PayPal May Have to Pay Up

Interesting article I read this morning:

 

PayPal may have to pay up.

 

The online payment company reportedly enrolled customers in its credit service without their knowledge and even hit some with fees when a missed payment was its own website's fault, according to government accusations that signal the Obama administration expects Web businesses to gain more user consent.

 

The financial flap also highlights the potential for companies to take advantage of online consumers, who often swipe through or skip over user agreements and terms and conditions in their hurry to access a game or service.

 

"We are so used to clicking through a notification online that we might not notice the details," says Gil Luria, a managing director for research with WedBush Securities.

 

The Consumer Financial Protection Bureau this week requested that PayPal refund $15 million to affected customers and pay $10 million in fines – a proposal that will be decided upon by a federal judge in Maryland.

 

A spokesman for PayPal, whose credit product was called Bill Me Later and is now known as PayPal Credit, said in a statement that it "takes consumer protection very seriously" and focuses on "ease of use.  We continually improve our products and enhance our communications to ensure a superior customer experience," the spokesman said.

 

But that focus on easy access – even shy of deceptively signing customers up for a service – can open the door for problems when combined with the broader attention deficit of the online public.  And while brick-and-mortar shops like furniture retailers many times offer customers a similar chance to pay later for purchases, the real-world exchange is often sealed with a signed contract that serves as a reminder a payment is due.

 

"PayPal is going to have to improve their disclosures so that customers are completely aware that they are signing up for this credit product," Luria says.

 

The Obama administration has cracked down on other companies for inadequately informing users or unfairly charging them. Facebook, for example, settled with the Federal Trader Commission in 2012 over charges it deceived users about the privacy of their information, and Google agreed to pay millions of dollars to consumers whose children made unauthorized app purchases. 

The FTC and the Federal Communications Commission last year also settled with AT&T Mobility for $105 million over accusations that it billed its customers for services they did not ask for, including subscriptions for ringtones and text messages providing horoscopes, flirting tips or celebrity gossip.  Of that settlement amount, $80 million was earmarked for customer refunds, and the FTC was tasked with managing their dispersal to customers who applied for payment on the agency's website.

 

The Consumer Financial Protection Bureau may choose a similar path for sharing refunds if the federal judge approves its proposal for PayPal.  PayPal not only signed up customers for the credit plan without their knowledge, but also mishandled billing disputes, lost payment checks and failed to post payments properly, according to the bureau's director, Richard Cordray.

 

"Online shopping has become a way of life for many Americans and it's important that they are treated fairly," Cordray said. "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."

 

Copyright 2015 U.S. News & World Report

Message 1 of 21
latest reply
20 REPLIES 20

PayPal May Have to Pay Up

eBay and PayPal had pre-tax net profit of US$3,530,000,000 last year.

 

$25,000,000 in refunds and fines represent less than one percent of their annual profit.  A drop in the bucket or, as they see it, cost of doing business.

Message 2 of 21
latest reply

PayPal May Have to Pay Up


@pierrelebel wrote:

eBay and PayPal had pre-tax net profit of US$3,530,000,000 last year.

 

$25,000,000 in refunds and fines represent less than one percent of their annual profit.  A drop in the bucket or, as they see it, cost of doing business.


Of course, that's true.  I was a little more focussed, however, on their business practice:

 

The online payment company reportedly enrolled customers in its credit service without their knowledge and even hit some with fees when a missed payment was its own website's fault, according to government accusations that signal the Obama administration expects Web businesses to gain more user consent.

 

Because I don't know how the Bill Me Later plan was presented, it's hard to comment on whether PayPal did in fact enrol people without their knowledge or whether individuals did not read the terms and conditions.  BUT if fees were levied as a result of a problem on the PayPal website, this has repercussions for the customer, particularly if it's reflected in their credit report.

Message 3 of 21
latest reply

PayPal May Have to Pay Up

I completely agree with your concerns.  It seems big online businesses are playing a little fast and furious with trusting customers.  It has the feeling of the attitude that prevailed in the late 19th century/early 20th, when the old adage of "what the customer doesn't know won't hurt him" was rampant.  

