By Aruna Viswanatha
WASHINGTON--EBay Inc.'s PayPal unit will pay $25 million to
settle allegations it illegally signed up tens of thousands of
customers for unwanted credit, U.S. regulators said.
In a lawsuit and proposed settlement filed in federal court on
Tuesday, the Consumer Financial Protection Bureau said PayPal
advertised benefits of its PayPal Credit online credit product that
it failed to honor, signed up customers for the credit without
their permission, and mishandled billing disputes when they
arose.
PayPal neither admitted nor denied the allegations in the
settlement. In a statement, a PayPal spokeswoman said: "We
continually improve our products and enhance our communications to
ensure a superior customer experience."
The company last month said it faced a potential lawsuit from
the CFPB over the product. The agency has been looking into the
lending service, formerly known as Bill Me Later, since 2013.
Under the settlement, the company is expected to pay $15 million
in refunds to customers and a $10 million penalty. EBay and PayPal
are in the process of separating into two publicly traded
companies.
According to the CFPB allegations, many PayPal customers
unwittingly signed up for the credit product when enrolling in a
regular PayPal account or making an online purchase. The CFPB said
the company then failed to post payments properly, lost payment
checks from customers, or failed to remove late fees and interest
charges for customers unable to pay bills due to website problems.
It also said the company failed to honor advertised promotions,
such as $5 or $10 in credit toward purchases.
"This kind of conduct has no place in the consumer financial
marketplace, " CFPB director Richard Cordray said.
PayPal Credit provides instant credit checks and loans to
customers as they check out at various online marketplaces.
Customers generally don't have to pay interest, provided they pay
in full before the end of a promotional period, after which the
annualized rate rises to 19.99% and may include other fees.
PayPal's credit unit grew 27% in the first quarter.
The payments unit faces additional scrutiny from the CFPB as
part of new regulations that govern companies making at least one
million international money transfers annually.
Write to Aruna Viswanatha at aruna.viswanatha@wsj.com
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