. In 2015, the CFPB filed a complaint against PayPal's credit service, known as Bill Me Later, alleging that the company was signing up users to credit without their knowledge. In the end, PayPal had to pay $25 million in restitution and fees to settle the case.
The current complaint has been filed with the US District Court for the District of Columbia. PayPal is seeking to vacate the application of the prepaid card regulations to its products.