 

Through decades of regulation and legislation in the "real world", B&M market, we had got to the point where the consumer was no longer the patsy, where even businesses riding on the thin edge of confidence had to disclose their terms in writing prior to the consumer signing on the dotted line. 

 

I think many big online e-businesses, especially the likes of Paypal, Facebook, etc. are in that adolescent stage of development where if they can get away with it and run, they do it.  

 

I can actually tell you from my own experience (since I do fairly frequent buying on eBay, through Paypal), that the "Bill Me Later" feature was offered to me without any involvement whatsoever on my part at the time.  It simply appeared one day when I was going to pay for an item.  No info pop-up, no contract to review and accept, no terms to agree to, ever appeared.  Or, if they were there somewhere, they certainly weren't obvious, and definitely were not made an obligatory step before I could proceed.  I simply checked the box next to "Bill Me Later" and that was that.  

 

I found it very, very odd that I was able to just slide into this without any preliminaries.  Although I still occasionally use it when I know I have money coming into my account to cover a purchase, I worry about eBay buyers who may over-extend themselves without knowing the consequences.  Obviously from the report you posted, others were worried about it too.  

 

I am surprised there hasn't been more discussion about Paypal's credit programme.  Even though the "fines" may be nothing more than a small financial sting for a giant like Paypal, their whole business credibility rides on consumer trust in their ability to keep their site secure and their bona fides toward users.  

 

What Paypal will be much more worried about than the monetary fallout from this I think is the public perception of them as a company.  Once lost, that is pretty difficult to gain back. 

 

Thanks for posting this! 

Message 4 of 21
latest reply

PayPal May Have to Pay Up


@rose-dee wrote:

 

I can actually tell you from my own experience (since I do fairly frequent buying on eBay, through Paypal), that the "Bill Me Later" feature was offered to me without any involvement whatsoever on my part at the time.  It simply appeared one day when I was going to pay for an item.  No info pop-up, no contract to review and accept, no terms to agree to, ever appeared.  Or, if they were there somewhere, they certainly weren't obvious, and definitely were not made an obligatory step before I could proceed.  I simply checked the box next to "Bill Me Later" and that was that.  

 

I found it very, very odd that I was able to just slide into this without any preliminaries.  Although I still occasionally use it when I know I have money coming into my account to cover a purchase, I worry about eBay buyers who may over-extend themselves without knowing the consequences.  Obviously from the report you posted, others were worried about it too.  

  


I've made quite a few purchases on eBay as well and, because I have never been offered this option, I assumed it was available to U.S. customers only.  But not so .... I just learned from you.  Had this option been offered, I likely would have proceeded as you did, thinking that this was an internal PayPal credit program that I could use on occasion, if required, and one that was linked with my bank account or credit card if I didn't pay "when billed".  It's scary to think that there are a lot of people who, like you say, may over-extend themselves, not understanding that there could be fees levied and perhaps a hit on their credit rating.

 

 

Message 5 of 21
latest reply

PayPal May Have to Pay Up

The wording is not.....  May have to pay up.

 

Paypal will be making restitution to those that were affected by what was done... $15 million

 

and a 10 million dollar fine.

 

http://www.businessinsider.com/paypal-just-got-hit-with-a-25-million-fine-for-deceptive-credit-pract...

 

 

Message 6 of 21
latest reply

PayPal May Have to Pay Up


@jt-libra wrote:

I've made quite a few purchases on eBay as well and, because I have never been offered this option, I assumed it was available to U.S. customers only.  But not so .... I just learned from you.  

 


That's another odd thing about this feature, i.e. the fact that I have no idea whatsoever why I even qualified for the "Bill Me Later" offer, or whether it was simply random.  

 

I would have at least expected, from a company that touts its trustworthiness to its users, to have been informed that because I had $X in my Paypal account on a regular basis, or because I made X number of purchases by paying in full previously, that it was offered.  Not so.  

