[00:00:00] Speaker 00:
Phase number 21, 5057, PayPal Inc.

[00:00:04] Speaker 00:
versus Consumer Financial Protection Bureau and Rohit Chopra in his official capacity as director, Consumer Financial Protection Bureau.

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Mr. Deal for the balance.

[00:00:13] Speaker 00:
Mr. Shanmugam for the appellate.

[00:00:16] Speaker 06:
Good morning, counsel.

[00:00:17] Speaker 04:
Mr. Deal, please proceed when you're ready.

[00:00:21] Speaker 04:
Good morning, your honor.

[00:00:22] Speaker 04:
May it please the court, Christopher Deal for the Consumer Financial Protection Bureau.

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The Bureau's prepaid rule requires that consumers get a short, easy-to-read disclosure before they sign up for a prepaid account.

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This appeal is about the Bureau's statutory authority to issue the rule.

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The district court held that the Bureau lacked that authority on the theory that the Bureau's rule prescribes mandatory disclosure clauses.

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The district court was wrong.

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The reason is straightforward.

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The rule doesn't prescribe any mandatory disclosure clauses.

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Instead, as relevant here, the Bureau's rule has three basic elements.

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The rule mandates the content of the short form disclosures, it regulates the format of those disclosures, and it provides optional model language for use in the disclosures.

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First, the content requirements.

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The content requirements specify what information providers need to disclose in the short form.

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Many of these content requirements are about fees.

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For instance, providers need to tell consumers what their ATM withdrawal fees are and how much the institution charges consumers for reloading cash into their accounts.

[00:01:31] Speaker 06:
Can I just, I'm sorry to take you off the sequence that you had in mind, but can we just skip ahead to the wording just for one second and then we can circle back to content.

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So I take it that the premise of your argument is that you don't contest the idea that because of the

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the statutory language to the effect that the Bureau shall issue model clauses for optional use, that the Bureau doesn't have the authority to issue mandatory clauses.

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At least that's the premise on which this case is being litigated by both sides.

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And if that's true, then I guess my question is this, if the Bureau gives two options for wording and says you have to do either wording A or wording B,

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then would that be consistent with the premise that there can't be mandatory clauses?

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Even if we buy your argument that clauses is limited to wording, putting to one side content and formatting.

[00:02:29] Speaker 04:
Your Honor, in that case where the, obviously that's not what happened here, but where the agency said you can only, you can use this clause or that clause.

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I think that would be a much closer question.

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I think the court could conclude in that circumstance that the Bureau had prescribed

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the particular clauses that could be used, but here we don't have that.

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Here we have, you may use a particular optional clause, or you can use any other clause, any other wording that's substantially similar.

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So then I guess the question becomes, if you think it's a difficult case with two options, then the question becomes, how many options are there if it's substantially similar?

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I mean, I think you know where this is going.

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And so what is the range of options for substantially similar?

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This is going to get complicated, and I apologize for complicating the question, but it seems to me self-evident that the range of options is going to depend on the narrowness of the content requirement to begin with.

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And so even if we buy your argument that content is just off to one side and content doesn't have to do with model clauses, what model clauses has to do with is wording.

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then the number of wording options is gonna be predicated to a large extent, to a considerable extent, it seems to me, on the narrowness of the content requirement to begin with.

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And here, some of the content requirements seem reasonably specific, and that may well be perfectly fine, given the authority of the Bureau to prescribe content requirements.

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But then it raises the question, well, then how many options are there really for wording, even if there's an allowance for substantially similar wording?

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Sure, Your Honor.

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So I think that it's important to not lose track here of the fact that we have is a congressional provision that requires optional model clauses.

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There isn't a standalone prohibition on

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cutting out flexibility for institutions.

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So I think the interpretation that's advanced by PayPal really creates the problem that it would suggest that whether or not the Bureau can require an institution to disclose a particular fee, how much they charge for ATM withdrawals, how much it costs to add money to their account, depends on how many different ways there are to say that in the English language.

[00:04:52] Speaker 04:
And I don't think there's any

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uh textual basis for that that kind of a conclusion i mean you can look for instance at the content requirements that are included in the statute itself in 1693 c you know one of those requirements is that the institution has to provide the telephone number and address uh you know well who the the the consumer should talk to if they have a you know they think there's an unauthorized

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electronic fund transfer, by providing that, obviously the institution has to provide the correct phone number, the correct address.

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There aren't a million different ways to say that.

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So I don't think that there's any necessary inconsistency here.

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Then I guess the question becomes then, and I'm not saying the agency lacks the authority to do it, but I'm just wondering programmatically, why do it?

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Because if the content requirement is pretty specific, and we assume for purposes of this argument that the content requirement can be imposed,

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then why cabinet to substantially similar language?

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Because there's always the authority on the part of the agency, I assume, to say, well, you're just not complying with the content requirement if you use wording that doesn't comply with the statutory directive that it has to be readily understandable.

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You're just deviating too far from the content requirement.

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What does the substantially similar proviso add that matters to the agency?

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What it adds is it ensures that consumers can readily compare one

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a disclosure form to another.

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And I think you're exactly right to note the connection between the substantial similarity requirement and the readily understandable requirement.

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I think they're getting at the same idea.

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This provides some additional meat on the bone, some additional way that the agency implemented that statutory requirement to ensure that when consumers are looking at the form for one

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one prepaid account and they're comparing it against another one that they can kind of compare apples to apples as opposed to having to wonder, oh, is this really the same fear?

