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A PayPal consumer claims the company’s popular buy now, pay later (BNPL) service called Pay in 4 targets the poor who end up paying huge amounts of hidden bank fees.
In a lawsuit filed at the California federal court, PayPal consumer Felipe Vidaurre claims it targets the poor with its Pay in 4 product and lures them into the service by concealing important information on the high fees they may be charged by their banks.
Although Pay in 4 is marketed as a service that is “completely free, with no interest or hidden fees,” Vidaurre says there are often huge late fees and significant interest in the form of overdraft and non-sufficient fund (NSF) fees assessed by banks when processing the Pay in 4 payments.
“In its rush to tout itself as convenient, simple, automatic, and free, PayPal does not disclose that overdraft and NSF fees are a likely and devastating consequence of the use of its service,” the claim says.
“No reasonable consumer would run this risk,” it adds.
Overdraft and NSF fees represent a significant part of banks' revenues.
According to the latest research by the Consumer Financial Protection Bureau (CFPB), overdraft and NSF fees brought in $15.47bn to American banks in 2019, accounting for almost two-thirds of banks’ reported fee revenue.
These fees are charged by banks if there is not sufficient money in a consumer’s bank account on the due date. In some cases, consumers may use their overdraft, which if permitted, typically incurs a fee or interest. Where overdraft is not permitted, or customers go outside their authorised overdraft amounts, banks may reject the payment and charge a fixed NSF fee despite the fact that the payment was not fulfilled.
For instance, the plaintiff argues PayPal repeatedly re-processed the payments that were not successful on the first attempt, causing multiple NSF fees on the same repayment and adding up to $348 in total bank fees.
“PayPal targets with its marketing: consumers living paycheck to paycheck. As a result, PayPal knew or should have known that such users were at extreme risk of overdraft and NSF fees when using the PayPal service,” the complaint says.
“This massive risk is known to PayPal but is omitted from all of its marketing.”
The plaintiff seeks to represent all persons who used the Pay in 4 service and incurred an overdraft or NSF fee as a result of a PayPal repayment deduction.
Hidden and excessive bank fees, or junk fees as the CFPB calls them, have come under the spotlight of the consumer body, which promised to crack down on unlawful practices related to a wide range of bank fees that are “exploitative, back-end, hidden, or excessive.”
Meanwhile, in a separate inquiry into BNPL products, the CFPB said it was concerned that BNPL apps with their easy and quick onboarding process could push consumers into accumulating debt.
Affirm, Afterpay, Klarna, PayPal, and Zip had until March 1 to reply to the requests for information.
