PayPal, Inc., has agreed to pay a total of $25 million to settle charges arising from the operation of its PayPal Credit online credit product, the Consumer Financial Protection Bureau announced. PayPal will pay $15 million in consumer redress and a $10 million civil penalty to settle charges brought by the CFPB under the bureau’s authority to act against unfair, deceptive, or abusive acts and practices.
According to the CFPB, PayPal Credit is a line of credit that Pay Pal customers can use to buy products from online merchants. Similar to when using a credit card, consumers can buy products using PayPal Credit and repay the credit over time, incurring interest and fees in the process. However, PayPal engaged in a number of illegal actions when creating and managing PayPal Credit accounts, the bureau’s complaint charges.
These actions included:
- failing to honor advertised promotions;
- charging deferred interest that consumers could not avoid because they could not make contact with the company;
- enrolling consumers in PayPal Credit without the consumers’ consent or knowledge;
- forcing consumers to use PayPal Credit when they wanted to use a different payment method;
- failing to post payments, and imposing late fees when consumers could not make payments due to website failures; and
- making billing errors and mishandling billing disputes.
"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,” CFPB Director Richard Cordray said. Other consumers were enrolled when they tried to cancel or back out of their applications. In part, this was caused when PayPal set PayPal Credit as the default payment for all purchases, Cordray said.
Under the settlement agreement, PayPal will make refunds to consumers who were improperly enrolled in PayPal Credit, who mistakenly paid for a purchase using PayPal Credit, or who incurred interest or fees due to PayPal’s “inadequate disclosures and flawed customer-service practices,” Cordray said. The company has not admitted any wrongdoing as part of the settlement.
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