PayPal Settles With New York Attorney General

Online payment service PayPal has reached an agreement with the New York attorney general’s office to pay $150,000 to settle charges that it misled customers who expected refunds when they didn’t get the merchandise they ordered.

The settlement, announced Monday, requires PayPal to clearly describe in its User Agreement account holders’ rights, including any reversal or refund policies.

An investigation by New York Attorney General Eliot Spitzer revealed that PayPal’s User Agreement stated that it afforded consumers the same rights and protections that credit card users have. But in practice consumers were denied those rights by PayPal and by credit issuers American Express and Discover.

The settlement clarifies that consumers should not expect the same level of protection that credit card companies provide. PayPal is not a credit card company and so doesn’t have to provide “chargebacks” to customers if a transaction goes wrong.

But PayPal’s User Agreement led consumers to believe that they did get that level of protection.

The payment service, whose parent company is eBay, has more than 25 million account holders. Some 2.5 million of them are in New York.

PayPal also faces inquiries from the U.S. Federal Trade commission and several states, a Reuters report said.

Last year, Spitzer’s office reached agreements with American Express and Discover. The credit companies were issuing chargeback credits to consumers who did not receive goods ordered through a PayPal merchant, a statement said.