Federal Court finds PayPal Australia used unfair term in small business contracts
PayPal’s Australian arm used an unfair term in the standard contracts it offered small business users, according to a new Federal Court ruling.
PayPal’s Australian arm used an unfair term in the standard contracts it offered small business users, according to a Federal Court ruling.
On Thursday, Justice Mark Moshinsky found PayPal used a contract term that unfairly allowed it to retain fees falsely charged to small business users, if those users did not alert PayPal of the erroneous charges within 60 days.
The term affected small businesses that opened a PayPal account from September 21, 2021, to November 7, 2023, according to the Australian Securities and Investments Commission (ASIC).
ASIC launched legal action against the payment giant on September 6, 2023, which led to PayPal voluntarily removing the term from its contracts on November 8 that year.
In a statement on the ruling, ASIC said Justice Moshinsky found small businesses that were subject to the term were not able to effectively manage the threat of PayPal fees being overcharging.
Justice Moshinsky also found the way fees were listed in account statements was difficult to reconcile against their description in the product disclose statement, ASIC added.
While the term was deemed unfair, PayPal was unaware of any instances where it caused financial harm to small businesses.
The court did not identify any occasions where PayPal’s reliance on the term caused consumer loss or damage.
With the proceedings concluded, the court has ordered PayPal to pay the cost of ASIC’s litigation.
However, it noted PayPal’s cooperation with the ASIC investigation, its voluntary removal of the term, and its cooperation in concluding the legal proceedings.
In a statement, a PayPal Australia spokesperson said the company “takes our responsibility to our customers very seriously and we have been working in full cooperation with ASIC on this matter”.
The decision is a strong signal that companies should avoid unfair contract terms, said ASIC deputy chair Sarah Court.
“ASIC is dedicated to protecting consumers and small businesses from unfair contract terms and ensuring that all financial services providers use fair contract terms,” she said.
“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, and that ASIC will take decisive action where appropriate to protect the rights of consumers and small businesses.”
The ruling arrives after the passage of new legislation boosting civil penalties against businesses found to use unfair contract terms.
Under the Treasury Laws Amendment (More Competition, Better Prices) Act, legislated in 2022, harsh civil penalties can apply to unfair contract terms used after November 10, 2023.
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