PayPal in ASIC’s crosshairs over unfair contract term claims

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The corporate regulator is taking PayPal to court over allegations a clause in its user contracts places an unfair burden on small businesses.

The Australian Securities and Investments Commission (ASIC) said on Thursday it had launched Federal Court proceedings against the company over a term in PayPal Australia’s user agreement that demands businesses notify PayPal of any discrepancies or errors in fees charged by the payments giant within 60 days, or else they accept those fees as accurate.

ASIC deputy chairman Sarah Court said regulator was taking legal action “to protect the interests of small businesses”.Credit: Gabby Jones

“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,” ASIC deputy chair Sarah Court said.

In documents filed with the Federal Court of Australia, ASIC alleges the ‘fee error’ contract term creates an imbalance in the rights and obligations of PayPal and its business customers because “the term imposes a de facto obligation on the small business (which would not otherwise exist) to examine account statements and other account activity information to identify whether PayPal has overcharged and/or wrongly charged fees”.

It is also argued the contract term would allow PayPal to keep fees where it has overcharged or incorrectly charged a business if the business does not pick this up within the time limit.

PayPal is better placed than its small business customers to prevent overcharging or wrong charging and identify this issue if it does occur, ASIC said.

ASIC said that there were 608,275 business PayPal accounts active at June 30.

A spokesperson for PayPal Australia said while they could not comment on proceedings before the court, the company was carefully reviewing the claims.

“We have been working in full cooperation with ASIC and take this matter very seriously,” they said.

Unfair contract terms have been an area of focus for ASIC over the past year, with the regulator launching cases against Auto & General Insurance Company and HCF Life Insurance earlier this year over allegations of unfair terms in their policies.

The nation’s consumer watchdog also has a close eye on representations made to consumers about digital services, with the Australian Competition and Consumer Commission (ACCC) confirming on Thursday it will launch Federal Court action against dating platform eHarmony over allegations of misleading statements.

The watchdog alleges a number of eHarmony’s representations about the pricing and duration of its memberships were misleading to its customers. This includes a claim that the company’s messaging may have given users the false impression that they were signing up to premium memberships for a finite time period, like six months, even though these subscriptions automatically renewed.

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