Australian court strikes down unfair fee clause in PayPal contracts for small businesses

PayPal has found itself embroiled in controversy after the Australian Federal Court found it included an unfair clause in its dealings with small businesses.

The clause in question allowed the global payment gateway to keep fees it had mistakenly charged if businesses failed to report the error within 60 days.

PayPal allowed the clause to remain in its standard small business contracts from September 21, 2021, to November 7, 2023. After noting the same, the Australian Securities Investment Commission (ASIC) filed a lawsuit in September, prompting the court to permanently remove the clause from its contracts on November 8, 2023, Nine News reported.

However, although PayPal proactively removed the clause, the Federal Court questioned its enforceability from the outset and prevented PayPal from applying, relying on or enforcing these terms in any future contracts with small businesses.

But, according to Judge Moshinsky, PayPal has not been informed of any cases where businesses have suffered losses or damages because of these fees.

After the legal battle between the two parties ended, the court ordered PayPal to cover the legal costs.

In a statement, a PayPal Australia spokesperson said the company “takes its responsibility to its customers very seriously and is working in full cooperation with ASIC on this matter,” Smart Company reported. “ASIC is dedicated to protecting consumers and small businesses from unfair contract terms and ensuring that all financial services providers use fair contract terms,” it said.

“Today’s decision is a reminder to all businesses that unfair contract terms in small business standard contracts will not be tolerated and that ASIC will take decisive action, where appropriate, to protect the rights of consumers and small businesses.”