$5.2 million will be paid in 2 separate cases
- Verne Kopytoff, Chronicle Staff Writer
Friday, September 29, 2006
EBay Inc.'s PayPal online payment division has agreed to a $1.7 million settlement with 28 state attorneys general over complaints that PayPal's terms of service were too long and failed to clearly explain consumer protection programs.
In addition, PayPal settled a related class-action suit in U.S. District Court in Brooklyn for $3.5 million.
The agreements, announced Thursday, are a relatively painless exit for PayPal from a problem that has dogged it for some time. Many users have accused the popular service of offering a confusing explanation about the protections it offers against fraud, such as who reimburses them for disputed purchases, for how much and under what circumstances.
As part of the deal with the attorneys general, PayPal agreed to shorten and streamline its user agreement and include more information about its consumer protections. PayPal said it has already complied with many of the terms of the settlement.
Attorneys general from states including California, Illinois, New York, Texas and Nevada took part in the agreement, which was born from discussions that started in 2005. Money the states get will cover the cost of their investigations.
Tom Dressler, a spokesman for California Attorney General Bill Lockyer, said that without a settlement, PayPal was facing a suit over deceptive business practices. Users were falsely led to believe by PayPal's terms of service that that they would get full protection in cases of disputed purchases, he said.
"What this case is about is a pretty simple principle: Businesses should deal with consumers fairly and with complete honesty, and this settlement will help ensure that PayPal's customers make informed decisions in their best interest, " Dressler said.
The proposed class-action suit in New York was filed in 2005 on behalf of users who alleged that PayPal didn't clearly disclose details about its consumer protection programs. The settlement fund will be used to pay PayPal users, their attorneys and to cover administrative costs.
PayPal, part of San Jose's eBay online marketplace, is the largest online payment service, with 114 million accounts. In the past, the service has been a frequent target of complaints about other issues including the freezing of customer accounts.
As part of the agreements disclosed Thursday, it admits no wrongdoing. Amanda Pires, a spokeswoman for PayPal, said the agreements allow PayPal to put the issue behind it and focus on its business.