German Court Rules Against PayPal’s Purchase Protection Plan

Digital payment services company PayPal was recently dealt a blow in a lawsuit in Germany over its purchase protection policy, a plan that issues refunds to consumers in cases where they did not receive purchased products or goods, or where the items arrived different than stated.

According to a report in Reuters, two separate lawsuits saw customers given refunds by PayPal with the company transferring the money back from the sellers to the customers. A German court ruled that sellers could go after that money even after funds had been refunded, because PayPal’s policies state the purchase protection doesn’t impact the contractual rights of both the buyer and the seller.  

The court also found the policy doesn’t ensure everyone’s interest is met. PayPal said it was waiting for details on the ruling before if it decided if or what action it may take.

The ruling comes as PayPal is in a bit of transition, gearing up to pursue more growth. Earlier this month, the firm announced it would be selling $6.8 billion in receivables to its partner firm Synchrony Financial, including $5.8 billion in U.S. consumer credit receivables and approximately $1 billion in participation interests in receivables held with investors and financial institutions.

In addition, the two firms, which have been collaborating since 2004, will expand their co-branded consumer credit card deal. Synchrony Bank will become the exclusive issuer of PayPal’s online consumer financing program in the U.S. for the next decade, and the deal is expected to close in the third quarter of next year.

For PayPal, selling its receivables means it will lose out on any interest it generates from the loans, but will also give the company access to billions of dollars that can be used to grow its business.

“Our expanded relationship with Synchrony Financial will free up cash currently used to fund consumer credit receivables for other uses, while [also] accelerating our ability to deliver engaging credit and payments experiences for our customers,” said Dan Schulman, president and CEO of PayPal, in prepared remarks. We believe this transaction significantly advances our strategic and financial goals.”