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Is it a different fee?

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While at the same time that the institutions retain the ultimate ability to pick an appropriate disclosure, you know, within those content and language bounds.

[00:07:12] Speaker 03:
But Mr. Deal, I mean, does the Bureau, I mean,

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Can the Bureau, I think you agree that you can't issue mandatory model clauses.

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And so my question perhaps following up on some of Judge Srivastava's questions is by adding substantially similar can you just simply avoid that prohibition.

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Right, because I mean that the way that the rule is, you know, in multiple provisions reads is there is a content requirement and you satisfy the content requirement by using a specified term or clause or something substantially similar.

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And I'm wondering really if just by tacking on substantially similar, you can avoid the restriction on mandatory model clauses.

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So, two things are one just to be clear we're only we're not disputing that are that we lack the authority with respect to mandatory clauses for purposes of this case because we don't think we did them and we want to simplify things.

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But I don't think that the substantial as I was trying to explain before I don't think that the substantially similar requirement is.

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intended to be an end run, you know, it's not trying to get force institutions to say the magic words.

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It's rather intended to provide, consistent with the statute, a surefire way for institutions to comply so they can know, you know, if I do this, I'll definitely be complying, but also give them flexibility to pick other things.

[00:08:39] Speaker 03:
Why isn't that sort of on the on the EFT right so either they can use the clause that's been provided in the rule, or they take the risk of drafting their own language and complying with the content requirements and then you know the Bureau can take action on the back end I mean this in some ways seems to be trying to just ensure you know.

[00:09:00] Speaker 03:
I don't know, fewer enforcement actions or something like that.

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Like, I'm not sure what you really get.

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I mean, there are already so many incentives for EFTs to just use the language that the Bureau has provided.

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So if for some reason they choose, they want to comply by using some language that maybe you think is not substantially similar, I guess I'm not sure where the authority comes from to kind of capture that, to capture those, you know, that type of wording.

[00:09:29] Speaker 03:
since you're not allowed to, at least arguably the statute doesn't give you the authority to do a mandatory model clause.

[00:09:35] Speaker 04:
Well, I think a couple of things, Your Honor.

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One is that it's important to

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Think about the overall structure of the Bureau's authority here the Bureau has broad affirmative authority to issue rules to implement after, and it has, and it's very clear that the Bureau has authority to issue rules with respect to disclosure requirements, Congress repeated that there.

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And then we have an optional model clause provision.

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which doesn't say the Bureau can't do anything.

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We're sort of granting the premise for purposes of this case that the Bureau can't do something that's inconsistent with that provision, that conflicts with that provision.

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And so I don't think that saying, here's an optional model clause, use it, or use something that's substantially similar is in any way inconsistent with the obligation to issue optional model clauses.

[00:10:27] Speaker 04:
It perhaps narrows somewhat the range of options, but it does so in a way that's entirely consistent with the statutory scheme related to readily understandable language.

[00:10:42] Speaker 06:
Would it not allow for side-by-side comparisons, which was part of your response, I think, to both of us on what's the advantage to cabining to substantially similar?

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And I take the point that

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the bureaus interested in putting into effect a framework that allows for side-by-side comparisons on the part of consumers who under the statute have the benefit of wanting to be able to do it through readily understandable language so they can understand what the various conditions are.

[00:11:10] Speaker 06:
If the bureaus prescribe the order of the various content requirements

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but then without the proviso of substantially similar language, would that still facilitate a side-by-side comparison?

[00:11:23] Speaker 06:
Because you could still see the first one and the first one, the third one and the third one.

[00:11:28] Speaker 06:
Do you understand what I'm asking?

[00:11:29] Speaker 04:
Yes, Your Honor.

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I think that the Bureau's conclusion was that each of these elements help serve the same goal.

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They add together to make it easier for consumers to understand, to know what's going on.

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And I would note that the structure of the disclosure is that there are static fees, fees that everyone needs to disclose.

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Those are the most common, most important fees.

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And then there are also some additional fees that are institution specific.

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So there's already going to be some amount of disparity.

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So I don't think that the mere fact that there are some different language is going to necessarily cause a huge problem.

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But what the Bureau was after here was to try to make it as easy as possible for consumers to be able to do that comparison.

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And each of the elements of the rule together adds to that effect, ensures that that goal can be met.

[00:12:24] Speaker 03:
Mr. Deal, can I ask you a question about remedy?

[00:12:26] Speaker 03:
I mean, if we were to agree that the pre-pay pool imposes these mandatory model clauses and Judge Leon's remedy was to say that it exceeds, the short form disclosure exceeds the bounds of the Bureau's statutory authority to the extent it requires providers to use the Bureau's disclosure forms.

[00:12:48] Speaker 03:
So I note in your reply brief, you said that we should sever

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I mean, what would the remedy look like?

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I mean, do we have to, I mean, I assume obviously you would not want us to vacate the rule, but how would, to the extent that remedy, I mean, what would that even look like when it was sent back to the Bureau?

[00:13:07] Speaker 04:
Yes, Your Honor.

[00:13:09] Speaker 04:
So a couple of points on that.

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One, obviously, we urge the court to reverse.

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But I think that what the appropriate remedy would be, if you didn't agree with us, would depend on the reason you didn't agree with us.

