PayPal allows businesses a limited 60-day window to dispute any fee-related errors.

PayPal (NASDAQ: PYPL) is facing legal scrutiny from the Australian Securities and Investments Commission (ASIC) over a contract clause that allows the company to retain fees charged incorrectly to customers if the errors go unnoticed for more than two months. ASIC has taken legal action, asserting that this clause, present in over 600,000 PayPal contracts with Australian businesses, should be considered “unfair” under the ASIC Act and invalidated by the court.

The contract specifies that customers must notify PayPal in writing of any pricing or fee errors within 60 days, or they are deemed accurate, absolving PayPal of any obligation to make corrections. ASIC argues that this clause unfairly shifts the burden of detecting and rectifying charging errors onto small businesses.

PayPal is cooperating with ASIC but refrained from commenting on the ongoing proceedings.

This legal action is part of ASIC’s efforts to safeguard the interests of small businesses, focusing on unfair contract terms and financial services sector practices. It follows a recent case against Westpac (ASX: WBC) and adds to PayPal’s regulatory challenges, including an “enforceable undertaking” with AUSTRAC to address compliance concerns related to anti-money laundering and counter-terrorism financing laws.

ASIC aims to have the clause declared void and seeks injunctions and corrective orders in this case, though civil penalties will not apply until November due to forthcoming legal amendments. This case highlights ongoing regulatory scrutiny in the financial services industry regarding unfair contract terms.

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