Last Tuesday, PayPal was hit with a complaint from the Consumer Financial Protection Bureau (CFPB) accusing the company of using deceptive practices with its credit product, PayPal Credit, formally known as Bill Me Later.
As a result, PayPal now owes $15 million in reimbursements and a $10 million fine to the CFPB’s penalty fund.
PayPal Credit isn’t a normal credit card, it’s a revolving line of credit offered by Comenity Capital Bank that people can use to make purchases online. Many users unknowingly registered for PayPal’s line of credit, only to find out months later when they started getting calls from debt collectors harassing them about overdue balances and unpaid late fees.
That’s because the sign-up process was alarmingly simple – often users would make a purchase with PayPal and forget to uncheck a box, which activated a new credit account. In other cases, users had no idea that purchases were automatically being withdrawn from their PayPal Credit account instead of their preferred bank.
But wait, there’s more:
PayPal Credit Scammed Customers For Years
According to the CFPB, PayPal Credit has been taking advantage of consumers for years in extreme ways. Here is a complete list of the charges that PayPal Credit is accused of, taken from the CFPB statement released Tuesday:
Deceptively advertised promotional benefits
PayPal Credit failed to honor advertised promotions, such as a $5 or $10 promised credit toward consumer purchases.
Abusively charged consumers interest
PayPal Credit offered consumers limited-time promotions with zero interest. But consumers who attempted to contact the company to get more information often could not get through to the company’s customer service line or were given inaccurate information. Many were hit with interest fees that, due to the company’s conduct, they could not avoid.
Enrolled consumers in PayPal Credit without their knowledge or consent
PayPal Credit often automatically enrolled consumers in PayPal Credit when they 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.
Made consumers use PayPal Credit for purchases instead of their preferred payment method
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 were hit with late fees and interest because they didn’t know they had made purchases through PayPal Credit.
Engaged in illegal billing practices
PayPal Credit 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
PayPal Credit mishandled consumers’ billing disputes and made billing errors.
Recent Complaints Paint The Picture of Frustration
The victims of the PayPal Credit nightmare will soon be compensated, but only after several years of mistreatment and dinged credit scores. Complaints about the credit service are littered throughout the net, and possibly serve as the reason for ultimately destroying PayPal Credit’s reputation.
Here are some shocking true stories taken from former PayPal Credit customers over the last few months:
@PayPalCredit I didn’t authorize paypal credit to pull a hard credit inquiry. Unacceptable that this happened.
— ACJ (@arunjolly) March 26, 2015
— Soldier 10K Runner (@Go2bat4Soldiers) March 25, 2015
How To Receive Compensation From PayPal Credit
As part of the settlement, PayPal Credit will have to clearly and prominently disclose that the service is a line of credit through a pop-up box or other method. PayPal Credit will also no longer be set as the default payment method for a consumer’s PayPal account unless the consumer gives consent first.
If you used PayPal Credit and you think you may be entitled to a refund, you could be eligible if you incurred late fees or interest charges between January 1, 2011 and May 1, 2015. Affected customers won’t have to do anything, as PayPal is required to provide the CFPB a redress plan on how customers will be compensated.
To read more about the PayPal Credit case, visit http://www.consumerfinance.gov/newsroom/cfpb-takes-action-against-paypal-for-illegally-signing-up-consumers-for-unwanted-online-credit/