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Federal court rules PayPal Australia used unfair contract term


In a landmark decision, the Federal Court has determined that PayPal Australia Pty Limited utilized an unfair contract term in its standard agreements with small businesses.

This verdict comes after legal action initiated by the Australian Securities and Investments Commission (ASIC) in September 2023, which accused PayPal of incorporating a clause that enabled the company to retain erroneously charged fees unless small businesses reported the error within 60 days of the charge appearing on their account statements.

The court’s declaration impacts small businesses that opened PayPal Business Accounts between September 21, 2021, and November 7, 2023. According to ASIC, as of June 30, 2023, there were over 600,000 small businesses with PayPal Business Accounts.

Federal Court judge Mark Moshinsky, who presided over the case, highlighted the inherent imbalance in the contract terms. He pointed out that, unlike PayPal, small businesses were not in a position to effectively manage the risk of incorrect charging or overcharging. His Honour noted that small businesses had only a 60-day window to notify PayPal in writing of any erroneous fees. This short period was further complicated by account statements that did not clearly describe the various types of fees or the methods of their calculation in a way that could be easily reconciled with PayPal’s Product Disclosure Statement (PDS).

Justice Moshinsky also found no evidence that PayPal had caused a consumer to suffer loss or damage by relying on the contested fee error term. This finding was consistent with ASIC’s investigation, which did not uncover any instances of PayPal causing harm through the use of this term.

Following the court’s decision, Deputy Chair Sarah Court of ASIC emphasized the regulator’s commitment to protecting consumers and small businesses from unfair contract terms. “Today’s decision serves as a reminder to all businesses that unfair contract terms in 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,” she stated.

PayPal acknowledged the unfairness of the contract term and agreed to the court’s declarations, having already removed the term from its contracts as of November 8, 2023. The court declared the unfair term void from the inception of the contracts and issued an order restraining PayPal from applying, relying on, or enforcing the term in any of its contracts with small businesses.

Additionally, the court ordered PayPal to pay ASIC’s litigation costs, further underscoring the gravity of the issue. Throughout the investigation and legal proceedings, PayPal cooperated with ASIC, demonstrating a willingness to address and rectify the unfair term in its contracts.

This ruling marks a significant step in ensuring fair treatment for small businesses in their contractual relationships with large financial service providers. It highlights the importance of transparency and fairness in contract terms and reinforces ASIC’s role in advocating for the rights of consumers and small businesses in Australia.

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