Washington State

Office of the Attorney General

Attorney General

Bob Ferguson


PayPal to clearly disclose customer rights and obligations

SEATTLE – Attorney General Rob McKenna today announced that Washington and 27 other states reached an agreement with PayPal, Inc. resolving concerns about the company’s business practices.

“Today’s settlement ensures that PayPal spells out important terms and conditions before a consumer becomes a PayPal member and each time a customer initiates a transaction,” McKenna said.

Under the agreement, PayPal denied any wrongdoing but voluntarily agreed to pay the states $1.7 million. Washington’s share is $144,500 and will cover attorneys’ costs and fees.

Washington was one of four states who initiated negotiations with PayPal beginning in 2003 in response to numerous consumer complaints. The Attorney General’s Office received 126 complaints about PayPal from 2000 through July of 2006.

PayPal is commonly used as a means to pay for items purchased from an online auction or Web site. The company enables e-mail users to transfer money to businesses or individuals without providing a credit card or bank account directly to the seller.

Consumers alleged that while engaged in a dispute with PayPal, the company would freeze access to money in the consumer’s PayPal account. Customers who expected to fund a payment through use of credit cards found instead that their bank accounts had been charged directly. Consumers also complained that although PayPal contracts provide members some protection when using their credit cards, the safeguards were no different than those already available to any credit card user.

McKenna said the states’ agreement requires PayPal to make several changes to its online payment service, including clearly and conspicuously disclosing all contractual terms and financial obligations.

When a PayPal member gets ready to make a purchase, he or she will be presented with a clear choice whether to pay by credit card, debit card or electronic funds transfer.

The agreement also requires PayPal to provide clear access to Web pages containing important differences between its in-house dispute resolution program and chargeback rights granted by federal law to consumers who use electronic banking, debit cards and credit cards to make payments and purchases.

“When transferring money online, consumers have the right to clear and easily accessible information regarding their rights and obligations,” McKenna said. “Under this agreement, consumers will no longer have to click through multiple hyperlinks to get critical information about their financial transactions.”

The states’ agreement does not affect other private class-action lawsuits in which PayPal has agreed to provide restitution to consumers.

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Kristin Alexander, Public Information Officer, (206) 464-6432

Katherine Tassi, Assistant Attorney General, 206) 464-7744