The Consumer Financial Protection Bureau has accused PayPal of illegally signing up customers for its online credit service PayPal Credit (formerly known as Bill Me Later).
On Tuesday, the company agreed to settle the government complaint by refunding $15 million to customers and paying a $10 million fine. It did not admit to any wrongdoing.
The CFPB alleges that PayPal signed up customers for PayPal Credit without their permission, made them use the service instead of their preferred payment method and failed to address disputes when people complained.
"The CFPB's action should send a signal that consumers are protected whether they are opening their wallets or clicking online to make a purchase," said CFPB Director Richard Cordray in a statement.
In its complaint, the CFPB says PayPal would automatically enroll customers in PayPal Credit when they signed up for a regular PayPal account or made a purchase. In other cases, people who tried to cancel or close the application process for a credit account were enrolled.
The government complaint also claims PayPal made PayPal Credit the default payment method for all purchases, even when the customer wanted to use a linked credit card or checking account.
NBC News contacted PayPal for a comment. In a statement, Amanda Christine Miller, head of global communications, said the company takes consumer protection very seriously. "We continually improve our products and enhance our communications to ensure a superior customer experience. Our focus is on ease of use, clarity and providing high-quality products that are useful to consumers and are in compliance with applicable laws," she wrote.
As part of the settlement, PayPal will improve customer disclosures.
-- Herb Weisbaum