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Attorney General Jason R. Ravnsborg

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Long Reaches Agreement with PAYPAL to Protect Consumers


PIERRE, S.D. - Attorney General Larry Long today announced that South Dakota has reached an agreement with PayPal, Inc., resolving concerns about the company’s business practices. 

The agreement requires the company to provide adequate consumer protection to consumers before they become members and whenever they make payments to others using PayPal’s system. The agreement requires the company to clearly and conspicuously disclose all contractual terms and financial obligations. Under this agreement PayPal will pay $1.7 million to the states. Long said that of that amount, the State of South Dakota will receive $59,500 from PayPal.

The agreement was a result of consumer complaints filed nationwide from 2000 through July of 2006. Some of those complaints allege that during disputes with PayPal, the company would freeze money held in the consumer’s PayPal account. Other complaints allege that consumers, who expected to fund the payment through use of their credit cards, found instead that their bank accounts had been charged directly. 

The settlement ensures that PayPal spells out important terms and conditions before a consumer becomes a PayPal member and at the times members initiate transactions. As part of making certain that the terms and conditions are spelled out, the agreement also requires the company make that information more accessible to users by requiring changes to the way the company uses hyperlinks and multi-page documents. The agreement also requires that whenever a PayPal member gets ready to make a purchase, he or she will be presented with a clear choice regarding what form of payment to use. The usual forms consumers use to fund their payments through the system are by credit card, debit card or electronic funds transfer from a bank account. The agreement also requires that PayPal provide clear access to webpages containing important differences between its in-house PayPal dispute resolution programs and chargeback rights granted by federal law to consumers who use electronic banking, debit cards and credit cards to make payments and purchases. 

The settlement is a voluntary agreement between PayPal and 28 states under the state consumer protection law that allows the company to agree to terms without having consumer protection charges filed against it. PayPal does not admit to, and has denied, any wrongdoing. 

PayPal represents a relatively new type of web-based alternative payment system. These payment systems provide online services which their members can use to transfer money to other people or businesses. The most common reasons for sending the money include auction or on-line business purchases but transferring money between individuals is also supported by the PayPal system. PayPal charges fees to some users depending on the type of user account.