In a recent filing with the Securities and Exchange Commission, eBay’s PayPal division disclosed that it could be hit with an enforcement lawsuit by the Consumer Financial Protection Bureau (CFPB) as early as the second quarter of 2015. The potential suit arises from CFPB inquiries into PayPal Credit, the company’s consumer lending service formerly known as Bill Me Later. According to PayPal’s filing, the CFPB served Civil Investigative Demands on the company in August 2013 and January 2014 seeking information related to PayPal Credit products, “including online credit products and services, advertising, loan origination, customer acquisition, servicing, debt collection, and complaints handling practices.”
PayPal Credit offers instant financing to consumers who make purchases at certain EBay marketplace locations. Consumers are able to obtain loans without incurring interest as long as they repay the borrowed amounts within a certain period of time. If borrowers fail to repay the loans in full by the end of the promotional period, they are subject to fees and annualized interest rates as high as 19.99 percent, which can be applied retroactively to the origination date of the loan. Given the CFPB’s ongoing interest in cracking down on “payday lenders” and similar institutions, it should come as no surprise that the bureau is taking a hard look at the advertising, customer-acquisition and lending practices of services like PayPal Credit.
PayPal stated that it was in receipt of a Notice and Opportunity to Respond and Advise – an early warning to a company under investigation that the CFPB believes it has amassed sufficient evidence to proceed with an action for violations of the consumer protection laws. A company receiving such a notice typically has 14 days to respond to the CFPB’s concerns, at which point the CFPB will determine whether to proceed with the enforcement action. PayPal stated that the company is cooperating with the investigation and is engaged in settlement negotiations, but provided no additional details related to the particulars of the CFPB’s case against it.