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If you didn't agree with us because you thought that there was a problem with the substantial similarity language, then I think that the proper remedy would be, as we note in our briefs, would be severance and to indicate that the

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that the content and the formatting requirements were okay, but that the requirement that an institution use the optional model clause or a substantially similar requirement that the rule was vacated to that effect.

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The last point I would make is that I think... Only on a substantially similar part of that.

[00:13:52] Speaker 06:
I mean, it would be okay to have the model clause,

[00:13:56] Speaker 04:
Yes, they certainly could use the model clause, but the way that the rules are set up is it says use X clause or a substantially similar one.

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So if you just cut out substantially similar, then you'd be making the problem worse, actually.

[00:14:10] Speaker 01:
So you may use X clause or otherwise comply.

[00:14:16] Speaker 04:
Right, but I think that Judge Rao, your question about implementing the district court's judgment, I think, gets at the indeterminacy of the district court's understanding of what counts as a mandatory clause, which I think is also reflected in PayPal's view.

[00:14:32] Speaker 04:
It's impossible to know what counts as a mandatory clause and under what circumstances.

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I think no matter what, there may be some kind of line drawing questions even on our approach.

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But I would suggest on the district court's approach and on PayPal's approach,

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There's no line at all, right?

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It's just a kind of note when you see it kind of inquiry.

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And I think that that suggests why that approach is not the appropriate one for the court to take.

[00:14:57] Speaker 06:
what do you understand the district court's order to have done?

[00:15:01] Speaker 06:
Because when it has the caveat that says insofar as there's mandatory, as I read the district court's decision, there's a sentence before that, and I just can't find the page in the joint appendix, but there's a sentence before that where the district court explains why what the bureau did is mandatory.

[00:15:19] Speaker 06:
And that sentence encapsulates everything, content, which led me to think then that what the district court

[00:15:25] Speaker 06:
meant by saying, insofar as they're mandatory, is it meant everything?

[00:15:31] Speaker 06:
Yes, Your Honor, that's, I mean, you wouldn't have to reach that conclusion just based on the way the conclusion is worded.

[00:15:37] Speaker 06:
But when you piece it together with the prior sentence, that's the impression one is left with.

[00:15:42] Speaker 06:
But is that the assumption on which you're litigating the case?

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Or do you have a different assumption?

[00:15:47] Speaker 04:
That's our understanding, Your Honor.

[00:15:49] Speaker 04:
I think also if you note on footnote nine on page JA86, the court says, because I vacate the short form disclosure requirements and another provision, I need not reach the other issues that were raised by PayPal.

[00:16:09] Speaker 04:
So I think that the court

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Although the conclusion is sort of pitched to the extent the district court's understanding was that basically any kind of mandatory requirement to do anything counted as a mandatory disclosure clause.

[00:16:27] Speaker 04:
I see that my time is up.

[00:16:28] Speaker 04:
I'd ask the court, if you have no further questions, to reverse the district court's judgment.

[00:16:36] Speaker 06:
Thank you, Mr. Deal.

[00:16:37] Speaker 06:
We'll give you some time for a rebuttal.

[00:16:39] Speaker 06:
Mr. Shanmugab, we'll hear from you now.

[00:16:41] Speaker 05:
Thank you Chief Judge Trini Vasan and may it please the court, a requirement to issue optional clauses is not the same as an option to issue required clauses.

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When Congress gave the Bureau the obligation to issue model clauses for optional use, it foreclosed the power to issue clauses for mandatory use.

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And as Mr. Deal's argument this morning makes clear, the Bureau now seemingly concedes as much and instead makes a new argument that it did not make below, namely that Congress foreclosed it from mandating only the exact wording of disclosures.

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This Court should reject that and possibly narrow interpretation.

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The Bureau's newfound litigation position here is inconsistent with its own use of the word clause, both in the prepaid rule and in the official commentary.

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And it would belie common sense to say that the prepaid rule does not impose mandatory disclosure clauses.

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The rule specifies the fees that may and may not be listed,

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It prescribes the words that may be used to describe those fees, and it prohibits explanations of those fees.

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And it closely regulates the ordering and the formatting of the required disclosures.

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The mere fact that an institution may use immaterial variations in wording does not alter the bottom line here.

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The Bureau has mandated a particular way of conveying particular content, and those are mandatory disclosure clauses by any measure.

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The judgment of the district court should therefore be affirmed.

[00:18:08] Speaker 06:
If you say the Bureau has mandated a particular way of mandating a disclosure, then that seems to presuppose that the Bureau can mandate the disclosure.

[00:18:20] Speaker 06:
What we're talking about is the particular way in which it's being mandated.

[00:18:24] Speaker 06:
So that gets to wording as opposed to content.

[00:18:28] Speaker 05:
wording and formatting as well in our view, Chief Judge Srinivasan, but I think we would concede that when it comes to the content of the disclosures, the Bureau obviously has some authority to do that, and that really stems from Section 1693C,

[00:18:46] Speaker 05:
which gives the Bureau the authority to mandate the substance of disclosures.

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What we're really talking about here is the form or the manner of the disclosure.

[00:18:56] Speaker 05:
I want to go right to where you started Chief Judge Srinivasan with your question to my friend Mr. Deal because I think that that really illustrates kind of the point of difference between us here.

[00:19:06] Speaker 05:
Our view is at bottom that the fact that

[00:19:09] Speaker 05:
substantially similar language can be used to describe some of the fees doesn't render these causes non-mandatory.

