WASHINGTON - PayPal has agreed to a $25 million settlement with the Consumer Financial Protection Bureau dealing with allegations the payments company essentially forced consumers to use its online credit product.

The CFPB's complaint and proposed order - the bureau's first public action against an online payments company - claims the San Jose, Calif.-based company engaged in deceptive marketing and illegally registered consumers in PayPal Credit, formerly known as Bill Me Later, which allows users to take out a line of credit when making a payment online.

PayPal has agreed to pay $15 million in redress to consumers and a $10 million penalty.

"Financial services providers that enable" online payments "need to be careful to make sure that people are treated fairly and according to the law," CFPB Director Richard Cordray said during a call with reporters Tuesday. "We will continue to be vigilant in protecting all consumers."

The agency specifically said PayPal's conduct with regard to the credit product was not only "deceptive" but also was "abusive" under a statutory prohibition against "unfair, deceptive, or abusive acts or practices."

The CFPB alleges PayPal "often" enrolled consumers automatically into the credit product without their consent and forced customers to pay for items using PayPal Credit by not making other payment options available. The company also was called out for allegedly mishandling billing and payment disputes, and using deceptive marketing. The bureau said PayPal failed to honor advertised promotions and abusively charged consumers "deferred-interest" fees.

The amount of affected consumers has not yet been determined but CFPB officials said it numbers into the "tens of thousands." Consumers eligible for redress include those who paid late fees or interest charges between January 2011 and May 2015, the order said.

"PayPal Credit takes consumer protection very seriously. We continually improve our products and enhance our communications to ensure a superior customer experience," said Amanda Christine Miller, a spokesperson for PayPal. "Our focus is on ease of use, clarity and providing high-quality products that are useful to consumers and are in compliance with applicable laws."

The action announced Tuesday was not the first time the CFPB has gone after a payment processor. For example, in March the agency filed a massive lawsuit involving more than a dozen debt collectors and payment processors including the worldwide Global Payments Inc.

But the PayPal order was still notable due to the company's unique role in facilitating online transactions and its global presence.

The CFPB said PayPal allegedly offered a promotion to defer interest on credit, which was supposed to let consumers decide how a payment would be applied to their balances. But when consumers would try to inquire further about the promotion or direct payments, the CFPB said, they could not get through to the appropriate customer service representative or would receive wrong information. Customers would be charged deferred-interest fees, the CFPB said.

"We charged PayPal with abusive conduct in relation to how it dealt with consumers in applying their payments to multiple deferred interest purchases," said Jeff Ehrlich, the CFPB's deputy enforcement director. "And we charged that as an abusive violation because we found under the facts that the company had taken unreasonable advantage of consumers' inability to protect themselves in using the product. So, as we allege in the complaint, consumers were told that they would have the ability to prescribe how their payments would be applied, but in fact that did not occur. And as a result, consumers were harmed."

Still, the settlement amount was not large compared to other actions the CFPB has taken against well-known targets.

"We consider this a small settlement and believe any questionable practices have already been addressed by PayPal without any real effect on prospects," Lawrence Berlin, of First Analysis Securities Corp., said in a research note following the announcement.

PayPal has agreed to the consent order without admitting or denying the findings. It also waived its rights to a judicial review or to challenge the allegations as part of the pending settlement. (PayPal is owned by eBay but the companies recently announced they would split into two separate publically-traded entities later this year.)

In addition to paying the penalty and consumer redress, PayPal has agreed in the order to improve its disclosures to consumers.

"We are requiring PayPal to change the way it does business with its PayPal Credit product. The company must now give clear disclosures during the enrollment and checkout process so that consumers know what is happening and that they can use a different payment method if they so choose," Cordray said. "The company must ensure that customers receive the promotions advertised and that payments are credited in a timely manner. These changes are designed to ensure that in the future consumers will not be treated in the same manner that PayPal treated them in the past."

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