Did Deceptive Advertising Cause PayPal to be Fined $25 million?


Did Deceptive Advertising Cause PayPal to be Fined $25 million


The Consumer Financial Protection Bureau (CFPB) has slapped PayPal with a fine of $25 million for allegedly illegally signing up customers to its credit service, without seeking their permission. Ordering PayPal to pay $25 million in refunds and fines, the US consumer finance watchdog accused PayPal of deceptive promotion of PayPal Credit – a line of credit for consumers to pay for online purchases.


PayPal Fined for Deceptive Practices

In a US district court complaint, the CFPB blames PayPal for directing users to PayPal Credit, instead of the users’ preferred mode of payment. PayPal is also accused of mishandling billing disputes and signing up customers for credit without their consent.

PayPal agreed to settle the case, without admitting any kind of wrongdoing. As per the settlement decree, the eBay-owned company is required to hand over $15 million as compensation to consumers and $10 million as a fine in civil penalties to the bureau. PayPal is also required to improve PayPal Credit disclosures. Those eligible for compensation need not take any action; as the company will contact them on its own.


What is PayPal Credit and Why the Controversy?

PayPal Credit allows consumers to spread out bill payments over a period of a few months while paying an interest rate for the privilege of spreading payments out on a monthly basis. They are charged additional fees for any of their overdue or missed payments.

The CFPB accuses PayPal of luring in customers to this service by deceptive advertising and illicitly making the PayPal Credit service a default option for new members, without seeking their consent. It is alleged that thousands of consumers were automatically signed up for the credit product when they were attempting to sign up for a regular account with PayPal or make an online purchase.

Unfortunately, most consumers did not realize this until they were charged late fees by the company for overdue payments. Not only this, some customers claim they also received debt collection calls from PayPal.

Besides, the company reportedly failed to live up to its advertisement promises to provide up to $10 worth of credit to consumers for purchases made using the Paypal Credit service.
Additionally, PayPal is blamed for:

  • losing payment checks
  • failing to post payments properly
  • mishandling billing disputes between merchants and consumers

Amid the controversy, PayPal has decided to remain silent and not to challenge the order. It does not expect a follow up probe.


PayPal Fined Second Time in Recent Months

This is not the first time that PayPal has been penalized by the US Government. Earlier, in March 2015, the company agreed to pay $7.7 million to the treasury, after it was accused of violating sanctions against Iran, Sudan, and Cuba.


I would say Yes, deceptive advertising, or at the very least a very poorly thought out advertising plan did play a part in PayPal being fined $25 million.


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