PayPal punished, but will consumers get justice? Behind every big settlements, there’s 1,000 sad stories

paypalWhenever you hear about one of those big-deal, multi-million-dollar settlements involving a federal agency and a misbehaving company, the news probably makes your eyes glaze over.  In most cases, nothing really bad happens to the company — they just have to give back their ill-gotten gains, and maybe pay a small (for them) fine. But behind these slightly boring stories are tales of real pain and struggle — sometimes thousands of them, sometimes millions of them.

Here’s an example from the recent action taken by the Consumer Financial Protection Bureau against PayPal. I covered the settlement for  Basically, PayPal allegedly tricked companies into signing up for its credit-card-like product called BillMeLater.  Then, consumers who didn’t realize they had accounts then ran into a whole lot of trouble, and not just over unpaid bills. Here’s what one consumer told me.

“I was one of their victims.  I too did not know that I was enrolled in their credit service, and when a trivial $15 purchase went 37 days late on the account I did not know I had, that one 30-day late report on my credit report haunted me for years, including hurting my ability to get competitive mortgage rates.  I tried to challenge PayPal and to have them reverse the derogatory report, but was unsuccessful.  It has always nagged at me that it happened and that I did not know how it happened.”

The consumer said he feels redeemed that PayPal must refund $15 mllion to consumers and pay a $10 million civil penalty to settle the allegations about BillMeLater, now known as PayPal Credit.  But what now? Redemption doesn’t fix someone’s credit report or provide compensation for years of frustration.

I asked the Consumer Financial Protection Bureau what happens next, and I was told impacted consumers don’t have to do anything. They will be contacted by PayPal.  I sure hope the victim I spoke to gets a refund and gets his credit report cleared up ASAP.  But how will he be compensated for the rest of the trouble?

I know what’s next for PayPal. It is being split off for eBay so it can dive whole-hog into the lucrative payments revolution that’s happening around the globe. With more than 150 million users, PayPal might be in the strongest position to become a new alternative to money. It’s sad that the firm got to that place by tricking consumers, and it’ll be sadder still of it doesn’t do right by them.

UPDATE 5/30/15: PayPal sent me a note saying it doesn’t report late payments to the credit bureaus.  When I asked this consumer, he reiterated his frustration that he was signed up for a PayPal credit product he never wanted and says it dinged his credit.

Here’s a little more on the legal action against PayPal from my story in 

Among the more serious claims: that PayPal often chargedlate fees and interest on balances with pending disputes, “even when the disputes concern defendants’ own practices, including failing to reverse a charge associated with double billing through PayPal Credit or failing to process a refund requested by a merchant for returned merchandise.”

“From the first encounter a consumer may have had with PayPal Credit, there were problems. 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,” said CFPB Director Richard Cordray. “One reason so many consumers ended up having this product, unbeknownst to them, was that PayPal set the default payment method for all purchases to PayPal Credit. Other consumers were simply not able to select another payment method when they tried to pay….Finally, once enrolled, consumers encountered headache after headache. PayPal failed to post payments properly, lost payment checks, and mishandled billing disputes that consumers had with merchants or the company itself.”

PayPal didn’t answer questions about the lawsuit and the accompanying proposed consent order, but issued a statement to

“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,” the firm said in its statement.

PayPal, founded in 1998, has had a mixed history when dealing with consumer disputes. The service has always been a challenge for financial regulators, as it is not a traditional bank, and standard consumer protections that apply to credit cards don’t apply to PayPal accounts. PayPal was acquired by eBay in 2002. Bill Me Later, which acts a bit more like a credit card and gives consumers the option to make online purchases and pay for them in the future, was acquired by eBay in 2008. It was rebranded as PayPal Credit last year.

Details of the CFPB allegations include:



  • Deceptively advertised promotional benefits: The CFPB alleges that PayPal failed to honor advertised promotions, such as a $5 or $10 promised credit toward consumer purchases.
  • Abusively charged consumers deferred interest:The CFPB alleges that PayPal offered consumers limited-time, deferred-interest promotions, and that PayPal purported to let consumers pick how payments would be applied to these promotional balances. But consumers who attempted to contact the company to get more information or request to apply their payments to promotional balances often could not get through to the company’s customer service line or were given inaccurate information. Many such consumers were hit with deferred-interest fees that, due to the company’s conduct, they could not avoid.
  • Enrolled consumers in PayPal Credit without their knowledge or consent: The CFPB alleges that the company often automatically enrolled consumers in PayPal Credit when those consumers were signing up for a regular PayPal account or making purchases. The company enrolled other consumers while they tried canceling or closing out of the application process. Many consumers ended up enrolled in PayPal Credit without knowing how or why they were enrolled. They discovered their accounts only after finding a credit-report inquiry or receiving welcome emails, billing statements, ordebt-collection calls for amounts past due, including late fees and interest.
  • Made consumers use PayPal Credit for purchases instead of their preferred payment method: The CFPB alleges that the company automatically set or preselected the default payment method for all purchases made through PayPal to PayPal Credit. This meant consumers used PayPal Credit even when they intended to use another method of payment such as a linked credit card or checking account. Other consumers were not able to select another payment method, finding that their 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.
  • Engaged in illegal billing practices: The CFPB alleges that the company failed to post payments or failed to remove late fees and interest charges from consumers’ bills even when the consumers were unable to make payments because of website failures. Numerous consumers reported that the company lost payment checks or took more than a week to process checks.
  • Mishandled consumer disputes about payments:The CFPB also alleges that PayPal mishandled consumers’ billing disputes and made billing errors.

In addition to granting refunds, PayPal Credit must improve its consumer disclosures, the CFPB said, to ensure that consumers know they are enrolling or using the product for a purchase.


About Bob Sullivan 1408 Articles
BOB SULLIVAN is a veteran journalist and the author of four books, including the 2008 New York Times Best-Seller, Gotcha Capitalism, and the 2010 New York Times Best Seller, Stop Getting Ripped Off! His latest, The Plateau Effect, was published in 2013, and as a paperback, called Getting Unstuck in 2014. He has won the Society of Professional Journalists prestigious Public Service award, a Peabody award, and The Consumer Federation of America Betty Furness award, and been given Consumer Action’s Consumer Excellence Award.

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