The corporate watchdog alleges that a term in PayPal’s small business user agreements allows it to escape the consequences of its errors.
ASIC sues PayPal over ‘unfair’ overcharging fine print
ASIC has taken PayPal to Federal Court over an allegedly unfair term in its small business contracts that allows the payments company to keep overcharged fees if customers fail to dispute them within 60 days.
In a lawsuit filed yesterday, ASIC said the term found in PayPal’s standard form user agreement was unfair because it created additional responsibilities for small businesses that would not exist if PayPal kept proper accounts.
This is the second time in a year PayPal’s Australian arm has faced regulatory scrutiny. In March, it entered into an enforceable undertaking with financial crime regulator AUSTRAC after concerns over compliance with anti-money laundering and counter-terrorism financing laws.
Deputy chair Sarah Court said ASIC sought to protect the interests of small businesses with its action.
“We allege this term is unfair because it allows PayPal to escape the consequences of its own errors in overcharging small businesses, and places additional burdens on small businesses to detect and correct charging errors,” she said.
The unfair contract term alleged by ASIC is contained in PayPal’s user agreement with small businesses, under the heading, “Your responsibility to notify PayPal of pricing or fee errors”.
Under the clause, customers are required to notify PayPal in writing of any pricing or fee discrepancies within 60 days. If customers fail to do so, they would have to “accept such information as accurate” and PayPal had “no obligation to make any corrections”.
ASIC said this created a de facto obligation on small businesses that would not otherwise exist to examine their accounts frequently.
The obligation was detrimental to customers and not reasonably necessary to protect PayPal’s legitimate interests since it could be avoided if PayPal complied with its obligation to keep proper accounts and not overcharge.
ASIC also said that PayPal would be better placed and able than small businesses to prevent or identify overcharged fees and that there was no cognate term that addressed situations where PayPal undercharged fees.
ASIC called the term “onerous and unusual” and said it lacked transparency as PayPal did not present it prominently or adequately inform prospective customers about it before they entered into the user agreement.
It would be seeking a declaration that the contract term was void, as well as injunctions and corrective orders.
PayPal will escape civil penalties, however, with newly introduced civil penalties for the unfair contract terms regime not taking effect until November 10.
The lawsuit follows ASIC's actions earlier in the year against insurance companies HCF and Auto & General over unfair contract terms in their insurance contracts.