PayPal and Payment Apps

PayPal said it is eliminating late fees for missed payments when customers use its buy now, pay later (BNPL) service. In the U.S., the new policy on new purchases with Pay in 4 will take effect on Oct. 1.

The company said it is adopting the policy to help consumers who are looking for ways to manage their finances and avoid fees. It cites a recent study showing that a third of consumers believe that having no late fees is an important feature in choosing a buy now, pay later payment option.

Pay in 4 is PayPal’s way of letting consumers make purchases on the installment plan. Instead of putting the purchase on a credit card that charges interest -- often with growing balances -- the purchase is divided into four interest-free equal payments made every two weeks. After the fourth payment, the item is paid for.

BNPL is an increasingly popular feature with young consumers. The study found that 57% of Gen Zers and millennials think the payment option is a smarter way to shop, with many saying it gives them more control over their budgets.

"We know that eliminating late fees delivers an even better buy now, pay later experience that provides incredible value to our consumers and merchant partners,” said Greg Lisiewski, vice president of Buy Now, Pay Later Products at PayPal. "This change is closely coupled with PayPal's mission and values as we seek to remove hurdles that provide financial services to customers of all types while helping our merchant partners succeed in the changing retail landscape."

How merchants benefit

PayPal says merchants also stand to benefit from its Pay in 4 service. It says businesses that offer the service gain additional business from half the customers who use it.

Samsonite, a luggage manufacturer, began offering Pay in 4 shortly after the service launched last October. The company said it experienced a 25% increase in average order value when customers used it.

"We're very excited about PayPal's decision to no longer charge late fees, as it provides value for our consumers while also giving them the reassurance that a missed payment will not incur additional financial penalties," said David Oksman, vice president Marketing & Ecommerce, Samsonite. 

Pay in 4 is available through merchants that accept PayPal and have enrolled in the BNPL program.

PayPal has announced that it’s teaming up with Walmart to allow customers to withdraw cash from their PayPal account at any Walmart store across the country.

The new service will let the companies’ shared customers take out or deposit cash to their PayPal account at Walmart’s service desks, ATMs, or cash registers. Customers will need to have their PayPal app or a PayPal Cash Mastercard to make transactions. Each transaction will come with a service fee of $3.

The payment giant noted in a statement that this is the first time PayPal app users will be able to take out cash from their account balance in a brick-and-mortar environment.

“We are committed to working together to make it simple and easy for people to use PayPal cash in and cash out money services at every Walmart location in the U.S. We look forward to working hand-in-hand to help people and families with their financial services needs,” Dan Schulman, PayPal President and CEO, said in a statement.

Providing “great value”

For its part, Walmart says it is committed to expanding access to products and services like these.  

Daniel Eckert, Walmart’s senior vice president, noted that 90 percent of U.S. consumers live within 10 miles of a Walmart store. He said the new service will offer “great value to the many people who rely on Walmart and PayPal to help manage and move their money.”

The ability to deposit cash through the new system is immediately available, while the ability to take cash out will be available at all Walmart locations across the U.S. by early November.

Earlier this year, PayPal made another move into the mainstream banking space by partnering with Venmo to launch a MasterCard debit card that allows users to make in-store and online payments with their Venmo balance.

PayPal has also previously partnered with Apple, Facebook, and Skype with the goal of launching additional offerings to customers.

No one ever accused the litigation process of being overly expeditious, but a $4 million settlement approved by U.S. District Judge Saundra Brown Armstrong will finally put an end to a class action lawsuit that has spanned nearly seven years.

The original suit was filed by lead plaintiff Moises Zepeda, who sued PayPal in 2010 for allegedly closing his account and pocketing the money and interest that he had stored in it. While that may seem like a cut and dried case if proven true, actions taken by attorneys representing consumers with similar complaints derailed settlement talks and elongated the process.

A long journey

Sometime after Zepeda filed his claim in 2010, another PayPal user named Devinda Fernando attempted to sue both PayPal and eBay on similar charges, claiming that the companies closed customer accounts without notice for supposed suspicious activity.

All parties entered mediation in 2011 and reached a global settlement, but attorney Marina Trubitsky attempted to negotiate individual settlements with both PayPal and eBay, a series of actions that Armstrong believes was “ostensibly intended to derail the Zepeda settlement” in order to “[resurrect] her dormant motions to consolidate Zepeda and Fernando.”

Armstrong denied Trubitsky’s motions and set a global settlement conference for 2012; however, Trubitsky and her Fernando clients did not attend, so no settlement could be reached. Those actions began a string of proposed settlements by the Zepeda party, which were denied by Armstrong for varying reasons ranging from vagueness and lack of money damages to improper citations of previous settlement orders.

