PayPal Inc. is the defendant in a case in which it is alleged that the company engaged in abusive practices against its customers by illegally signing them up for credit that they did not request. In response to allegations that PayPal violated the Dodd-Frank Act, it has entered into a settlement to pay $25M to affected consumers.
The lawsuit and proposed consent decree against PayPal were filed by the Consumer Financial Protection Bureau (CFPB) earlier this year in Maryland’s federal district court. The bureau claimed that PayPal participated in deceptive advertising of a product called PayPal Credit, signed up customers without their approval, compelled them to use PayPal Credit to pay for goods and services instead of their preferred method of payment, and mismanaged billing disagreements.
Six charges have been alleged against PayPal, including one that the bureau said was abusive. The bureau did not provide a definition of abusive conduct, which is far more damaging than the usual consumer protection language of “unfair” and “deceptive.”
In 2013, the CFPB filed its first abusive conduct action against American Debt Settlement Solutions. The bureau has since filed another six lawsuits. The settlement entered into by PayPal represents the largest civil penalty in a case concerning abusive conduct. The settlement consists of a fine of $10 million in addition to refunds in the amount of $15 million to consumers.
According to CFPB Deputy Enforcement Director Jeffrey Ehrlich, the abusive nature of PayPal’s conduct involves customer application of payments. The bureau determined that PayPal had taken unreasonable advantage of the inability of consumers to shield themselves from harm. The bureau alleges that customers of PayPal Credit were unable to comprehend how payments were applied toward charges that were marked by deferred interest.
There were times when PayPal and retailers made offers to customers consisting of no interest on certain purchases for six or twelve months. However, PayPal also allegedly created accounts with interest charges and then signed up those same customers on those accounts. The trouble began when customers wished to apply their payments to the charges that included interest, and not to those that were interest-free.
Although PayPal stated that this was possible, customers who asked for this option were unable to get in touch with a customer service representative. In addition, customers were frequently misinformed about the amount they were required to pay in order to avoid interest charges, and payments were often applied to the wrong charges. Such behavior, in the opinion of the bureau, constitutes abusive conduct, rather than conduct that is unfair or deceptive. Coupled with the monetary penalty, the proposed consent decree mandates that PayPal clarify the terms of all promotional offers and to make certain that the consumer gets the benefit of the offer expressed by the merchant.
Consumer protection laws are intended to safeguard the rights of consumers, and to prevent companies that participate in fraudulent behavior, from obtaining an unfair advantage over their competitors. If you think you have been the victim of abusive conduct on the part of a merchant, or deceptive advertising, you should consult a consumer protection attorney.
Authored by Roxanne Minott, LegalMatch Legal Writer and Attorney at Law