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The Federal Court has found fine print in the company’s user agreement had allowed it to retain unreported overcharges.
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PayPal used unfair contract term with small business, court rules
08 July 2024
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PayPal used an unfair contract term in its small business contracts that allowed it to keep overcharged fees if customers failed to dispute them, a Federal Court has found.
The ruling, delivered last week, affects PayPal’s user agreements with small businesses that opened a business account between September 2021 to November 2023.
It comes after ASIC sued PayPal over the contract term in September last year, taking issue with its financial services guide, product disclosure statement and user agreement.
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ASIC deputy chair Sarah Court, commenting on the Federal Court’s ruling, said the regulator was dedicated to protecting consumers and small businesses from unfair contract terms and ensuring that all financial services providers used fair contract terms.
“Today’s decision serves as a reminder to all businesses that unfair contract terms contained within standard form contracts with small businesses will not be tolerated, and that ASIC will take decisive action where appropriate to protect the rights of consumers and small businesses,” Court said.
Standard form user contracts for financial products and services are prohibited from containing unfair contract terms under the ASIC Act.
Justice Moshinsky found PayPal’s small business users were at a disadvantage in managing the risk of incorrect charges or overcharges compared to PayPal.
PayPal’s term also allowed it to retain erroneous fees if small businesses failed to report the error within 60 days, he found.
He declared the unfair term void from the start of the contracts and ordered that PayPal be restrained from applying, relying on, or enforcing, the term in its contracts with small businesses. He also ordered PayPal to pay ASIC’s legal costs.
PayPal agreed the term was unfair and consented to the court’s declarations, having voluntarily removed the term from its contracts in November.
PayPal will escape civil penalties, however, with newly introduced civil penalties for the unfair contract terms regime coming into effect two months after ASIC commenced the lawsuit.
ASIC said PayPal cooperated with and voluntarily assisted the regulator during its investigation and also cooperated in resolving the proceeding.
According to the court, PayPal was not aware of any instance where the unfair term caused a consumer to suffer loss or damage.
ASIC’s investigation did not uncover any instance of PayPal having done so either, it said.
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