Finally, on Friday, Armstrong approved a settlement that had been well-received by the majority of class members; of the 100 million PayPal users who had been sent email notices of the settlement, only 11 objected to it and 75 opted out.

“These numbers indicate that the notice process has been remarkably successful – and the settlement class’s reaction to the settlement has been overwhelmingly positive, which favors approving the settlement,” she wrote in her decision.

Best to settle

Armstrong notes that the plaintiffs’ claims were generally “weak,” a fact that she said “militates in favor of settlement. “There is no question that maintaining this case as a class action through trial would be highly uncertain,” she wrote.

Under the agreement, PayPal will pay $4 million to the settlement fund, modify the disclosure of its reserve and hold practices, and clarify its dispute resolution process. Armstrong granted $800,000 to counselors but denied Trubitsky any award.

“[Trubitsky’s] actions resulted in additional delay and litigation costs – all to the detriment of the class. The court finds that she is not deserving of attorney’s fees or costs on the ground that her actions, on balance, did not provide a substantial benefit to the class,” she wrote.

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Editor's note:  This story is about a class-action lawsuit. If you are among the class of consumers described in the suit, you may eventually be eligible to participate in whatever compensation the court awards, if any. Unlike what many people think, you do not "join" a class action -- you are either in the class covered by the action or you are not. 

Often, consumers included in an award do not need to take any action, as the defendant is required to contact them directly. In other cases, the court and the attorneys who brought the case will issue instructions when the case is settled.

Please note that under our Privacy Policy, we cannot provide you with the names of other consumers who may be similarly affected. 

Please see our Class Action Guide for more information.

Back in 2015, PayPal split away from eBay in an effort to focus on its electronic transactions business. Since then, the company has vigorously pursued agreements with other companies and institutions to increase the number of people who use its service.

In February of 2015, the U.S. Treasury said that it would start accepting payments via PayPal at its Pay.gov site, giving consumers more options on how they can pay fines, penalties, or loan repayments. Even more recently, the company teamed up with MasterCard to offer consumers more tap-and-pay options.

Now, it looks like the online payment company is looking to strike a deal with Amazon. Bloomberg reports that the two companies are discussing the possibility of letting consumers pay for Amazon purchases by using their PayPal accounts. While a verified plan has not been announced, officials say the deal is very possible.

“We’re closing in on 200 million users on our platform right now. At that scale, it’s hard for any retailer to think about not accepting PayPal,” said CEO Dan Schulman.

Potential deal

The potential deal could be pretty attractive to Amazon users who are leery of submitting their credit card information to buy products. In a best-case scenario, the move would allow for more sales on Amazon’s end and create more point-of-sale presence for PayPal.

However, while consumers would enjoy more freedom, some may question whether the deal is actually necessary for Amazon. Back in April, the company announced its own PayPal-like program that would allow customers to use their Amazon accounts to pay for products sold by associated merchants.

However, as Schulman pointed out, the 197 million active users on PayPal may be hard to ignore, despite Amazon’s desire to control payments on its own. Thus far, Amazon has declined to comment on the matter.

PayPal users will be glad to know that this week, the company backed down from its controversial plan to bombard customers' phones with unwanted spam text messages and robocalls. Whether this change was inspired by the company's own better natures, or by a deluge of unwanted attention from customers, the media, and various legal authorities remains up for debate.

Consumers are responsible for spam costs

Early in June, PayPal posted some intended changes to its online user agreement, changes originally slated to come into force yesterday. Here's an excerpt from the then-new revised rules regarding mobile phone customers (bold print emphasis added):

You consent to receive autodialed or prerecorded calls and text messages from PayPal at any telephone number that you have provided us or that we have otherwise obtained.  We may place such calls or texts to (i) notify you regarding your account; (ii) troubleshoot problems with your account (iii) resolve a dispute; (iv) collect a debt; (v) poll your opinions through surveys or questionnaires, (vii) contact you with offers and promotions; or (viii) as otherwise necessary to service your account or enforce this User Agreement, our policies, applicable law, or any other agreement we may have with you.

Translation: PayPal reserves the right to call you for any reason it wants, at any number they can find for you whether you voluntarily gave them the number or not. The user agreement went on to say:

The ways in which you provide us a telephone number include, but are not limited to, providing a telephone number at Account opening, adding a telephone number to your Account at a later time, providing it to one of our employees, or by contacting us from that phone number. If a telephone number provided to us is a mobile telephone number, you consent to receive SMS or text messages at that number. … Standard telephone minute and text charges may apply if we contact you.

