The Consumer Financial Protection Bureau has issued a consent order against PayPal for illegally enrolling consumers in its online credit product, PayPal Credit.
The CFPB alleges that San Jose, Calif.-based PayPal violated Dodd-Frank’s prohibition of unfair, deceptive, abusive acts or practices by advertising promotional benefits that it failed to deliver and by charging customers deferred interest that the CFPB called “abusive.”
Under the proposed order, PayPal will pay a $10 million penalty and $15 million in consumer redress and would be required to improve its disclosures and procedures.
The CFPB charges that the company deceptively advertised promotional benefits, abusively charged customers deferred interest, enrolled consumers in PayPal Credit without their knowledge or consent, made consumers use the service – formerly known as Bill Me Later – for purchases instead of their preferred method of payment, engaged in illegal billing practices and mishandled billing disputes about payments.
The company allegedly offered a deferred-interest promotion which would let customers choose how to apply payments to promotional balances. But consumers who contacted PayPal for more information or to direct payments could not get through to the company’s customer service line or were given inaccurate information, the CFPB said.
PayPal enrolled many consumers in the product without their permission and forced them to use PayPal Credit by automatically setting it as the default form of payment, the bureau said. In some cases, consumers found that purchases were charged to a PayPal Credit account even when they affirmatively selected another payment. Many of these consumers incurred late fees and interest because they did not know they had made purchases through PayPal Credit.
PayPal also supposedly failed to post payments properly, lost payment checks, and mishandled billing disputes that consumers had with merchants or the company.
The actions of PayPal affect “tens of thousands of consumers,” including those who paid late fees or interest charges between January 2011 and May 2015, the bureau said.
“PayPal illegally signed up consumers for its online credit product without their permission and failed to address disputes when they complained,” said CFPB Director Richard Cordray. “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.”