The US consumer finance watchdog has ordered PayPal to pay $25 million in refunds and fines, stemming from the regulator’s claims the payment company illegally signed up users for PayPal Credit, its online credit service.
The Consumer Financial Protection Bureau said Tuesday PayPal deceptively advertised promotions for PayPal Credit, formerly known as Bill Me Later, which is a line of credit consumers can use to pay for online and other purchases. The company also signed up customers for credit without their permission, directed users to its PayPal Credit instead of their preferred payment method and mishandled billing disputes, the CFPB claimed in a US district courtcomplaint.
“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,” CFPB Director Richard Cordray said in a statement.
The ongoing CFPB investigation was previously disclosed in prior financial statements eBay, PayPal’s parent, filed with US regulators.
Under a proposed settlement, PayPal will hand over $15 million in refunds to consumers and another $10 million in civil penalties. The company also will have to improve its disclosures for PayPal Credit. PayPal neither admitted nor denied any of the complaint’s allegations, and the settlement doesn’t constitute a finding that the company violated any laws.
Consumers who are eligible for payments don’t need to take any action; they will be contacted by PayPal, the CFPB said.
The settlement comes at a sensitive time for PayPal, a San Jose, Calif., company that processes billions of dollars in payments through its payment networks, including PayPal Credit and Venmo. The company is set to split from its parent, eBay, later this year and become an independent publicly traded firm. The separation will bring increased attention to both eBay and PayPal, so any complications within either company will face heightened scrutiny from investors.