CFPB Targets PayPal Credit

PayPal is in settlement talks with the Consumer Financial Protection Bureau (CFPB) in the run-up to its split from eBay, the company said in a filing last week with the U.S. Securities and Exchange Commission (SEC) on Thursday (April 9).

According to the filing, the CFPB notified eBay and PayPal in August 2013 and January 2014 that it wanted “information relating primarily to the acquisition, management, and operation of our PayPal Credit products, including online credit products and services, advertising, loan origination, customer acquisition, servicing, debt collection, and complaints handling practices.”

While the SEC filing doesn’t give details of the CFPB investigation, PayPal Credit offers instant financing to customers when they’re checking out at some eCommerce retailers. Customers who pay in full before the end of a limited period don’t have to pay interest, but after that the annual percentage rate is 19.99 percent along with other fees. Those potentially excessive finance charges could be what the CFPB is looking at, according to The Wall Street Journal. No CFPB enforcement action has actually been filed to date.

“We are cooperating with the CFPB in connection with the [investigation] and are engaging in settlement discussions. The CFPB has provided us with a Notice and Opportunity to Respond and Advise and indicated that a lawsuit could be filed against us as early as the second quarter of 2015,” the PayPal SEC filing said, adding that if the CFPB isn’t satisfied with PayPal’s response, resolution could involve customer refunds, fines or changes to the way PayPal Credit does business.

PayPal also faces scrutiny in the area of cross-border transactions, according to the filing. “In December 2014, we became subject to CFPB supervision and examination pursuant to a new regulation that allows the CFPB to supervise all companies, including PayPal, that provide more than 1 million international money transfers per year,” the filing said. “Under the regulation, CFPB examiners are now able to examine us for compliance with the remittance transfer rule and other laws and regulations. We expect an initial examination to commence in the second quarter of 2015.”

PayPal also routinely reports to the U.S. Treasury Department’s Office of Foreign Assets Control (OFAC) on cross-border payments that PayPal has blocked because of sanctions regulations. “Beginning in September 2014, we have engaged in settlement discussions with OFAC regarding the possible violations arising from our practices between 2009 and 2013,” the SEC filing said. “In addition, we continue to cooperate with OFAC regarding more recent self-reported transactions that could also possibly be in violation of OFAC sanctions regulations.”


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