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 concluded that it included an unfair clause while dealing with small businesses.

The clause in question allowed the global payment portal to erroneously retain a fee it had mistakenly charged if the businesses failed to report the error within 60 days.

PayPal let the clause stay in its standard small business contracts from Sept. 21, 2021, to Nov. 7, 2023. After taking note of the same, the Australian Securities Investment Commission (ASIC) initiated legal action in September, prompting the court to remove the clause from its contracts finally on Nov. 8, 2023, Nine News reported.

However, despite PayPal proactively removing the clause, the Federal Court questioned the enforceability of the same from the beginning and restrained the former from applying, relying on, or enforcing such terms in any future contracts with small businesses.

But, according to Justice Moshinsky, PayPal wasn't notified about any instances when any businesses incurred loss or damage due to the fees.

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

In a statement, a PayPal Australia spokesperson said the company "takes our responsibility to our customers very seriously and we have been 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," she said.

"Today's decision serves as a reminder to all businesses that unfair contract terms contained within standard form contracts with small businesses will not be tolerated, and that ASIC will take decisive action where appropriate to protect the rights of consumers and small businesses."