BALTIMORE (CN) – PayPal agreed to pay $25 million to settle claims it signed consumers up to its online credit plan without their permission, the Consumer Financial Protection Bureau announced.
The payment includes $15 million that will be refunded to consumers and a $10 million to be paid to the federal government.
In a complaint filed in the Baltimore Federal Court on May 19, the agency said PayPal deceptively advertised promotion benefits that it failed to honor, signed customers up without their permission, and made them use PayPal Credit or its predecessor, Bill Me Later, without their consent.
The suit claims PayPal enrolled consumers in PayPal credit without their knowledge when they signed up for a regular PayPal account. “Other consumers were enrolled in PayPal Credit despite canceling the application process or closing out of the application window before completing the enrollment process,” the complaint says.
Many consumers didn’t even realize they were enrolled in PayPal Credit until finding a credit-report inquiry or receiving welcome emails, billing statements, or debt-collection calls for amounts past due, including late fees and interest, federal regulators said.
“In many instances, [PayPal] automatically set or preselect the default payment method for all purchases made through a consumer’s PayPal Wallet to PayPal Credit, causing consumers to use PayPal Credit even when intending to use another method of payment such as a linked credit card or checking account,” the complaint says.
Often consumers did not even realize PayPal Credit was used as the method of payment they receives debt-collection calls. Many consumers do not realize they were enrolled in PayPal Credit because enrollment notices and billing statement went into spam email folders.
PayPal is also accused of failing to honor promotional offers such as $5 or $10 back on a purchase or no interest for six or twelve months, the suit said.
Frequently consumers received confusing deferred-interest offers on multiple transactions that would expire on different dates, depending on the date of the initial transaction. The suit claims PayPal “did not provide consumers with adequate information to allow them to understand how [PayPal] applied payments to various balances and how much consumers needed to pay to avoid deferred interest.”
Many times they believed they made a payment large enough to pay off purchases with expiring promotions, but the PayPal allocated payments in a way that resulted in the consumer incurring deferred interest, the suit said.
PayPal neither admitted nor denied any of the complaint’s allegations, and the settlement does not constitute a finding that the company violated any laws.
In a statement, the company said, “PayPal Credit takes consumer protection very seriously. We continually improve our products and enhance communications to ensure a superior customer experience. Our focus is on ease of use, clarity and providing high-quality products that are useful to consumers and are in compliance with applicable laws.”
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