PhotoPayPal 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"

PayPal Credit (formerly Bill Me Later) May 19, 2015, 2:51 p.m.
Consumers rate PayPal Credit (formerly Bill Me Later)

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.

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