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By Andy Sullivan, Reuters
WASHINGTON — Online payment service PayPal has agreed to pay $150,000 to settle charges that it misled customers who expected refunds when purchases went awry, New York Attorney General Eliot Spitzer said Monday.
The payment service also faces investigations from the U.S. Federal Trade Commission and several states, parent company eBay Inc. said in its annual report.
An eBay spokesman did not return several calls seeking comment.
The settlement with Spitzer's office clarifies that consumers should not expect the same level of fraud protection that credit-card companies provide, a Spitzer aide said.
Meanwhile, PayPal's practice of freezing customer accounts as it investigates suspicious transactions has drawn federal and state scrutiny, eBay said.
Internet fraud has grown in recent years as scam artists sometimes use auction services like eBay to sell nonexistent products.
The rate of fraudulent PayPal transactions is less than one-half of one percent, eBay has said. But due to the sheer volume it handles — more than $12.2 billion last year, according to eBay's annual report — the online service is frequently caught in the middle of disputes.
PayPal is not a credit-card company and is not required by law to provide "chargebacks" to consumers should a transaction go wrong, a Spitzer aide said, but the company's customer service agreement had led consumers to believe they enjoyed such protection.
PayPal agreed to change its user agreement to more clearly describe consumer rights, and will pay New York $150,000 in penalties and investigation costs, Spitzer's office said.
Consumer complaints have also prompted the FTC and other states to investigate.
"As a result of customer complaints, PayPal has ... received inquiries regarding its restriction and disclosure practices from the Federal Trade Commission and the attorneys general of a number of states," eBay said in its annual report.
"If PayPal's processes are found to violate federal or state law on consumer protection and unfair business practices, it could be subject to an enforcement action or fines."
An FTC spokeswoman declined to comment.
Disgruntled buyers in irate postings on Internet message boards have said that PayPal does not deal with complaints promptly, while sellers say the payment service is too quick to side with consumers.
One critic said PayPal holds onto the disputed funds as long as possible for its own gain.
"They only seem to freeze accounts that have thousands of dollars in them, and then when they freeze them they hold them for six months, so that gives them six months' free use of other people's money," said Izzy Goodman, a computer programmer whose Web site collects PayPal complaints.
Credit-card companies American Express and Discover, a division of Morgan Stanley, agreed last year to provide chargebacks for consumers who used their cards in PayPal transactions but did not receive the goods they ordered.
In afternoon trade, eBay shares were up $1.12 to $70.43 a share.
WASHINGTON — Online payment service PayPal has agreed to pay $150,000 to settle charges that it misled customers who expected refunds when purchases went awry, New York Attorney General Eliot Spitzer said Monday.
The payment service also faces investigations from the U.S. Federal Trade Commission and several states, parent company eBay Inc. said in its annual report.
An eBay spokesman did not return several calls seeking comment.
The settlement with Spitzer's office clarifies that consumers should not expect the same level of fraud protection that credit-card companies provide, a Spitzer aide said.
Meanwhile, PayPal's practice of freezing customer accounts as it investigates suspicious transactions has drawn federal and state scrutiny, eBay said.
Internet fraud has grown in recent years as scam artists sometimes use auction services like eBay to sell nonexistent products.
The rate of fraudulent PayPal transactions is less than one-half of one percent, eBay has said. But due to the sheer volume it handles — more than $12.2 billion last year, according to eBay's annual report — the online service is frequently caught in the middle of disputes.
PayPal is not a credit-card company and is not required by law to provide "chargebacks" to consumers should a transaction go wrong, a Spitzer aide said, but the company's customer service agreement had led consumers to believe they enjoyed such protection.
PayPal agreed to change its user agreement to more clearly describe consumer rights, and will pay New York $150,000 in penalties and investigation costs, Spitzer's office said.
Consumer complaints have also prompted the FTC and other states to investigate.
"As a result of customer complaints, PayPal has ... received inquiries regarding its restriction and disclosure practices from the Federal Trade Commission and the attorneys general of a number of states," eBay said in its annual report.
"If PayPal's processes are found to violate federal or state law on consumer protection and unfair business practices, it could be subject to an enforcement action or fines."
An FTC spokeswoman declined to comment.
Disgruntled buyers in irate postings on Internet message boards have said that PayPal does not deal with complaints promptly, while sellers say the payment service is too quick to side with consumers.
One critic said PayPal holds onto the disputed funds as long as possible for its own gain.
"They only seem to freeze accounts that have thousands of dollars in them, and then when they freeze them they hold them for six months, so that gives them six months' free use of other people's money," said Izzy Goodman, a computer programmer whose Web site collects PayPal complaints.
Credit-card companies American Express and Discover, a division of Morgan Stanley, agreed last year to provide chargebacks for consumers who used their cards in PayPal transactions but did not receive the goods they ordered.
In afternoon trade, eBay shares were up $1.12 to $70.43 a share.