PayPal Behaving Badly?
By Consumers Union on Friday, May 22nd, 2015
CFPB Files Complaint Alleging Unfair, Deceptive and Abusive Practices
PayPal enrolled people in its credit program, known as Pay Pal Credit (formerly Bill Me Later), without their permission, forced customers to use PayPal Credit even when they indicated they wanted to pay another way, failed to properly process payments, refused to honor and apply promotional offers, and otherwise mistreated customers, according to a complaint filed earlier this week by the Consumer Financial Protection Bureau (CFPB).
PayPal started as a payments company in 1998, and in the early 2000s became the primary method by which Ebay sales were processed. Today, PayPal acts as a middleman for all sorts of transactions, allowing users to link their debit or credit cards, or even store money with PayPal, so that they can make or receive payments and without having to share account numbers with strangers.
PayPal credit started in 2008, but there were problems from the start according to CFPB Director Cordray:
From the first encounter a consumer may have had with PayPal Credit, there were problems. 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. The company enrolled other consumers while they tried to cancel or close out of the application process. Many people ended up enrolled without knowing how or why, only to discover unexpectedly that they actually had an account when they learned of a credit-report inquiry, or when they received emails welcoming them to PayPal Credit, billing statements, or debt-collection calls.
The complaint also alleges that PayPal did not properly apply payments, leading to interest charges and late fees. This was a particular problem for consumers in deferred interest programs. (Deferred interest products, we think, are traps.) According to the CFPB, PayPal didn’t provide adequate information about how payments were applied to deferred interest balances. Moreover, consumers seeking information were told to contact customer service, but were often unable to reach an agent at all. Consumers who were able to reach an agent nevertheless found that PayPal allocated payments differently than requested. The complaint also alleges that PayPal mishandled billing disputes, including complaints about unauthorized charges, identity theft, and a failure to honor advertised promotions.
The CFPB is seeking a consent decree that will stop PayPal Credit’s alleged bad practices, require PayPal to refund $15 million to consumers, and pay a $10 million penalty. Specific changes PayPal may have to make include providing clear disclosures during the enrollment and checkout process that remind consumers that they have a choice as to how they pay, making PayPal honor advertised promotions, and requiring that PayPal process payments in a timely manner.
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