 

There was no notice such as "See why you qualified for this offer" or "Why you are eligible" anywhere that I could see at the first instance, or since.  

 

The other odd (and perhaps disconcerting) fact is that the "Bill Me Later" payment is now shown as the default option every time I make a purchase.  I actually have to go through a bit of a rigmarole to change it each time I want to revert to using the normal "cash payment" route.

 

I say disconcerting because, quite honestly, if a purchaser doesn't look carefully, they could miss it and assume the payment is going through the normal channels.  The alternative options are offered a bit out of sight down the page if you think to scroll  where "no one has gone before".  LOL

Message 7 of 21
latest reply

PayPal May Have to Pay Up

You can change the default back to what it was before.

Message 8 of 21
latest reply

PayPal May Have to Pay Up


@pjcdn2005 wrote:

You can change the default back to what it was before.


I didn't know that, 'pj', except I suspect that the next time I do want to use the "Bill Me Later", the default will reset again.  At least until some regulatory agency slaps Paypal's wrist about it.  

 

In my opinion, offering it as a default in the first place, without prior consent, is just a little bit of trickery on Paypal's part.  

Message 9 of 21
latest reply

PayPal May Have to Pay Up

It has never reset my default after I changed it. 

Message 10 of 21
latest reply

PayPal May Have to Pay Up


@pjcdn2005 wrote:

It has never reset my default after I changed it. 


The important point is that many a buyer will not realize (as I didn't) that a default is available.  The end result could conceivably be a nasty effect on an unwary or inexperienced consumer's credit rating.  

 

It seems this has been recognized as the report above makes clear, but monetary punishment isn't enough -- Paypal needs to change its ways.  They are, after all, acting as a de facto banking system for millions of users, without (apparently) the appropriate regulatory or legislative controls.  

 

As I said, these companies need to be forced to grow up out of their adolescent behaviour. 

Message 11 of 21
latest reply

PayPal May Have to Pay Up

  

The other odd (and perhaps disconcerting) fact is that the "Bill Me Later" payment is now shown as the default option every time I make a purchase.  I actually have to go through a bit of a rigmarole to change it each time I want to revert to using the normal "cash payment" route.

 

 

Rose-dee:  Are you offered this option for all payments made through PayPal, or only for eBay purchases? You say it's your default, so I'm thinking that you can use this method for any purchase.  If so .... wow ... an even higher risk for uninformed (or irresponsible) online shoppers.

 

I use PayPal to purchase from several different merchants and have never seen this.  I'm glad I didn't .... I'm happy to be more informed now.

 

 

Message 12 of 21
latest reply

PayPal May Have to Pay Up

The program sounds it might be different in the U.S. but I was asked if I wanted to sign up so it wasn't done without my knowledge. I didn't realize though that it would default to that until I made a purchase and saw that it didn't come right out of my Paypal account. I didn't actually want to use it..I just wanted to see more info about it. lol

 

It was annoying but not a huge deal as I changed the default right away. The money came out of my bank account 2 weeks later and they sent a letter letting me know a day or two before that so in my situation, it was obvious how it worked. Perhaps the main difference is that I was asked if I wanted to sign up....and these other people were not.  It is odd though that they would sign up people without letting them know considering they have no idea if that person normally has any money in their bank account.

 

 

Message 13 of 21
latest reply

PayPal May Have to Pay Up


@jt-libra wrote:

  

Rose-dee:  Are you offered this option for all payments made through PayPal, or only for eBay purchases? You say it's your default, so I'm thinking that you can use this method for any purchase.  If so .... wow ... an even higher risk for uninformed (or irresponsible) online shoppers.

  


Yes, it's been offered to me on a recent purchase from a private merchant, which surprised me.  

 

The problem I see is not that the process of payment itself isn't clear once you check the box -- it's anything but unclear, in fact it's far too easy and simple.  You check the box and you're done.  You receive an email of when the payment will come out of your Paypal account (or credit card/other account, depending on the payment preferences you've set previously), and on what date.  

