PayPal Australia was found to have included an unfair term in its standard contracts with small business customers.
The court case, initiated by the Australian Securities & Investments Commission (ASIC) last September, reveals how this term unfairly impacted small businesses by placing the burden of detecting and reporting overcharging errors on them.
SAN JOSE, CALIFORNIA - FEBRUARY 02: A sign is posted in front of PayPal headquarters on February 02, 2022 in San Jose, California. Photo by Justin Sullivan/Getty Images
Australian Court Finds PayPal Guilty of Unfair Term
The controversial term required small business customers to report any overcharging errors within 60 days, or else they would have to accept the fees as accurate.
This provision was deemed unfair because it penalized small business customers for failing to detect and report billing errors within a short timeframe.
ASIC argued that such a term was unreasonable, given that small businesses often do not have the resources or systems in place to easily identify such errors.
Court's Findings: A Closer Look
Justice Moshinsky, who presided over the case, found that the term was indeed unfair. He noted that small businesses were not in a position to manage the risk of incorrect charging or overcharging effectively.
The court recognized that the account statements provided by PayPal did not clearly describe the various types of fees or how they were calculated, making it difficult for small businesses to reconcile these charges.
Justice Moshinsky pointed out that "unlike PayPal, small businesses were not placed in a position where they were able to manage the risk of incorrect charging or overcharging."
He also noted that the 60-day notification period was insufficient for small businesses to detect and report errors accurately.
The court's declarations affect small businesses that opened a PayPal Business Account between 21 September 2021 and 7 November 2023.
According to ASIC, as of 30 June 2023, over 600,000 small businesses had PayPal Business Accounts. This ruling is a significant victory for these businesses, ensuring they are not unfairly penalized for billing errors.
PayPal Australia Responds
SAN JOSE, CA - APRIL 09: A sign is posted outside of the PayPal headquarters on April 9, 2018 in San Jose, California. PayPal is looking to offer basic banking services including Federal Deposit Insurance Corp. insurance for customer balances, a debit card and direct-deposit. Justin Sullivan/Getty Images
SAN JOSE, CA - APRIL 09: A sign is posted outside of the PayPal headquarters on April 9, 2018 in San Jose, California. PayPal is looking to offer basic banking services including Federal Deposit Insurance Corp. insurance for customer balances, a debit card and direct-deposit.
Reuters reports PayPal Australia acknowledged the term was unfair and consented to the court's declarations. The company voluntarily removed the term from its contracts on 8 November 2023, even before the court's ruling.
A spokesperson for PayPal stated, "PayPal Australia takes our responsibility to our customers very seriously and we have been working in full cooperation with ASIC on this matter."
PayPal also agreed to cover ASIC's litigation costs and has cooperated fully with the regulatory body throughout the investigation. This cooperation and proactive approach were noted positively by ASIC.
"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," ASIC Deputy Chair Sarah Court noted.
