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PayPal sues CFPB over prepaid accounts rule

PayPal Holdings Inc. is suing the Consumer Financial Protection Bureau over a rule on prepaid accounts that took effect earlier this year.

In a lawsuit filed Dec. 11 in the U.S. District Court for the District of Columbia, the online payments firm said the new CFPB rule violates the company's rights, goes beyond the agency's statutory authority, ignores the distinction between physical prepaid cards and digital wallets and prevents consumers from accessing certain financial services.

PayPal argued that the rule unfairly subjects digital wallets, which are virtual and accessed online, "to the same regulatory disclosure regime" as prepaid cards, which can be accessed through brick-and-mortar retail stores.

PayPal said the rule forces PayPal to disclose CFPB-scripted statements that confuse consumers as to its product's actual cost.

The company said it had conferred with the CFPB when the rule was still being planned, but in the end, the agency ignored its warnings about the rule's adverse effects on digital wallet users.