PayPal Faces Class-Action Lawsuit for Alleged Stifling of Competition

FinTech giant PayPal now faces a new class-action lawsuit filed by global law firm Hagens Berman on behalf of consumers. The lawsuit claims that PayPal’s anti-steering rules not only give it an unfair advantage over competitors like Stripe and Shopify but also raise consumer prices.

An investigation by the law firm’s consumer rights attorney team has found that PayPal subjects consumers to additional charges when purchasing from eCommerce businesses that accept PayPal and/or Venmo payments.

All consumers who have made purchases using non-PayPal payment methods since 2019 may have a right and claim to reimbursement, the law firm claims.

A Deeper Look Into PayPal’s Anti-steering Rules

At the heart of the allegations lie the FinTech giant’s anti-steering rules. These rules are a part of the merchant agreement that merchants are required to sign before they can accept payments via PayPal or Venmo.

These rules dictate that if a retailer accepts PayPal or Venmo payments, they cannot offer any discounts or inducements to persuade consumers to use other payment options that have a lower cost.Hagens Berman

On PayPal transactions, these discounts are treated as “surcharge”. Additionally, the rules bar merchants from even informing customers that other payment options might be more cost-effective or preferred.

Merchants aren’t allowed to present other forms of payment earlier in the checkout process either. Ultimately, consumers are subjected to PayPal’s “industry high fees”, the law firm claims.

Terming the policies as “anti-competitive” and “draconian”, the attorneys state that if PayPal was more transparent, consumers would notice the price difference between PayPal and its competitors.

To put things into perspective, the law firm shared an example that a merchant can either charge $5.83 for a box of Kleenex when the payment is made via PayPal, or a lower price if the customer uses an alternative payment method.

Alternatively, they could also offer a discount while maintaining the $5.83 sticker price for customers using a payment method other than PayPal or Venmo.

Steve Berman, the managing partner and co-founder of Hagens Berman, compared PayPal’s anti-steering rules to those imposed by Visa and Mastercard before the Department of Justice ultimately sued them in 2010.

What Does This Mean for PayPal Consumers?

Over 400 million consumers, including 75% of Americans, have PayPal accounts, according to the lawsuit. If the lawsuit’s claims are correct, most of the $27 billion that PayPal made in revenues in 2022 came from the fees imposed on such transactions.

The FinTech company processes 41 million transactions on a daily basis, with almost 1 million US eCommerce websites accepting PayPal.

“For a service named for its friendliness, PayPal is far from consumer-friendly”, Hagens Berman commented.

However, when asked about the lawsuit, a PayPal spokesperson responded, “PayPal continues to put our customers first in everything that we do, and we take this responsibility seriously. We are reviewing the filing and have no further information to share at this time”.

According to estimates by the Merchants Payments Coalition, an average family pays $1,000 annually in PayPal payment processing fees. The class action lawsuit demands that consumers who were made to pay excessive fees due to PayPal’s anti-steering rules should be reimbursed.

Additionally, it also requests the court to put an end to PayPal’s policies and merchant agreements that enforce these fees.

Depending on whether the lawsuit is successful, consumers may receive and enjoy lower rates when making eCommerce transactions in the future.

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