 

I can imagine that some online shoppers, especially those who are less than careful about how much they're spending, could very easily and unintentionally run up hundreds or thousands of dollars worth of purchases this way.  Paypal also doesn't provide any obviously visible total of what your currently outstanding "Bill Me Later" balance is when you go to purchase subsequent items (you have to manually go to the Paypal summary to see the list). 

 

Once the box is checked, as far as the seller is concerned, the item is immediately and fully paid for.  However, that's a very appealing idea for a buyer who has a bit of a light finger online -- check the box and voilà -- I've paid for it!.  No further thought until 21 days later when the money is automatically withdrawn from the buyer's account.  

 

Any credit report issues aside, an uninformed buyer (or one who doesn't regularly check their email inbox or Paypal summary) could end up with NSF or over-limit charges by their bank without realizing it.  It's a bit of a delayed-action bomb.  To my mind, it's not unlike the problem with online gambling -- far too easy, with far too serious possible consequences.  No wonder people are worried about this.  

 

No, it's the front end that's missing all the details, disclaimers, warnings and consumer disclosure, and that's where the danger lies for the unwary (or as you say, irresponsible) shopper.  If other buyers' experience is like mine, there is no upfront or pre-acceptance disclosure about how payment default by the user will be dealt with, whether there are penalties and/or interest charges, or whether a problem at the payment end will result in damage to a person's credit rating. 

 

When B&M stores offer a deferred payment plan, they at least hand the buyer an informational pamphlet.  The better ones will explain the terms and/or have the buyer sign off on them.  At least the consumer is given the opportunity to be informed.  If they don't read it, they have only themselves to blame for any consequences. 

 

On the other hand, it seems Paypal is gambling on uninformed consumers staying uninformed, and is doubtless making money off many a hapless sucker through credit charges and penalties.  Just imagine the dollars involved if we're thinking of millions upon millions of users worldwide.  If even 1 in 10,000 defaults and pays interest, that's still a lot of dough.  

 

Banks of every ilk seem to always be looking for sneaky ways to make more money -- as an aside, the Royal Bank just received a slap-down for trying to charge its clients for paying their bills.  In effect, charging for charging.  

 

Bottom line: consumers really have to keep their eyes open these days and blow the whistle where appropriate.  I'm glad someone did in Paypal's case. 

 

 

Message 14 of 21
latest reply

PayPal May Have to Pay Up

I'm a bit confused by this thread.  jt-libra posted an article about PayPal Credit, previously known as "Bill Me Later", which I thought is a US option only.  Have Canadians been offered PayPal Credit? 

 

When posters talk about automatic payment 14 days later, are they referring to PayPal Canada's Pay After Delivery?  This seems to be a different option.  "PayPal Credit" offers credit for up to 6 months with monthly payments.  "Pay After Delivery" is not, strictly speaking, offering credit, as the default options are the same as for any other PayPal purchase:  taken out of your bank account (2 tries), or billed to your linked credit card 14 days after purchase.

 

On the Canadian PayPal site, I find information about "Pay After Delivery" but nothing about PayPal Credit:

 

https://www.paypal.com/ca/webapps/helpcenter/selfhelp/article/?solutionId=FAQ918&topicID=SEND_MONEY_...

 

On ebay.com, here is some info about "Bill Me Later" - not yet updated to "PayPal Credit" (hardly surprising):

 

http://billmelater.ebay.com/

 

Message 15 of 21
latest reply

PayPal May Have to Pay Up


@maggiebvintage2010 wrote:

I'm a bit confused by this thread.  jt-libra posted an article about PayPal Credit, previously known as "Bill Me Later", which I thought is a US option only.  Have Canadians been offered PayPal Credit? 