In other words, if you so much as call them from your own phone, they reserve the right to bombard that phone with unwanted calls, SMS, or text messages henceforth, and you're responsible for any costs of their phone calls or text messages. (On a limited data plan? You might have to pay for an upgrade, to ensure PayPal's self-serving spam outreach program doesn't exceed your limit.)

And for anyone who didn't want to be pestered by, let alone forced to pay extra for, promotional phone calls or advertising text messages, the only option PayPal offered was to “close your account within the 30 day period.”

PayPal backs down

A week after that initial announcement, the New York attorney general's office sent PayPal a letter criticizing the proposed policy changes on various grounds, including possible violations of the Telephone Consumer Protection Act and Fair Debt Collections Practices Act.

But this week, less than 48 hours before the planned implementation of these new changes, PayPal backed down. Senior vice-president Louise Pentland posted an online “Update to our User Agreement” starting out with a mea culpa statement:

We value our relationship with our customers and work hard to communicate clearly. Recently, however, we did not live up to our own standards.

Specifically, what PayPal had here was a failure to communicate:

In sending our customers a notice about upcoming changes to our User Agreement we used language that did not clearly communicate how we intend to contact them. Unfortunately, this language caused confusion and concern with some of our customers.

To clarify the situation, PayPal re-modified the terms of its user agreement in order to:

….make it clear that PayPal primarily uses autodialed or prerecorded calls and texts to:

• Help detect, investigate and protect our customers from fraud

• Provide notices to our customers regarding their accounts or account activity

• Collect a debt owed to us

The post went on to say that customers would not receive marketing robocalls “without prior express written consent.”

The New York attorney general's office, which sent those initial letters to PayPal earlier last month, responded to PayPal's announcement with a brief statement:

“In response to a letter from the Attorney General’s Internet Bureau PayPal will only robocall consumers in instances of fraud, debt collection or in relation to account activity. In the long term, PayPal has committed to providing additional opt-out features to consumers for even these calls at the point when a consumer discloses her phone number. In the meantime, consumers should contact PayPal directly to express their opt-out preferences.”

Last week eBay and PayPal both announced some upcoming changes to their user agreements, changes indicating such breathtaking contempt for their customers' preferences and privacy, it might (hopefully) be illegal for the companies to put those policies into effect.

This week, the New York State Attorney General's office sent letters to both eBay and PayPal, expressing concern that their proposed new policies might violate a number of state or federal regulations, including the Telephone Consumer Protection Act and Fair Debt Collection Practices Act.

Otherwise, the eBay policy changes are scheduled to come into force on June 15, and PayPal's on July 1. And those changes basically say that the company reserves the right to plague customers with robocalls and text messages for any reason.

"Otherwise obtained"

Check out this excerpt from PayPal's revised rules regarding mobile telephone numbers (bold print emphasis added):

You consent to receive autodialed or prerecorded calls and text messages from PayPal at any telephone number that you have provided us or that we have otherwise obtained.  We may place such calls or texts to (i) notify you regarding your account; (ii) troubleshoot problems with your account (iii) resolve a dispute; (iv) collect a debt; (v) poll your opinions through surveys or questionnaires, (vii) contact you with offers and promotions; or (viii) as otherwise necessary to service your account or enforce this User Agreement, our policies, applicable law, or any other agreement we may have with you.

Translation: PayPal reserves the right to call you for any reason it wants, at any number they can find for you whether you voluntarily gave them the number or not.

The ways in which you provide us a telephone number include, but are not limited to, providing a telephone number at Account opening, adding a telephone number to your Account at a later time, providing it to one of our employees, or by contacting us from that phone number. If a telephone number provided to us is a mobile telephone number, you consent to receive SMS or text messages at that number. … Standard telephone minute and text charges may apply if we contact you.

Spam outreach

So if you so much as call them from your own phone, they reserve the right to bombard that phone with unwanted calls, SMS or text messages henceforth, and you're responsible for any costs of their phone calls or text messages. (On a limited data plan? You might have to pay for an upgrade, to ensure PayPal's self-serving spam outreach program doesn't exceed your limit.)

And if you don't want to be pestered by, let alone pay extra for, promotional calls or advertising texts, what can you do about it?

If you do not agree to these amended terms, you may close your account within the 30 day period and you will not be bound by the amended terms.

Translation: take it or leave it.

