PayPal Inc., a unit of EBay Inc., will forfeit $25 million in restitution and fines to settle Consumer Financial Protection Bureau claims that it illegally enrolled customers in an online credit product.

“PayPal illegally signed up consumers for its online credit product without their permission and failed to address disputes when they complained,” CFPB Director Richard Cordray said in a statement Tuesday. “Online shopping has become a way of life for many Americans and it’s important that they are treated fairly.”

PayPal, which announced plans to split from EBay last year after activist investor Carl Icahn said the parent firm was slowing its growth, often signed up customers for its credit product without their consent, CFPB said. The company also failed to post payments properly, lost payment checks and didn’t resolve billing disputes.

In particular, CFPB said, PayPal used deferred-interest promotions, which push off payments to a later date, to rope in customers. The company then made it difficult to avoid the deferred fees, which customers can typically do by paying off a loan before a specified date, the agency said.

Amanda Miller, a spokeswoman for PayPal, said the company “takes consumer protection very seriously.”

“We continually improve our products and enhance our communications to ensure a superior customer experience,”

Miller said in an e-mail. “Our focus is on ease of use, clarity and providing high-quality products that are useful to consumers and are in compliance with applicable laws.”

PayPal agreed to refund $15 million to consumers who were unjustly charged and pay $10 million in penalties.

Eoin Treacy's view

When the Treacy family were signed up for a PayPal credit account with a $1000 limit it came as a surprise since we were not consulted in any way and only found out about it when the first bill arrived. It struck us as an aggressive marketing strategy but since we pay the balance on our credit accounts at the end of every month anyway, it did not discomfort us in any measurable way. Online forum comments suggest that other people did not have the same experience. 

With very little fanfare PayPal has paid a fine of $10 million for acquiring millions of new credit customers. On a cost per acquisition basis this is well within the realm of marketing spend on an ad campaign and has probably been much more successful. PayPal’s ease of use and the reluctance of people to input their credit card details on multiple sites suggest this is a growth business for the company. 

Ebay (Est P/E 19.03, DY N/A) has been ranging mostly below $60 since early 2013. It has held a progression of higher reaction lows since the failed downside break in October and a sustained move below $56 would be required to question potential for a successful upward break.  

Ebay is the largest shareholder in MercadoLibre, the Latin American online marketplace. The share (Est P/E 54.86, DY 0.28%) broke out to new all-time highs three weeks ago and while there is scope for some consolidation in the current area, a sustained move below $130 would be required to question medium-term potential for additional upside.