D.C. Circuit Reverses Challenge to PrePaid Rule’s Model Clauses

On February 3, 2023, the Circuit Court for the District of Columbia Circuit reversed a district court decision that had held that the CFPB’s Prepaid Rule (the Rule) conflicted with the Electronic Fund Transfer Act’s (EFTA) prohibition against mandating the use of a model clause.  The district court had invalidated the Rule’s short-form static fee disclosure “language and formatting” requirements for prepaid products and its related 30-day credit linking restriction.  See WBK’s article on the district court’s opinion.

In reversing, the D.C. Circuit narrowly held that the Rule did not violate the EFTA’s prohibition on mandating model clauses because the forms promulgated by the CFPB only suggested phrasing, instead of mandating companies to use exact language in their disclosures.  The D.C. Circuit reasoned that the Rule was not a prohibited mandatory disclosure, even though the Rule required static fees “to be listed regardless of applicability,” because the Rule only imposed “formatting and content requirements” that companies could implement with their own terminology.  The D.C. Circuit further pointed out that, because Dodd-Frank and other statutes permitted the CFPB to impose formatting and content requirements in “model forms,” a ruling that the EFTA forbade the Bureau from promulgating the forms at issue would “collapse the distinction” between a “model form” and a “model clause.” 

Accordingly, the D.C. Circuit reversed the district court’s opinion and remanded for further proceedings.