PayPal to Pay $25 Million for “Deceptive” Practices

A complaint has been filed against PayPal, alleging that PayPal was illegally signing people up for its online credit product.

The Consumer Financial Protection Bureau (CFPB) in the U.S. filed a complaint and proposed consent order in federal court on Tuesday against PayPal. The CFPB is alleging that PayPal “deceptively advertised promotional benefits that it failed to honor, signed consumers up for credit without their permission, made them use PayPal Credit instead of their preferred payment method, and then mishandled billing disputes.”

With the proposed order, PayPal would refund $15 million in consumer refunds and a $10 million penalty.

“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.”

PayPal Credit works like other credit, where people make purchases using it as payment and then repay the debt over time. Like with credit cards and other credit, consumers using PayPal Credit can incur interest, late fees, and other charges.

PayPal has offered PayPal Credit since 2008, and CFPB is alleging that many consumers who were trying to enroll in a regular PayPal account or making an online purchase were signed up for a credit product without realizing it. CFPB reports that tens of thousands of consumers experienced these issues.

Photo Credit: PayPal Facebook

The specific allegations by CFPB were that PayPal:

• Deceptively advertised promotional benefits
• Abusively charged consumers deferred interest
• Enrolled consumers in PayPal Credit without their knowledge or consent
• Made consumers use PayPal Credit for purchases instead of their preferred payment method
• Engaged in illegal billing practices
• Mishandled consumer disputes about payments

CFPB notes that the proposed consent order is “not a finding or ruling that the company has actually violated the law. It has been filed with the U.S. District Court for the District of Maryland, and would have the force of law only if it is approved by the presiding judge.”