So this week, the New York attorney general's office sent separate letters (available as Wall Street Journal .pdfs here and here ) to eBay and PayPal. Kathleen McGee, the Internet Bureau Chief for the New York AG's office, signed the letters, which criticized the mandatory robocalls policy on various grounds:

This practice raises issues under the Telephone Consumer Protection Act and the Fair Debt Collections Practices Act, and implicates whether the customer actually consented to such calls in light of its inconspicuous disclosure in a dense 12-page user agreement. It is also inconsistent with consumers’ aversion to this invasive form of marketing and the Federal Communications Commission and Federal Trade Commission’s recent efforts to limit their use. The FCC received over 215,000 reports about this issue in 2014 alone.

That quote was from the letter to eBay; the PayPal letter says the same thing, except the “12-page user agreement” is a “20-page user agreement” instead.

McGee also criticized the “like it or leave it” choice as being no choice at all: “Additionally, without any way to opt-out of the communications, customers can either agree to the new policies in their entirety or stop using the service completely. In other words, customers must accept automated marketing calls, emails and text messages or close their account.”

This might work for some companies, but in light of eBay and PayPal's “dominant market position” in their respective fields (online auctions and online payment systems), “it is unclear whether consumers really have a choice at all.”

A PayPal representative told Reuters that the company had indeed received McGee's letter and would respond to it, and also said that PayPal customers could choose not to receive robocalls.

Representatives for eBay, however, “did not immediately respond” to requests for comment.

PayPal has agreed to pay $15 million in refunds on top of  $10 million fine for signing up consumers for its online credit plan without their permission, the Consumer Financial Protection Bureau (CFPB) announced.

The CFPB said that PayPal deceptively advertised promotion benefits that it failed to honor, signed customers up with permission and made them use PayPal Credit or its predecessor, Bill Me Later, without consent. 

PayPal said it was working to improve its processes.

“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,” a PayPal spokesperson said in an email to ConsumerAffairs.

“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.”

Consumers writing to ConsumerAffairs would agree with Cordray.

"I love PayPal but I made the mistake of accepting PayPal credit and debit," said Gayle of Palm Coast, Fla., one of the many consumers who have complained about the service. "I have been trying to close the account online for months, and it wouldn't let me, even with $0 balance and waiting until the payment had processed. I finally called customer service. After four conversations (with helpful agents) and one dropped call, I finally accomplished the task. What a mess!"

Since 2008, PayPal has offered PayPal Credit to consumers across the country making purchases from thousands of online merchants, including eBay. The CFPB alleges that many 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.

The company also failed to post payments properly, lost payment checks, and mishandled billing disputes that consumers had with merchants or the company. Tens of thousands of consumers experienced these issues.

"Deceptive and misleading"

One of them was Chris of Elk Grove, Calif., who posted a ConsumerAffairs review about her experience.

"I ordered and paid for an item using my PayPal account. I thought I was signing in and paying for my purchase - just by following the on-screen prompts. What I didn't realize was that I was signing up for a PayPal Credit account," Chris said. "I did not find this out until I received a bill in the mail about 2 weeks later. It was only for $7.00 but I thought the transaction was complete. I then noticed the $7.00 was for a monthly reoccurring fee for the credit account I had unknowingly opened."

Chris then tried to close the account. She called PayPal and talked to a service rep, who refused to cancel the $7 payment.

"The way PayPal's payment website is designed, it makes it extremely easy for a casual user to sign up for a credit account without the user's knowledge. In my opinion it is a deceptive and misleading business practice. ... I always thought Paypal was reliable and an asset to internet merchandising but I will try to avoid PayPal in the future," Chris vowed.

Settlement terms

Under the proposed settlement announced today, PayPal would be required to:

Pay $15 million in redress to victims: PayPal would reimburse consumers who were mistakenly enrolled in PayPal Credit, who mistakenly paid for a purchase with PayPal Credit, or who incurred fees or deferred interest as a result of the company’s inadequate disclosures and flawed customer-service practices.

Improve disclosures: PayPal would be required to take steps to improve its consumer disclosures related to enrollment in PayPal Credit to ensure that consumers know they are enrolling or using the product for a purchase. 

Pay $10 million civil penalty: PayPal would pay $10 million to the CFPB’s Civil Penalty Fund.

Bitcoin is still not welcome but the U.S. Treasury says it will now accept some payments via PayPal and Dwolla.

The Pay.gov site accepts payments for all kinds of things, including fines, penalties and loan repayments. It even accepts contributions, should you feel the need to give more money to the government.

The government's goal is to move further away from paper-based transactions and more toward electronic ones, which it considers more efficient and secure.

In 2014, the Treasury Department's Fiscal Service office handled $3.73 trillion in revenue by processing 400 million transactions through such programs as Pay.gov. Almost 98 percent, or $3.69 trillion, were settled electronically.