[00:19:19] Speaker 05:
But I want to emphasize one thing at the outset, which is that our objection here is not to the fact that we have chosen synonyms for ATM withdrawal fee that we can't use here.

[00:19:31] Speaker 05:
Though I would agree that there are a very limited number of synonyms that can be used for that.

[00:19:36] Speaker 05:
And if you look at the examples that the Bureau gives in its brief, I would submit that those examples don't seem to afford any sort of meaningful discretion.

[00:19:44] Speaker 05:
Our real objection here is to the fact that we are prescribed from providing any sort of explanation as to the fee itself.

[00:19:54] Speaker 02:
And this really goes to, I'm sorry, Mr. Sherman, you are able to provide explanations in the long form and you're able to reference the long form in the short form.

[00:20:02] Speaker 02:
But the nature of the of the beast is to have something, you know, of a digestible short length.

[00:20:10] Speaker 02:
So you have you have the speech opportunity everywhere else.

[00:20:14] Speaker 05:
is certainly true, Judge Pillard, that we have the ability outside the four corners of the short-form disclosure to provide explanation.

[00:20:23] Speaker 05:
But to the extent that the Bureau points to that, it is in some sense at war with the Bureau's submission that its goal here is to focus the consumer on the short-form disclosure, recognizing that consumers will not necessarily read anything

[00:20:36] Speaker 05:
outside the four corners of that disclosure.

[00:20:40] Speaker 05:
But I do think that this is a really important limitation, particularly for a company like PayPal.

[00:20:46] Speaker 05:
And let me provide an explanation that perhaps illustrates why.

[00:20:49] Speaker 05:
And this is obviously a contrafactual example, but hopefully it really underscores the problem here.

[00:20:56] Speaker 05:
Let's say that we actually, in fact, charged an ATM withdrawal fee, which we'll see at least from the product that is the example at page 14 of our brief.

[00:21:04] Speaker 05:
We don't.

[00:21:04] Speaker 05:
But let's say that we did.

[00:21:05] Speaker 05:
But let's say that we charged only a dollar everywhere, but we charged $10 in Hawaii because of the additional transaction cost of doing business there.

[00:21:15] Speaker 05:
We would have to list $10 as the fee.

[00:21:18] Speaker 05:
And we would be disabled from explaining that that fee is only charged in Hawaii.

[00:21:23] Speaker 05:
And that really, I think, illustrates the prescriptive nature of these requirements here.

[00:21:29] Speaker 05:
It really is all about the fact that, unlike the long-form disclosure, where we are able to provide an explanation and where, perversely, the Bureau doesn't really require any sort of mandatory wording,

[00:21:41] Speaker 05:
we are very much constrained.

[00:21:43] Speaker 05:
And that's what makes this prescriptive and therefore manning.

[00:21:45] Speaker 06:
The thing about it is if the nature of that objection is, look, we have to disclose the highest fee that we charge anywhere and we can't appropriately give a context so that consumers understand that that's an outlier.

[00:21:57] Speaker 06:
And really, we rarely ever charge a fee.

[00:21:59] Speaker 06:
And if we do, it's going to be a fraction of that.

[00:22:02] Speaker 06:
It seems to me that the problem with that is not necessarily that it's a mandatory clause in terms of its wording.

[00:22:07] Speaker 06:
It's that it's just arbitrary and capricious for us to be required to issue this narrow misleading disclosure.

[00:22:16] Speaker 06:
And you have that challenge.

[00:22:17] Speaker 06:
And you may, well,

[00:22:19] Speaker 06:
have the opportunity to go forward on that challenge.

[00:22:22] Speaker 06:
But I'm not sure that that tells me that it's a mandatory clause in terms of its wording.

[00:22:27] Speaker 06:
The problem is the content of it.

[00:22:30] Speaker 05:
Well, I take the point that there is an aspect of this that goes to whether or not this is arbitrary and capricious, Chief Judge Srinivasan.

[00:22:37] Speaker 05:
But I think my point for purposes of this colloquy is a more modest one.

[00:22:41] Speaker 05:
I really mean to just sort of underscore the prescriptive nature of what is going on here.

[00:22:47] Speaker 05:
And so to the extent that the Bureau now focuses my apically on the meaning of the word clause.

[00:22:54] Speaker 05:
I think it's important to keep in mind that what we're discussing here is whether these are model clauses for optional use, or whether they are instead mandatory clauses.

[00:23:02] Speaker 05:
And I think my point, I would sort of go back to my first point, which is that the mere fact that you can use immaterial variations in wording doesn't make something anything other than a mandatory clause.

[00:23:15] Speaker 05:
To sort of underscore this, let me give another example, if I may.

[00:23:18] Speaker 05:
Let's say that one of our teenagers went out and went joyriding, and I said to

[00:23:24] Speaker 05:
him afterwards, you know, I want you to write 100 times, I'm sorry for borrowing your car.

[00:23:32] Speaker 05:
I think that the fact that I gave him the ability to say, you know, vehicle or SUV or some synonym for car wouldn't make those anything other than mandatory sentences.

[00:23:42] Speaker 05:
And so regardless of whether you define clause narrowly to mean precise wording or whether you give it a somewhat more expansive meaning, such as just a way of providing particular content.

[00:23:54] Speaker 05:
And again, I think in context, that's a better understanding.

