Founded in 1998, PayPal offers a straightforward service for
making and receiving payments over the internet. Its popularity
among traders on internet auctions – both individuals and small
businesses – persuaded eBay to pay $1.5 billion to buy the Mountain
View, California-based company in July 2002. At the time, PayPal
reaped 60% of its business from eBay users alone.
The system works by establishing PayPal as a trusted
intermediary with which both payer and payee have an account. This
ensures that sensitive information, such as credit card or bank
account numbers, are not disclosed to anyone other than PayPal.
However, despite reassurances to individuals in PayPal's terms
and conditions that they would enjoy. "the rights and privileges
expected of a credit card transaction," in practice they did not,
according to New York State Attorney General Eliot Spitzer.
Following an investigation into alleged misrepresentations in
PayPal's User Agreement, Spitzer announced on Monday that he had
arranged an agreement with the payment service requiring PayPal to
better disclose the rights of account holders when an affiliated
merchant fails to deliver merchandise.
"Protecting consumers' rights in on-line transactions is the
best way to establish and maintain confidence in electronic
commerce," Spitzer said. "As with any new industry, it is essential
that consumers making e-payments receive full disclosure of their
rights and liabilities."
Under the agreement, PayPal must clearly describe account holder
rights in its User Agreement, including any conditions or
limitations to those rights, and reversal or refund policies. The
company will also pay New York State $150,000 in penalties and
costs of investigation.
