PayPal to pay $25 mn for illegally enrolling users in credit program

May 19, 2015

The US Consumer Financial Protection Bureau on Tuesday said PayPal will pay $25 million in refunds and penalties for illegally signing people up for its online credit product and mishandling complaints.

"PayPal lured in consumers to this product with deceptive advertising, signed up people without them knowing it and then mishandled billing disputes when they arose," bureau director Richard Cordray said during a telephone briefing with the press.

"This kind of conduct has no place in the consumer financial marketplace."

The bureau simultaneously filed a complaint and a proposed settlement deal with a federal court in Maryland.

The complain accuses the eBay-owned online financial transactions service with illegally signing up and billing tens of thousands of people for PayPal Credit, formerly known as Bill Me Later.

PayPal Credit operates along the lines of a credit card, with payments spread out over time and balances triggering interest and late fees.

"From the first encounter a consumer may have had with PayPal Credit, there were problems," Cordray said.

"Tens of thousands of consumers who were attempting to enroll in a regular PayPal account, or make an online purchase, were signed up for the credit product without realizing it."

Many people wound up with credit accounts because PayPal set the option as the default method of payment, according to the bureau.

PayPal also failed to deliver on promises of $5 or $10 credit towards purchases that had been advertised in promotions, the complaint charged.

"Finally, once enrolled, consumers encountered headache after headache," Cordray said.

"PayPal failed to post payments properly, lost payment checks and mishandled billing disputes that consumers had with merchants or the company itself."

Even when PayPal website problems thwarted efforts by people to pay, they were still charged late fees, according to Cordray.

PayPal did not admit any wrongdoing in the proposed settlement, but did agree to put $15 million into a pool of refund money for affected customers and to pay a $10 million civil penalty to the bureau, the court filing showed.

The settlement also requires PayPal to make it clear during enrollments and purchases when people are opting for the company's feature, and to better handle complaints.

PayPal released a statement to the media saying that it continually works to improve its products and its communications with customers.

Explore further: Japan's Softbank ties up with eBay in online billing

Related Stories

Recommended for you

Mapping coal's decline and the renewables' rise

June 23, 2016

Even as coal-fired power plants across the U.S. are shutting down in response to new environmental regulations and policy mandates, defenders of the emissions-heavy fuel still have cost on their side. Coal, after all, is ...

Ultra-thin solar cells can bend around a pencil

June 20, 2016

Scientists in South Korea have made ultra-thin photovoltaics flexible enough to wrap around the average pencil. The bendy solar cells could power wearable electronics like fitness trackers and smart glasses. The researchers ...

Electric racing car breaks world record

June 23, 2016

The Formula Student team at the Academic Motorsports Club Zurich (AMZ) accomplished its mission today: the grimsel electric racing car accelerated from 0 to 100 km/h in just 1.513 seconds and set a new world record. It reached ...

0 comments

Please sign in to add a comment. Registration is free, and takes less than a minute. Read more

Click here to reset your password.
Sign in to get notified via email when new comments are made.