 

When posters talk about automatic payment 14 days later, are they referring to PayPal Canada's Pay After Delivery?  This seems to be a different option.  "PayPal Credit" offers credit for up to 6 months with monthly payments.  "Pay After Delivery" is not, strictly speaking, offering credit, as the default options are the same as for any other PayPal purchase:  taken out of your bank account (2 tries), or billed to your linked credit card 14 days after purchase.

 


Yes, it is termed "Pay After Delivery" on the Canadian side (at least that's how it appears whenever I've used it).  

 

Nonetheless it is credit, as are all deferred-payment plans, whether it's 3 weeks, 6 months or longer, and whether with monthly payments or with payments waived until due.  Any time a bank or pseudo-bank covers payment for a consumer until a later date, the consumer is getting credit.  And of course there's a huge variety in how credit schemes are offered.  "Pay After Delivery" is essentially just a different variation on the U.S. theme. 

 

The default options on the Canadian "Pay After Delivery" don't prevent the potential of ultimate non-payment (for example if funds are NSF in your bank account after the 2nd try, or your credit card is overdrawn).  Either situation could still result in penalties, charges and/or credit record issues. 

 

My guess is that Paypal has better (easier?) access and legal recourse to the U.S. consumer in situations of non-payment, which could be the reason they're able to offer longer credit terms to U.S. users.  

 

I imagine the report that 'jt' posted here about Paypal being forced to repay may pertain only to the U.S. situation -- at least at the moment. 

 

The "Pay After Delivery" option I've used has been 21 days for payment after purchase (I just did one recently), so perhaps the 14 days you're seeing is older information that hasn't been updated.  Another explanation might be that longer credit terms are offered depending on the user's previous Paypal record -- just a thought, since Paypal never did disclose why I was eligible in the first place. 

 

 

Message 16 of 21
latest reply

PayPal May Have to Pay Up

You're right, the programs aren't the same. I was referring to the Canadian one, I didn't realize that is was different then the U.S. program.

Message 17 of 21
latest reply

PayPal May Have to Pay Up

In the US PayPal Credit program, users have to apply for a credit line that is built-in to their PayPal account, there is a disclosure of the interest rate, minimum interest charge, and missed or late payment fees.  This program is backed by a US bank.

 

PayPal is not considered a financial service or a financial institution (bank or pseudo-bank) in Canada.  I do know what credit is, and strictly speaking, in Ontario at least (consumer protection is provincially regulated), this program is not credit.  There is no credit agreement, no disclosure, no supply of an internet agreement, no credit check, there are no interest fees or up-front fees.  There is no mention of credit or a credit agreement on the PayPal Canada site.  These are all required elements of on-line credit agreements in Ontario.  As you have written in your previous posts on this thread, you were offered none of these when you accepted to use Pay After Delivery.

 

From the Ontario Consumer Protection Act:

 

“credit agreement” means a consumer agreement under which a lender extends credit or lends money to a borrower and includes a supplier credit agreement and a prospective consumer agreement under which an extension of credit, loan of money or supplier credit agreement may occur in the future, but does not include an agreement under which a lender extends credit or lends money on the security of a mortgage of real property or consumer agreements of a prescribed type; (“convention de crédit”).

 

Pay After Delivery falls into a category that is exempted from credit agreement provisions of the Consumer Protection Act, because it meets all of these criteria:

 

  • it requires the borrower to make payment in full in a single payment within a certain period (typically that would be 30 days or less) after the supplier delivers a written invoice or statement of account to the borrower (the PayPal reminder that payment will be taken);
  • it is unconditionally interest-free during that 'certain period' for payment;
  • t does not provide for any non-interest charges;
  • it is unsecured apart from liens on the goods or services supplied through the agreement that may arise by operation of law;

    AND
  • the supplier (PayPal) cannot assign the accounts in the ordinary course of business other than as security.

This places the Pay After Delivery product in a type of nether-world, and of course that is probably exactly what PayPal intends.  They have doubtless paid some law firm a substantial sum to help them place themselves in a nebulous, difficult to understand quasi-legal position where they are not a financial service, not "legally" offering credit, and perhaps have some advantages not available to those regulated by the CPA when it comes to collecting any bad debt that should arise.

