Nationwide Settlement With Paypal Requires Further Disclosure Of Consumers' Rights And Obligations

Attorney General Spitzer today announced that New York has joined 27 other states in reaching an an agreement with PayPal, Inc. ("PayPal") that resolves concerns about the company’s business practices.

"Today’s agreement augments the protections previously obtained by our office and goes a step further in protecting online consumers," Spitzer said. "Full disclosure of rights and obligations is simply essential for consumers to have confidence in making e-payments," he added.

The agreement requires the company to provide protections to consumers before they become members and whenever they make payments to others using PayPal’s system. The agreement also requires the company to disclose all contractual terms and financial obligations clearly and conspicuously .

PayPal represents a relatively new type of web-based alternative payment system. These payment systems provide online services which their members use to transfer money to other people or businesses.

Today’s agreement acts as an extension of New York’s March 2004 agreement with PayPal. An investigation by Spitzer’s office had revealed that PayPal’s "User Agreement" misrepresented to account holders certain terms and conditions, including a statement that Pay Pal afforded to its account holders "the rights and privileges expected of a credit card transaction." In practice, consumers were often denied these rights - both by PayPal and by the credit card issuers American Express and Discover. Late in 2003, Spitzer’s office also entered into agreements with American Express and Discover to enable consumers who did not receive goods ordered through a PayPal merchant to receive "chargeback" credits.

As part of the March 2004 agreement, PayPal was required to include in its User Agreement clear descriptions of account holder rights, including any conditions or limitations on those rights, and reversal or refund policies. PayPal also paid $150,000 as penalties and costs.

Today’s multi-state agreement adds further consumer protections. The settlement ensures full disclosure of all applicable terms and conditions before a consumer becomes a PayPal member and each time a member initiates a transaction. In addition, the agreement changes the way the company uses hyperlinks and multi-page documents, which will make terms and conditions more accessible to consumers. The agreement also requires that, whenever a PayPal member gets ready to make a purchase, PayPal will present the member with a clear choice regarding the form of payment to be used, such as credit card, debit card or electronic funds transfer from a bank account. The multi-state agreement also requires that PayPal provide clear access to webpages explaining important differences between its in-house dispute resolution programs and the "chargeback" rights afforded by federal law to consumers who use electronic banking, debit cards and credit cards to make payments and purchases.

Under the terms of the multi-state agreement, PayPal will pay $1.7 million to the states, although New York agreed to forego a payment in light of its previous recovery of penalties and costs in 2004.

Assistant Attorney General Elizabeth Nieliwocki handled the case, under the direction of Assistant Attorney General in Charge Jane Azia.