[00:23:58] Speaker 02:
The key point.

[00:23:59] Speaker 02:
Oh, I'm sorry.

[00:23:59] Speaker 02:
I'm sorry.

[00:24:00] Speaker 05:
No, I was just going to say that the key point here, Judge Pillard, is that there is no meaningful discretion.

[00:24:05] Speaker 05:
These are not optional clauses under any ordinary understanding of that phrase.

[00:24:11] Speaker 02:
I mean, what about putting it in the context of the disclosure requirement?

[00:24:16] Speaker 02:
I mean, it seems like, and I think Mr. Deal was saying this in his own way, that the substantial similarity in a way, as Chief Judge Srinivasan's initial question pointed out, in a way you don't even need that because

[00:24:30] Speaker 02:
the disclosures are disclosures about topics and the point of the disclosures is to allow comparison and so the restriction really the confines of the flexibility seem to me to flow less from the articulation that the disclosure should be substantially similar to the option to the

[00:24:56] Speaker 02:
optional model clause for optional use, but rather from the nature of what it is to disclose something in a way that allows comparison.

[00:25:08] Speaker 02:
And nobody argues that the statute doesn't allow regulation requiring disclosure in a manner that enables reasonable comparison.

[00:25:18] Speaker 02:
So I guess, you know,

[00:25:21] Speaker 02:
Obviously in the world that your clients would prefer, they wouldn't have to disclose and they could say it in any way they want, wherever they want, but they're not fighting the premise of the statute or the ability to regulate, to fulfill its disclosure function.

[00:25:39] Speaker 02:
So isn't going on too long, but isn't the narrowness, the substantial similarity really just baked into the statutory enterprise?

[00:25:50] Speaker 05:
Well, I don't think so Judge pillard though I think I agree with a large part of what you've just said in that my client, obviously doesn't have any objection to the substantive requirement that you know where for instance they charge fees for electronic fee transfers they have to make

[00:26:09] Speaker 05:
disclosures.

[00:26:10] Speaker 05:
Again, as I said to Chief Judge Srinivasan, this really goes to the manner or the form of the disclosures and, in our view, the statutory prohibition on mandating that.

[00:26:22] Speaker 05:
And so, as you say, Judge Pillard, we certainly recognize that with regard to the fees that we do charge, we have to make disclosures.

[00:26:32] Speaker 05:
We, of course, do make disclosures.

[00:26:34] Speaker 05:
We have no objection to the long-form disclosure requirements precisely because they don't mandate wording and they provide the flexibility to provide explanations for fees.

[00:26:46] Speaker 05:
But to the extent that Mr. Deal makes the point that this regime is designed to facilitate comparisons, I guess I'm at a little bit of a loss as to what the statutory authority for that is.

[00:27:01] Speaker 05:
Because the regime is premised on the notion of optionality and flexibility.

[00:27:07] Speaker 05:
It is designed

[00:27:08] Speaker 05:
to give institutions flexibility about the form of the disclosures, recognizing that there is a safe harbor, recognizing that if an institution complies with the model clauses that are set out by the Bureau, that it will be free of liability.

[00:27:25] Speaker 05:
And presumably, parenthetically going forward on this issue of remedy, presumably that is still true today, which is to say that if a financial institution used the previously mandatory clauses, that would presumably constitute a safe harbor in the wake of the district court's remedy.

[00:27:44] Speaker 05:
And that's precisely how the statute is supposed to work here.

[00:27:48] Speaker 03:
Mr. Sherman, would that give your, I mean, it does seem that many of your objections are to the content, right?

[00:27:54] Speaker 03:
The fact that there are certain things that must be disclosed.

[00:27:59] Speaker 03:
I mean, if we were to find that, say the only problem was that the clauses in the rule are mandatory and we were to somehow sever that, does that give your client the relief that it is seeking?

[00:28:15] Speaker 03:
Or is that just sort of a harmless error, because the rule itself requires certain content to be disclosed if we make the clauses non mandatory.

[00:28:25] Speaker 03:
But you know, of course, the other provisions are left in place, or maybe on remand you have an opportunity to challenge those as arbitrary and capricious, but I mean does that actually give you the relief that you're seeking.

[00:28:36] Speaker 05:
I think it does judge row and let me sort of say two things here first let me say something about the remedy and then second let me say something about the content requirements, you know, on the question of the remedy to the extent that Mr deal today seems to fault, the district court for its remedy and I would point the court to.

[00:28:54] Speaker 05:
the district court's order at page JA87, it invalidated the prepaid rule only to the extent that it provides mandatory disclosure clauses.

[00:29:03] Speaker 05:
The reason why the district court wasn't more specific about what that means is precisely because the Bureau didn't make any sort of argument to the district court about the precise meaning of the term clause.

[00:29:15] Speaker 05:
I would point the court to pages 21 to 28 of the Bureau's

[00:29:18] Speaker 05:
brief in support of its cross motion for summary judgment, you won't find this argument because simply means precise wording anywhere in the Bureau's brief.

[00:29:27] Speaker 05:
So I think the district.

[00:29:30] Speaker 02:
I think both sides didn't exactly define clause.

[00:29:34] Speaker 02:
What is your definition of what the clause is here?

[00:29:39] Speaker 02:
And what do you think Judge Leon's relief encompasses?

