PayPal Says Likely To Face Lawsuit From CFPB

It looks like online financial giant PayPal is in hot water with the feds for misleading advertising and usurious interest rates.

According to an SEC filing published on Thursday, April 9th, eBay’s said the new Consumer Financial Protection Bureau has notified it that it may file a lawsuit against its PayPal division, possibly before the end of quarter.

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More on the potential CFPB lawsuit against PayPal

Apparently the CFPB has been investigating PayPal Credit, a lender previously known as Bill Me Later, for some time. In its filing, eBay noted that the investigation is focusing on “online credit products, advertising, loan origination, customer acquisition, servicing, debt collection and complaints handling practices.”

Moreover, PayPal may face fines, payments to customers or possibly have to make changes to the operations of the lending division.

A CFPB spokeswoman had no comment for an article in the Wall Street Journal, but did note that no lawsuit had been filed to date.

PayPal commented that it is cooperating with the CFPB investigation and is working to negotiate a settlement. Of note, this recent SEC disclosure was a part of a filing describing PayPal’s operating agreement with eBay. That in itself is a bit curious, given the two are separating later this year into independent publicly traded firms.

It’s also possible that PayPal will undergo further regulatory scrutiny as part of new regulations that apply to financial institutions making more than one million international money transfers a year. PayPal noted that an initial CFPB examination is scheduled for later this quarter.

More on PayPal Credit

PayPal Credit offers a number of financial services to customers, including instant credit checks and loans, as they complete their transaction at PayPal or on various online marketplaces. In most cases, you don’t have to pay interest, assuming you completely pay the loan off within a certain period, abut if you don’t the annualized interest rate increases to 19.99% and often tacks on additional fees.