According to the filings and and ongoing investigation by the Consumer Financial Protection Bureau PayPal illegally signed tens of thousands of customers up for credit cards through the company's PayPal Credit, formerly known as Bill Me Later, without their permission. It also made changes to account holders accounts changing their default payment method to utilize their PayPal credit card, and then failed to address disputes when customers complained.
“PayPal illegally signed up consumers for its online credit product without their permission and failed to address disputes when they complained,” said CFPB Director Richard Cordray. “Online shopping has become a way of life for many Americans and it’s important that they are treated fairly. The CFPB’s action should send a signal that consumers are protected whether they are opening their wallets or clicking online to make a purchase.”
Since 2008, PayPal has offered PayPal Credit to consumers across the country making purchases from thousands of online merchants, including eBay. In their filings with the US District Court in Maryland the CFPB alleges that many consumers who were attempting to enroll in a regular PayPal account, or make an online purchase, were signed up for a credit product without realizing it. The company also failed to post payments properly, lost payment checks, and mishandled billing disputes that consumers had with merchants or the company. Tens of thousands of consumers experienced these issues. Specifically, the CFPB alleges that the company:
- Deceptively advertised promotional benefits: The CFPB alleges that PayPal failed to honor advertised promotions, such as a $5 or $10 promised credit toward consumer purchases.
- Abusively charged consumers deferred interest: The CFPB alleges that PayPal offered consumers limited-time, deferred-interest promotions, and that PayPal purported to let consumers pick how payments would be applied to these promotional balances. But consumers who attempted to contact the company to get more information or request to apply their payments to promotional balances often could not get through to the company’s customer service line or were given inaccurate information. Many such consumers were hit with deferred-interest fees that, due to the company’s conduct, they could not avoid.
- Enrolled consumers in PayPal Credit without their knowledge or consent: The CFPB alleges that the company often automatically enrolled consumers in PayPal Credit when those consumers were signing up for a regular PayPal account or making purchases. The company enrolled other consumers while they tried canceling or closing out of the application process. Many consumers ended up enrolled in PayPal Credit without knowing how or why they were enrolled. They discovered their accounts only after finding a credit-report inquiry or receiving welcome emails, billing statements, or debt-collection calls for amounts past due, including late fees and interest.
- Made consumers use PayPal Credit for purchases instead of their preferred payment method: The CFPB alleges that the company automatically set or preselected the default payment method for all purchases made through PayPal to PayPal Credit. This meant consumers used PayPal Credit even when they intended to use another method of payment such as a linked credit card or checking account. Other consumers were not able to select another payment method, finding that their purchases were charged to a PayPal Credit account even when they affirmatively selected another payment. Many of these consumers incurred late fees and interest because they did not know they had made purchases through PayPal Credit.
- Engaged in illegal billing practices: The CFPB alleges that the company failed to post payments or failed to remove late fees and interest charges from consumers’ bills even when the consumers were unable to make payments because of website failures. Numerous consumers reported that the company lost payment checks or took more than a week to process checks.
- Mishandled consumer disputes about payments: The CFPB also alleges that PayPal mishandled consumers’ billing disputes and made billing errors.
Under a proposed settlement, PayPal will hand over $15 million in refunds to consumers and another $10 million in civil penalties. The company also will have to improve its disclosures for PayPal Credit. PayPal neither admitted nor denied any of the complaint's allegations, and the settlement doesn't constitute a finding that the company violated any laws. Consumers who are eligible for payments don't need to take any action; they will be contacted by PayPal, the CFPB said.