[00:29:43] Speaker 05:
I think what Judge Leon's relief encompasses Judge Pillard to be very specific about this is that Judge Leon effectively was saying that to the extent the short form disclosure requirements in 10.05.18 are mandatory, that that is invalid, that those requirements have to be optional.

[00:30:07] Speaker 05:
And in our view, that does include wording as well as ordering and formatting.

[00:30:14] Speaker 05:
And again, the reason that there was not more macular litigation about this in the district court was because the Bureau did not advance the argument that it's advancing today.

[00:30:24] Speaker 05:
But to finish my answer to Judge Rao on the issue of content requirements, again, we have no objection to the Bureau mandating that specific fees be disclosed.

[00:30:34] Speaker 05:
subject only to the implicit limitations in section 1693c.

[00:30:41] Speaker 05:
That provision requires disclosure of fees regarding electronic fund transfers to the extent applicable

[00:30:50] Speaker 05:
And I think that the Bureau itself in its own regulations, and I would point the court to the commentary on the regulation that implements that provision, it's 12 CFR 1005.7B5, makes clear that other fees that don't relate to electronic fee transfers may but need not be disclosed.

[00:31:13] Speaker 05:
There might be issues concerning

[00:31:15] Speaker 05:
what fees the Bureau can mandate disclosure of, and in our view, if it's a fee that's not being charged, the Bureau can't mandate disclosure of that.

[00:31:24] Speaker 05:
But other than that, the Bureau has a great deal of discretion, again, as to content.

[00:31:28] Speaker 05:
Our objection here is purely to the form and the mandatory form that the Bureau required here.

[00:31:35] Speaker 05:
And the best evidence that the Bureau was imposing a requirement, a mandate, was that the Bureau said shall and not may here.

[00:31:42] Speaker 05:
And that's the fundamental problem with this new mandatory disclosure regime that the Bureau established.

[00:31:49] Speaker 06:
Can I ask this as a follow-up to Judge Rao's question?

[00:31:51] Speaker 06:
So the part of the briefing takes issue with a substantial similarity limitation.

[00:31:59] Speaker 06:
If one were to assume just for purposes of argument, I'm not saying that this is a conclusion, but if one were to assume that cabining into substantial similarity is sufficiently close to imposing mandatory language that you carve out and exercise a substantial similarity limitation, but otherwise leave the rule standing, does that address a concern that you have or does it not?

[00:32:25] Speaker 05:
Well, it's not entirely clear to me how the court could go about doing that, because if you take a look at the relevant provisions of the short-form disclosure requirements, each of those provisions requires the use of a particular term or a substantially similar term.

[00:32:44] Speaker 05:
So I think actually just excising the substantially similar.

[00:32:48] Speaker 06:
I'm not supposing that there's a magic red line that could be done that leaves an intact rule in its wake.

[00:32:53] Speaker 06:
I'm not sure that that has to be the case, by the way.

[00:32:55] Speaker 06:
And I could be persuaded otherwise, but I think what I'm getting at is just ultimately the substantive conclusion as opposed to the actual redlining of the claw of the provision would be eliminate the substantial similarity limitation but otherwise leave the regulation in effect.

[00:33:13] Speaker 05:
Yeah, I guess what I'm struggling with Chief Judge Srinivasan is that I'm not sure exactly how that regime would operate in practice, which is to say, if all you're basically saying is you have a greater degree of discretion to use, you know, synonyms when describing the fees, I think we would say that that still is a mandatory regime.

[00:33:34] Speaker 05:
because of the limitations on explanation and the other prescriptive aspects of the rule.

[00:33:41] Speaker 05:
So I think, frankly, the simplest solution here is to simply say this regime is now an optional regime.

[00:33:48] Speaker 05:
But of course, if the Bureau wants to come back with more modest requirements, if the Bureau wants to come back with requirements that simply specify font size,

[00:33:58] Speaker 05:
I don't think that we would have the same objection to that.

[00:34:03] Speaker 05:
And I think that the district court's remedy here actually gives the Bureau some degree of discretion to do that if that's what the Bureau wants to do.

[00:34:12] Speaker 05:
What the Bureau can't do is to mandate the language and also, along with that, to impose limitations on ordering and the like.

[00:34:21] Speaker 03:
I mean, Mr shaming surely you agree that the EFTA gives the Bureau authority to impose disclosure requirements that are greater than font sizes, I mean, with respect to content.

[00:34:35] Speaker 05:
If the Bureau, for instance, going back to our earlier discussion, Judge Rao, if the Bureau wants to say, specify that there have to be disclosures about particular fees that are charged in connection with electronic fund transfers, sure, the Bureau could do that.

[00:34:50] Speaker 05:
That would be an exercise of its authority to implement 1693C.

[00:34:56] Speaker 06:
And that they have to be done in a particular font size.

[00:34:59] Speaker 05:
Sure, I think that that would be fine too.

[00:35:01] Speaker 05:
In our view, as long as an institution has the ability to provide an explanation as to the fee that it's charging, and as long as the Bureau is not mandating the use of particular language, I think that that would be fine.

[00:35:17] Speaker 05:
And all of that would be consistent

[00:35:19] Speaker 05:
with the statutory limitation that we're talking about here, which is the prohibition on the Bureau's promulgating clauses for mandatory use as opposed to model clauses for optional use.

