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The Consumer Financial Protection Bureau has proposed that PayPal refund $15 million to customers and pay a $10 million civil penalty to settle allegations that it engaged in a series of deceptive business practices with its PayPal Credit product, formerly known as Bill Me Later.
Federal regulators allege that PayPal signed up customers who didn’t want PayPal Credit accounts, failed to honor promotional offers, unfairly steered customers to use the product, and let fees pile up while mishandling billing disputes.
The CFPB made the allegations and proposed the settlement in a lawsuit filed in a Maryland federal court this week. Among the more serious claims: that PayPal often charged late fees and interest on balances with pending disputes, “even when the disputes concern defendants’ own practices, including failing to reverse a charge associated with double billing through PayPal Credit or failing to process a refund requested by a merchant for returned merchandise.”
PayPal — which has 165 million active accounts worldwide — is currently owned by eBay, but will soon be spun off as its own company.
“From the first encounter a consumer may have had with PayPal Credit, there were problems. 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,” said CFPB Director Richard Cordray. “One reason so many consumers ended up having this product, unbeknownst to them, was that PayPal set the default payment method for all purchases to PayPal Credit. Other consumers were simply not able to select another payment method when they tried to pay….Finally, once enrolled, consumers encountered headache after headache. PayPal failed to post payments properly, lost payment checks, and mishandled billing disputes that consumers had with merchants or the company itself.”
PayPal didn’t answer questions about the lawsuit and the accompanying proposed consent order, but issued a statement to Credit.com.
“PayPal Credit takes consumer protection very seriously. We continually improve our products and enhance our communications to ensure a superior customer experience. Our focus is on ease of use, clarity and providing high-quality products that are useful to consumers and are in compliance with applicable laws,” the firm said in its statement.
PayPal, founded in 1998, has had a mixed history when dealing with consumer disputes. The service has always been a challenge for financial regulators, as it is not a traditional bank, and standard consumer protections that apply to credit cards don’t apply to PayPal accounts. PayPal was acquired by eBay in 2002. Bill Me Later, which acts a bit more like a credit card and gives consumers the option to make online purchases and pay for them in the future, was acquired by eBay in 2008. It was rebranded as PayPal Credit last year.
Details of the CFPB allegations include:
In addition to granting refunds, PayPal Credit must improve its consumer disclosures, the CFPB said, to ensure that consumers know they are enrolling or using the product for a purchase.
As we’ve previously reported, a credit line through PayPal Credit can impact your credit scores. If you use the PayPal Credit service, be sure to understand the credit effect it is having. You can get a free credit report summary every month on Credit.com to see where you stand.
Image: iStock
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