The Consumer Financial Protection Bureau alleges that online payment platform PayPal signed up customers for PayPal credit accounts without authorization, forced customers to use this credit line instead of their preferred payment methods, and failed to address disputes. As a result, PayPal will pay a total of $25 million in refunds and penalties.
The CFPB announced today that it filed a complaint and proposed consent order against California-based PayPal for illegally signing customers up for PayPal Credit without their permission and deceptively advertising the benefits of the credit service.
According to the complaint [PDF], since 2008 PayPal has offered PayPal Credit – formerly Bill Me Later – to consumers making purchases from online merchants using the service or eBay.
While the product was advertised as optional, the CFPB claims in some instances people who were attempting to enroll in a regular PayPal account, or simply make an online purchase, were signed up for the credit service without realizing it.
In some cases, the company allegedly enrolled other individuals while they tried canceling or closing out of the application process.
After customers were enrolled in the service, PayPal would automatically set or reselect the credit as the default payment method for all purchases made through the system.
“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,” the CFPB says in a statement.
When customers tried to select a different payment method, they tell the CFPB the purchase was still completed with the unwanted PayPal Credit. As a result, many PayPal users incurred late fees and interest because they didn’t know they had made a purchase through PayPal Credit.
The CFPB claims that most customers 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.
In addition to illegally enrolling customers in the PayPal Credit service, the CFPB alleges that the payment services company deceptively advertised benefits of the program and unfairly charged customers interest after promising a deferred interest promotion.
According to the CFPB, PayPal advertised promotions such as a $5 to $10 credit toward purchases if customers used the service. However, the company failed to honor the credit.
Additionally, the company regularly advertised a limited-time, deferred interest promotion. Under the deal, PayPal purported to let users pick how payments would be applied to these promotional balances.
However, when consumers 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.
As a result, many individuals tell the CFPB that they incurred deferred interest fees that they could not avoid.
Unfortunately for customers, PayPal’s billing issues didn’t end there. The company allegedly failed to post payments or failed to remove late fees and interest charges from users’ bills even when payments were unable to be made because of website failures. enable to make payments because of website failures.
When customer brought the billing issues related to fees and interest to PayPal’s attention, the company allegedly mishandled the disputes and made additional billing errors.
Under the CFPB’s proposed consent order [PDF], PayPal must provide $15 million in redress to those who were mistakenly enrolled in PayPal Credit, who mistakenly paid for a purchase with PayPal Credit, or who incurred fees or deferred interest as a result of the company’s inadequate disclosures and flawed customer-service practices.
The company must also pay a $10 million civil penalty to the CFPB’s Civil Penalty Fund.
Additionally, PayPal is required to take steps to improve its consumer disclosures related to enrollment in PayPal Credit to ensure customers know they are enrolling or using the product for a purchase.
“Online shopping has become a way of life for many Americans and it’s important that they are treated fairly,” CFPB director Richard Cordray said in a statement. “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.”
Consumer Financial Protection Bureau Takes Action Against PayPal for Illegally Signing Up Consumers For Unwanted Online Credit [Consumer Financial Protection Bureau]