Under the terms, which have been posted by the TorrentFreak technology news website, business that offer "file-sharing programs or access to newsgroup services" are obliged to sign-up to a range of new measures aimed at tackling online piracy in order to be able to use PayPal services.
One of the terms requires the businesses to "provide PayPal with free access to their service, so PayPal's Acceptable Use Policy department can monitor the content."
Under PayPal's Acceptable Use Policy all users of PayPal services are prohibited from using the payment provider for "activities that relate to transactions involving ... items that infringe or violate any copyright, trademark, right of publicity or privacy or any other proprietary right under the laws of any jurisdiction."
However, one file hosting site said that it was not justified for PayPal to be able to monitor its users' activities, according to TorrentFreak's report. Putlocker had its PayPal services suspended after refusing to agree to the payment provider's terms.
"They basically wanted access to the backend to monitor all the files being uploaded, and listing all files of users if they wanted, regardless of the privacy setting that the user might have selected,” Putlocker said, according to the report. "This is a complete invasion of privacy on PayPal’s part, as it’s none of their business what files users keep in their account. We have a solid abuse handling policy already, and we don’t feel a 3rd party company has any business snooping on our users."
In addition the site operators must detail to PayPal their procedures for responding to notice and takedown requests from rights holders and "take immediate steps to prevent access" to files within one working day when PayPal flags up that files "appear to involve illegal content".
PayPal did not respond to our request for a comment.
Last year PayPal committed to cut funding to websites deemed 'illegal' by the music industry and the City of London Police.
Trade body the International Federation of the Phonographic Industry (IFPI) said it would identify sites that it believes are selling music without having the right to do so and that the City of London Police would pass the information to PayPal which will then demand evidence that music that is sold had been licensed.