[00:35:30] Speaker 03:
Mr. Chairman, why isn't in the regulation in B2, where it says that a financial institution shall provide a disclosure and then it says as applicable, why doesn't that allow

[00:35:46] Speaker 03:
PayPal to choose which of these disclosure requirements are applicable.

[00:35:52] Speaker 03:
So, I don't know which as applicable you're looking at, I guess in in 1005 point 18 be to.

[00:36:04] Speaker 03:
which is sort of the, which is really like the preface to many of these disclosure requirements.

[00:36:12] Speaker 05:
Yes, now I see the reference that you're pointing to.

[00:36:16] Speaker 05:
And so, you know, I think that the fundamental problem with that is that the Bureau has made clear that

[00:36:27] Speaker 05:
All of these items in the so-called static portion of the disclosure have to be included.

[00:36:33] Speaker 05:
And indeed, if you look later in 10.05.18b, it makes clear the order in which they have to be disclosed.

[00:36:41] Speaker 05:
The only ability that an entity has here, if it's not charging a fee, is to list NA, as indeed PayPal did with a number of the fees, if you take a look at our disclosure at page 14 of our brief.

[00:36:55] Speaker 05:
And, you know, I think one of the problems with that is the very real risk of consumer confusion.

[00:37:01] Speaker 05:
And while this is outside the administrative record, we point out in our brief that that that was a very real risk that was realized when consumers suddenly were confronted with a disclosure

[00:37:13] Speaker 05:
that listed this panoply of fees, many of which are inapplicable in the context of digital wallets.

[00:37:20] Speaker 05:
And that obviously goes outside the context of this particular statutory challenge, but it in large part explains why we're here.

[00:37:28] Speaker 03:
I mean, in some ways, your objection is to the supplement, to the interpretation that the Bureau further specifies, that even when

[00:37:39] Speaker 03:
a particular feature is free or is not applicable, you still have to provide these disclosures.

[00:37:45] Speaker 05:
Yes.

[00:37:45] Speaker 05:
I mean, I think that the supplement makes that clear, Judge Rao, but I think that that's also pretty clear from the ordering requirements themselves in the rule.

[00:37:58] Speaker 02:
Evidence of confusion is not in the administrative record, but in your complaint.

[00:38:04] Speaker 05:
Yes, that's right.

[00:38:05] Speaker 05:
And I don't think that we sort of need that for purposes of this statutory argument, Judge Pillard.

[00:38:11] Speaker 05:
I think that the risk of confusion goes to the constitutional avoidance argument, which we make.

[00:38:16] Speaker 05:
But of course, our front line submission is that the statute is really unambiguous in all relevant respects here, and particularly in light of the Bureau's concession that it is precluded from promulgating mandatory clauses.

[00:38:29] Speaker 05:
I'm not sure that there's really a lot of meaningful disagreement left on that score.

[00:38:34] Speaker 06:
Okay, thank you, Mr Shamigam.

[00:38:36] Speaker 06:
Let me make sure my colleagues don't have additional questions for you.

[00:38:41] Speaker 05:
Thank you, your honor.

[00:38:42] Speaker 06:
Thank you.

[00:38:42] Speaker 06:
Well, Mr Deal will give you three minutes for back for your rebuttal.

[00:38:47] Speaker 04:
Thank you, Your Honor.

[00:38:48] Speaker 04:
A few points.

[00:38:48] Speaker 04:
I think one important thing to note here is that my friend Mr. Rosham, again, didn't provide a definition for you to use to understand what a clause is and suggested that we were being sort of myopic and focusing on the word clause.

[00:39:04] Speaker 04:
But I think clause is really the critical distinction between the parties positions here.

[00:39:09] Speaker 04:
Through the course of the litigation, the issues have clarified.

[00:39:15] Speaker 04:
As the as the court has noted, the Bureau clearly has the authority to issue mandatory disclosure requirements.

[00:39:23] Speaker 04:
We're not disputing for purposes of this case that we can't do mandatory clauses.

[00:39:29] Speaker 04:
So the question is, what's the difference between a mandatory disclosure requirement, which we can do, and what's a mandatory clause that we're not saying that that we're not disputing that we that we cannot do?

[00:39:40] Speaker 03:
And what I take, Mr. Shamby, to say is

[00:39:45] Speaker 03:
What it seems to me that he is most objecting to is that there are certain mandatory clauses that have to be used even when they are not applicable to a particular financial institution.

[00:39:59] Speaker 03:
So, I mean, in what sense, like if you have to, you know, use certain language that just doesn't apply to your product, why is that not, you know, why is that within the Bureau's authority?

[00:40:12] Speaker 04:
Well, the Bureau doesn't require to use particular language to talk about your product.

[00:40:16] Speaker 04:
What it says is you need to tell consumers what fee you charge.

[00:40:21] Speaker 04:
what the amount of the fee you charge is, and maybe that you charge $0.

[00:40:25] Speaker 04:
That's still applicable to your product.

[00:40:27] Speaker 04:
And I think it's helpful for consumers to understand to the extent you don't offer a particular service, that you don't offer it.

[00:40:33] Speaker 04:
And so therefore, that's not applicable.

[00:40:35] Speaker 04:
I think that making clear to consumers, I think the important context here is that these are the fees that the Bureau picked

[00:40:43] Speaker 04:
are what the Bureau considered to be the most important, the most common fees that prepaid accounts contain.

[00:40:50] Speaker 04:
And that's sort of across the board for prepaid accounts.

