Uncle Sam spanks PayPal for credit scheme cockup
Enrolling consumers without permission? That's a $25m paddlin'
Updated PayPal is going to surrender $25m to settle charges it enrolled consumers into its credit platform without their knowledge or consent.
The US government's Consumer Financial Protection Bureau (CFPB) alleges the online payment house used its "Bill Me Later" feature to lure consumers into its credit operation illegally.
The government credit watchdog says that PayPal offered users the option but disguised the credit platform. Thinking they would be able to pay off purchases straight up in increments, buyers were instead enrolled in the PayPal credit scheme that brought with it extra fees and charges.
According to the CFPB, PayPal set the Bill Me Later option as the default payment option, leaving many users enrolled in the credit scheme even when they intended to use another payment option. In other cases, users were allegedly enrolled in the program when they tried to cancel their PayPal credit accounts.
This, the CFPB alleges, left many users with an account they did not know they were on the hook for. In some cases, users were only notified of the account when they received a credit report notice or were contacted by bill connection agencies.
"From the first encounter a consumer may have had with PayPal Credit, there were problems," said CFPB director Richard Cordroy. "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"
Under the terms of the deal, PayPal will refund customers $15m in fees from the credit operation. Additionally, the payment processor will shell out a $10m penalty to the government agency.
PayPal will also be required to provide users advance notification when they are making a purchase that will be charged to the credit operation.
"The company must now give clear disclosures during the enrollment and checkout process so that consumers know what is happening and that they can use a different payment method if they so choose," said Cordroy. "The company must ensure that customers receive the promotions advertised and that payments are credited in a timely manner."
PayPal did not return a request for comment. ®
PayPal sent El Reg the following statement on the matter:
"PayPal Credit takes consumer protection very seriously. We continually improve our products and enhance our communications to ensure a superior customer experience. Our focus is on ease of use, clarity and providing high-quality products that are useful to consumers and are in compliance with applicable laws. UK members have not been affected by the issues raised in connection with this CFPB investigation."