ASIC is taking legal action against PayPal over unfair contract terms.

The Australian Securities and Investments Commission (ASIC) has initiated legal proceedings against PayPal Australia Pty Limited, accusing the payment giant of imposing unfair contract terms on small business customers. 

ASIC contends that a specific clause in PayPal's standard form contracts creates an unjust imbalance of rights and obligations.

This disputed contract term stipulates that PayPal business account holders must notify the company within 60 days of identifying any errors or discrepancies in the fees charged by PayPal. 

If they fail to do so within the specified timeframe, PayPal is entitled to retain any overcharged or erroneous fees. 

ASIC Deputy Chair, Sarah Court, says the regulator is acting to protect the interests of small businesses, arguing that the clause allows PayPal to avoid accountability for its own errors in overcharging. 

Court stated that this places an undue burden on small businesses to detect and rectify such charging errors.

The legal action is based on the ASIC Act, which now extends to include unfair contract terms in small business agreements, as of November 2016. 

Under the Treasury Laws Amendment (More Competition, Better Prices) Act 2022, civil penalties for breaches of unfair contract term prohibitions will come into effect on November 10, 2023.

The disputed clause in question appears in PayPal's User Agreement, forming part of the contract with its Australian business account holders, numbering more than 600,000.

PayPal has responded cautiously, noting its cooperation with ASIC and the seriousness with which it views the matter. 

This case marks the latest effort by ASIC to crack down on unfair contracts in the financial services sector, following legal actions against insurance companies Auto & General Insurance Company and HCF Life Insurance Company earlier this year.