ASIC sues PayPal over fee discrepancy terms in small business contracts

The Australian Securities and Investments Commission (ASIC) has launched proceedings against PayPal Australia for alleged unfair contract terms for small business customers.

The watchdog has identified that one of the contract terms states that PayPal business account holders have 60 days to notify the platform of fee discrepancies or errors that have been charged. After that time has passed they accept the fees as being accurate.

ASIC is alleging that this retaining of overcharge fees is unfair as it allows PayPal to keep additional fees due to its own errors.

According to court documents, ASIC is arguing that PayPal’s Fee Error Term is unfair under the Australian Securities and Investments Commission Act 2001 and “…void by operation of s 12BF(1) of the Act where the Fee Error Term appears in standard form small business contracts”.

The Act has applied a standard form for financial products and services for consumers since 2010. This was expanded to include small business contracts in 2016.

ASIC has said that that it is acting in the best interest of small businesses. According to the court documents, as of June 30 2023, there were approximately 608,275 business account contracts between PayPal and active users.

“We allege this term is unfair because it allows PayPal to escape the consequences of its own errors in overcharging small businesses, and places additional burdens on small businesses to detect and correct charging errors,” ASIC Deputy Chair refugee said in a statement.

ASIC is also arguing that PayPal’s contract term causes a significant imbalance to small business rights, isn’t necessary to protect PayPal’s interest, and is detrimental to business account holders.

The watchdog is seeking injunctions and corrective orders, as well as for PayPal to make this contract term void for customers.

“We have been working in full cooperation with ASIC and take this matter very seriously. It would not be appropriate to comment in detail on proceedings before the court, however we are carefully reviewing the claims,” a PayPal spokesperson said.

Unfair contract terms have been under the microscope over the last 12 months, with the passing of the Treasury Laws Amendment (More Competition, Better Prices) Bill 2022 last year.

The bill outlawed a number of contract terms that enabled large companies to offer unfavourable conditions to smaller businesses that didn’t have the resources or bargaining power to negotiate for something fairer.

The protections extend to small businesses with less than 100 employees or with an annual turnover under $10 million.