[00:40:54] Speaker 04:
And so the Bureau said, you need to tell consumers basically what the situation is with respect to each of these fees, with respect to each of these services.

[00:41:04] Speaker 04:
But you can use either the language to describe that, you can use the language that the Bureau has identified, or you can use

[00:41:11] Speaker 03:
Any other substantially flexibility meaningful though where an institution just simply doesn't provide for that service or charge that fee.

[00:41:23] Speaker 04:
There is flexibility with respect to the language, but there is not flexibility with respect to the content requirement.

[00:41:28] Speaker 04:
You know, that's the balance that Congress struck here, gave the Bureau the authority to require particular information, particular content that be prescribed, that institutions had to provide, while at the same time saying, providing this optional model clause provision with respect to language.

[00:41:48] Speaker 04:
And we think that the Bureau's rule, you know, meets that combination.

[00:41:56] Speaker 06:
One,

[00:41:57] Speaker 06:
point that came up a couple of times in the course of Mr. Shanmugam's argument is the prescription about order.

[00:42:05] Speaker 06:
And can you just give your response on the Bureau's view as to why prescribing the order in which things are laid out doesn't verge on wording as opposed to content?

[00:42:18] Speaker 04:
Well, I think it doesn't match the word clause at all.

[00:42:25] Speaker 04:
You could have a series of mandatory clauses and say you can put them in any order you want.

[00:42:30] Speaker 04:
That'd be a series of mandatory clauses.

[00:42:32] Speaker 04:
The fact that you need to provide information in a particular order, this piece of information, then this piece of information, then that piece of information, I don't think doesn't suggest that there's anything other than optional model clauses that are- Well, I take it that the point would be that

[00:42:46] Speaker 06:
then each one of those pieces of information is not a separate clause.

[00:42:49] Speaker 06:
It's that the entire thing is a mandatory clause because it's prescribing the order in which sub aspects have to be disclosed.

[00:42:59] Speaker 04:
Your honor, I don't think that there's any sort of textual basis for saying that ordering is what Congress was concerned about with respect to the optional model clause provision.

[00:43:10] Speaker 04:
The statute is focused both in that optional model clause provision and in 1693 C on readily understandable language.

[00:43:18] Speaker 04:
That's the goal.

[00:43:19] Speaker 04:
And so any kind of ordering requirement has really nothing to do with the

[00:43:26] Speaker 04:
the Bureau's obligation.

[00:43:28] Speaker 04:
Again, what we're talking about here is an assumption based on the obligation to issue optional model clauses.

[00:43:35] Speaker 04:
And so in order for something that the Bureau did to exceed its authority, it needs to be inconsistent with that.

[00:43:41] Speaker 04:
It needs to conflict with that.

[00:43:43] Speaker 04:
And I don't think that any requirement with respect to the ordering of providing the information is in any way inconsistent with the obligation to issue optional model clauses.

[00:43:54] Speaker 06:
Okay, I just wanted to give you a chance to respond to that since it came up.

[00:43:57] Speaker 06:
Judge Filler, did you have a question?

[00:43:58] Speaker 02:
I was just going to ask whether if the rule, and I recognize it's counterfactual and I recognize we're not in the business of redrafting, but just to sort of understand the nature of your position, if the rule required

[00:44:16] Speaker 02:
Disclosures under Romanet 3, for example, of a periodic fee.

[00:44:23] Speaker 02:
It currently says the periodic fee charged for holding the prepaid account assessed on a monthly or other periodic basis using the term monthly fee annual fee or substantially similar term.

[00:44:33] Speaker 02:
Would the Bureau be achieving its objective just as much if it said disclosures required the periodic fee

[00:44:43] Speaker 02:
charged for holding a prepaid account, assessed on a monthly or other periodic basis, period.

[00:44:48] Speaker 02:
The term monthly fee or annual fee are deemed compliant.

[00:44:53] Speaker 02:
That's your optional model clause.

[00:44:56] Speaker 02:
But a substantially similar term may also be used.

[00:45:01] Speaker 02:
That wouldn't depart in any way from what you're trying to achieve.

[00:45:05] Speaker 04:
I think that that would be, if I'm understanding your hypothetical correctly, Judge Hillard, I think that that is

[00:45:12] Speaker 04:
the what the Bureau did in just in other words.

[00:45:16] Speaker 02:
And what if we said in the end instead of but a substantially similar term may also be used, but other terms that are readily understandable or fully accurately and effectively disclose the info information may also be used.

[00:45:30] Speaker 04:
I mean, I think there may be some slight difference there.

[00:45:35] Speaker 04:
I think that the Bureau chose substantially similar, and I don't want to give up that choice.

[00:45:44] Speaker 04:
I think that that helps everyone ensure that there's a similarity between the forms, which I think is an important goal.

[00:45:52] Speaker 04:
But I think that the way that you have proposed rewriting it would achieve very similar results.

[00:46:00] Speaker 04:
Substantially similar results.

[00:46:01] Speaker 04:
Substantially similar results, right.

[00:46:04] Speaker 04:
Thank you.

[00:46:06] Speaker 04:
If there are no further questions, we ask the court to reverse the district court's judgment.

[00:46:10] Speaker 06:
Thank you, counsel.

[00:46:11] Speaker 06:
Thank you to both counsel.

[00:46:12] Speaker 06:
We'll take this case under submission.