 

Here is a link to PayPals User Agreement, Section 3.15 - Pay After Delivery:

 

https://www.paypalobjects.com/webstatic/ua/pdf/US/en_US/ua.pdf

 

Note that the bank linked to your PayPal account may impose a fee in connection with the payment or purchase.

 

Message 18 of 21
latest reply

PayPal May Have to Pay Up

Credit (with or without a specific credit agreement) is still credit.  Having an agreement simply means that the user is protected by law.  Having no agreement means that the provider of the funds is protected from interference by the law. 

 

So I do completely agree with you that Paypal is deliberating operating in a shadowy area of the financial world (as are many other pseudo-banks or pseudo-financial institutions).  They don't want to be subject to legislative or regulatory restrictions that are imposed as soon as a credit agreements are involved, such as the Ontario legislation you noted.  

 

I refer to Paypal as a "pseudo-bank" because clearly they've found a niche to operate outside the reach of the law in most respects (unless the law happens to benefit them).  They define themselves as a "payment service", but many ordinary users will not appreciate the distinction, especially if they haven't carefully read through the user agreement.  No doubt this is what Paypal (and let's face, many other online services) count on -- that a user will just click off the "Accept" box in order to get to their destination.  

 

If you take a look at Section 3.19 of the user agreement you linked, you'll see that Paypal itself indirectly acknowledges that some of its functions involve providing credit, by quoting (probably obligatory) sections of Ohio and California law: 

 

"3.19 Other Disclosures Regarding Credit

The Ohio laws against discrimination require that all creditors make credit equally available to all creditworthy customers and that credit reporting agencies maintain separate credit histories on each individual upon request. The Ohio Civil Rights Commission administers compliance with this law. As required by California law, a married applicant may apply separately for credit."

 

"Application" in Paypal's world likely means merely checking off the user agreement acceptance box, or the box to select the Pay After Delivery feature.  And this is where the problem lies.  

 

If you notice the section above (3.18(d)), Paypal sets out its legal recourse for non-payment of debt (this is under the "Initial Transaction" offer.  They clearly intend to pursue defaults, at least in certain circumstances:

 

"d. If the first Payment Method that you add to your PayPal Account is not available or is rejected, you authorize us to use any of the eligible Payment Methods linked to your PayPal Account to recover this amount. We will only recover up to the amount of the transaction you authorized. If you do not pay this amount back after 60 Days we may take action to collect the amount due from you to the full extent permitted by law, and we may restrict further use of your PayPal Account."   

 

The fact remains that whether the consequences are NSF or penalty charges by the user's own bank, or a hit to their credit rating by Paypal due to inability to pay up on time, being able to access such credit without the requirement of full prior disclosure is wrong.  My guess is that, as usual, legislation just hasn't caught up to this kind of scenario, at least in Canada. 

 

Incidentally, I don't know how "Bill Me Later" functions on the U.S. side (perhaps someone who has used it can say), but I suspect it's very similar to the "Pay After Delivery" concept, and separate from the more traditional U.S. Paypal Credit arrangement you mention. 

Message 19 of 21
latest reply

PayPal May Have to Pay Up

What was formerly known as "Bill Me Later" is now PayPal Credit in the USA - one and the same.  In the US, PayPal is considered a financial services provider, its PayPal Credit is backed by an American bank, and its user agreement acknowledges that it provides credit in USA.  When you look at PayPal's US site, the very first thing you see is info about PayPal Credit.  I did include a link to it in my post

 

You may be interested in this link: specifically pages 40-42 - non-bank payment service providers and disclosure obligations.  Especially so since you say you do use the Pay After Delivery service, yet were never offered any information at all about it.  The information available on the PayPal site is extremely brief.

 

http://www.fcac-acfc.gc.ca/Eng/resources/researchSurveys/Documents/FCAC_Mobile_Payments_Consumer_Pro...

 

Message 20 of 21
latest reply