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Twenty-eight States Settle With PayPal

September 29, 2006

Twenty-eight Attorneys General1 have settled with California-based PayPal, Inc., resolving allegations it failed to provide customers with adequate disclosures regarding key components of its service. PayPal is an Internet-based alternative payment system through which its members can transfer money to other people or businesses for online auctions or purchases. Consumers complained that PayPal did not clearly disclose the funding source for each purchase, and thereby withdrew money from a consumer's bank account, even if users submitted their credit card information when signing up. As a result, many consumers learned that money had been withdrawn from their bank accounts only when they received their monthly bank statements, even though their intention had been to use a credit card. Other consumers complained that during pending disputes with PayPal, the company froze funds held in the user's PayPal account. Consumers were also confused about PayPal's in-house dispute resolution programs and chargeback rights.

The settlement requires PayPal to spell out important terms and conditions before a consumer becomes a PayPal member and when members initiate transactions; make information more accessible to users by changing how the company uses hyperlinks and multi-page documents; provide its members with a clear choice regarding what form of payment to use, either credit card, debit card or electronic funds transfer from a bank account; and provide clear access to web pages explaining important differences between its in-house dispute resolution programs and chargeback rights granted by federal law to consumers who use electronic banking, debit cards and credit cards to make payments and purchases.

1Alabama, 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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