PayPal Pays $150,000, Clarifies Terms to Settle New York Case

PayPal agreed today to pay the state of New York $150,000 and clarify its user agreement as part of a settlement of a case brought against the San Jose, Calif.-based online payments processor by the New York state attorney general's office. In the settlement, PayPal, a unit of online auction giant eBay Inc., agreed to spell out in clearer terms conditions surrounding its buyer-complaint process, which buyers who do not receive goods paid for through PayPal accounts can initiate in an effort to recover their funds. “We decided to settle this and put it behind us,” says a PayPal spokesperson. The modified buyer-complaint policy, which includes new language on what disappointed buyers need to do to file a complaint and how much time they have to file, has already been posted on PayPal's Web site as part of its user agreement, she adds. The New York attorney general complained PayPal did not clarify that it did not offer the same so-called chargeback rights commonly found in credit card agreements. Purchases made through PayPal accounts funded with credit cards are protected by the chargeback policies of those card agreements. But PayPal payments funded by checks are protected only by PayPal's buyer-complaint and buyer-protection policies. The buyer-complaint policy as now clarified allows PayPal buyers to recover funds from sellers on goods not delivered, provided they file their claim within 30 days and sufficient funds are available in sellers' PayPal accounts. A separate buyer-protection policy allows eBay buyers to claim up to $500 in refunds from PayPal on goods not delivered or not delivered as promised. PayPal does not permit buyers to pursue credit card chargebacks and its own buyer-complaint process at the same time, and encourages buyers to pursue the PayPal complaint process first. The PayPal spokeswoman says the $500 limit “covers the vast majority of items” bought and sold on eBay through PayPal, but for items up to $1,000 a money-back guarantee from PayPal is available for a fee. Among other pending actions PayPal is facing is a case before the federal court for the Northern District of California alleging the company unreasonably restricted legitimate user accounts as part of its fraud investigations. A class-certification hearing in this case is set for later this month. According to eBay's form 10-K filing submitted March 1 to the Securities and Exchange Commission, PayPal could face payment of “substantial damages” as well as changes to its anti-fraud operations “that will harm its business” if it loses the case or fails to settle it “on acceptable terms.” Even if PayPal wins, the filing says, the litigation could compel operational changes that would “increase its costs and decrease the effectiveness of its anti-fraud program.” PayPal claims 40 million accounts worldwide, with the majority in the U.S. It processed $12.2 billion in volume last year. It refuses to break out accounts or volume by country.