PayPal Inc. said it has resolved two legal disputes regarding its user agreement and customer protection programs.
The San Jose online payments subsidiary of eBay Inc. said Thursday that it had agreed to pay $3.5 million to settle a class action filed last year in the U.S. District Court for the Eastern District of New York in Brooklyn. The court must approve the agreement.
PayPal also said it agreed to pay $1.7 million to the attorneys general of 28 states to cover the costs of their investigations into similar matters. In both cases, the issue “has to do with how we communicate with our consumers relating to protection programs — where they’re covered and where they’re not,” said Amanda Pires, a PayPal spokeswoman.
This year PayPal will update the user agreement on its Web site to make it shorter, easier to read, and printable from one screen. Some parts of the agreement currently are attached to the main document with hyperlinks and must be printed separately, Ms. Pires said.
The unit also will change the wording of Web pages describing its buyer protection program, to clarify when it is applicable, she said. The program, introduced in October 2003, covers buyers for up to $1,000 when dealing with certain eBay merchants. It does not apply to purchases made outside eBay’s site or for merchants with a poor feedback score.
The attorneys general represent Alabama, 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.
Dan Schatt, a senior analyst for the Boston market research firm Celent LLC, said PayPal has long encouraged its users to fund their accounts with checking accounts, because it is cheaper for the company than handling credit card transactions.
“The reality for PayPal’s business model is they simply can’t be profitable if 100% of the transactions were funded with a credit card,” he said.
Also, PayPal has upset some users by freezing their accounts when it has suspected — but not yet proven — fraud, he said. “Their fraud rates are the lowest in the industry, but that comes at a price.”
