Following an order from the Consumer Financial Protection Bureau announced Tuesday (May 19), PayPal has agreed to pay the imposed fine of $25 million related to deceptive credit accusations from the agency.
As part of a consent order from CFPB against PayPal, the payments company will refund $15 million to PayPal Credit customers and pay a $10 million fine in connection with alleged illegal business practices. A consent order is not an actual finding or ruling of unlawful activity. CFPB’s allegations and proposed remedy would have the force of law only if approved by the presiding judge for the U.S. District Court for the District of Maryland.
The payments company – soon to be spun off from parent eBay into a separate, publicly traded vehicle — came under fire from the regulatory watchdog, which fired a salvo at PayPal stating that PayPal’s unit, formerly known as Bill Me Later, for “deceptively advertised promotional benefits that it failed to honor” including $5 and $10 credits promised by the company toward purchases. PayPal also signed consumers up for credit without permission, refused to honor payments presented (other than PayPal) and mishandled billing disputes, according to the CFPB’s claims.
PayPal Credit has been around since 2008, and like many credit products, has late fee charges, interest rate penalties and other penalties tied to late or missed payments.
The abuses extend across thousands of customers nationwide, the CFPB alleges, and in some cases people who were seeking to start a regular PayPal in order to make a purchase unknowingly enrolled in the credit program. And when attempting to use alternative forms of payment, such as other credit cards or linked checking accounts, the complaint notes, PayPal ensured its credit platform was the “default” program selected for payment –often resulting, eventually, in penalties.
CFPB invoked its authority under the Dodd-Frank Wall Street Reform and Consumer Protection Act to suggest the redress and fines, which would entail PayPal reimbursing $15 million to consumers mistakenly enrolled in PayPal Credit, or who were charged fees due to PayPal’s flawed business practices, pay a $10 million civil penalty, and improve company disclosures tied to fees and deferred interest charges.
CFPB Director Richard Cordray stated in the Board’s Tuesday release that “Online shopping has become a way of life for many Americans and it’s important that they are treated fairly. 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.”
The CFPB interaction with PayPal and PayPal Credit stretches back to January of last year, and August of 2013, when the Board requested testimony and information about the credit operations from eBay, PayPal Credit and PayPal itself, according to SEC filings.
This is just among the latest legal spats for PayPal. In March, the company agreed to pay the U.S. Treasury Department $7.7 million after the company processed payments for entities – both companies and individuals – on the U.S. sanctions list.
Turning back to the CFPB, once a judge’s approval is in place, the company has two months to put a plan together that would identify the customers affected, and how they would be reimbursed – and the company also must contact those eligible for payments, CNET reported.