September 28, 2006, 12:00 AM

PayPal to pay millions in settlement over disclosure practices

PayPal, eBay Inc.’s online payment service, has reached a settlement with 28 states to streamline its user agreement and more clearly explain its protection programs. It also has preliminarily agreed to a $3.5 million settlement in a class action suit.


PayPal, eBay Inc.’s online payment service, has reached a settlement with the attorneys general of 28 states to shorten and streamline its user agreement and more clearly communicate information relating to its protection programs. Under the settlement, PayPal will pay $1.7 million to the attorneys general to cover the costs of the investigation.

PayPal also announced that it has reached a preliminary agreement in a class action lawsuit pending in U.S. District Court in Brooklyn that will set up a $3.5 million settlement fund. In that suit, PayPal customers alleged that PayPal did not clearly communicate information about its consumer protection programs.

PayPal did not admit any liability in either of the cases.

In the settlement with the attorneys general, PayPal agreed to spell out important terms and conditions before a consumer becomes a PayPal member and at times when members initiate transactions. PayPal also will make information more accessible by changing the way the company uses hyperlinks and multi-page documents.

The settlement also requires PayPal to give members a clear choice at the time of funding their PayPal account regarding what form of payment to use-credit card, debit card or electronic funds transfer from a bank account. In addition, PayPal must provide clear access to web pages explaining differences between its in-house PayPal dispute resolution programs and chargeback rights granted by federal law to consumers who use electronic banking and debit and credit cards to make payments and purchases.

In complaints filed with the attorneys general, consumers alleged that PayPal would freeze money held in their PayPal accounts during disputes. Consumers also alleged that while they were expecting to fund their PayPal accounts with their credit cards, PayPal instead charged their checking accounts directly.

The attorneys general signing the agreement represented Alabama, Arizona, California, Delaware, Florida, Georgia, Hawaii, Illinois, Indiana, Iowa, Louisiana, Maryland, Minnesota, Mississippi, Nebraska, Nevada, New Jersey, New York, North Carolina, Ohio, Oklahoma, Oregon, South Dakota, Tennessee, Texas, Vermont, Washington and West Virginia.


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