Chances are that if you buy merchandise online, you have probably made a PayPal account to streamline the process. Whether you just use it to pay for your iTunes purchases or to feed your late night Amazon habit, it can make your online shopping a little easier to handle.

PayPal is an online platform that allows users to connect their credit card or bank account information so that they don’t need to have their credit cards handy for purchases. Many online retailers allow users to sign in through PayPal. The online service also has its own credit card, which is at the center of a current controversy. Read on to learn about the controversy, what laws PayPal may have broken, and what’s next for the financial giant.

The Controversy

The Consumer Financial Protection Bureau recently filed a $25 million lawsuit in a Maryland district court against PayPal for deceptive practices; in particular, deceptive practices relating to the PayPal credit card. This agency’s main purpose is to “make markets for consumer financial products and services work for Americans–whether they are applying for a mortgage, choosing among credit cards, or using any number of other consumer financial products.”

What PayPal Did

Complaints against the company aren’t exactly new. In fact, there are multiple websites, such as aboutpaypal.org and paypalsucks.com, that detail many of the problems that people have with the company; however, many of those complaints have to do with customer service issues or confusion. The complaints at hand are a little more serious: as detailed in the CFPB suit, the complaint includes the following six counts:

1. PayPal enrolled customers in its credit card without their consent or authorization;
2. Customers who used account funds were billed through that credit card instead of having it taken out of their connected card or bank account;
3. PayPal did not accept, process, or post payments made to the PayPal card, resulting in late charges and changes in credit scores;
4. Paypal lied to customers about what they were receiving when they signed up for the card;
5. Paypal did not provide adequate information about the balances posted (deferred interest) and the information about promotional content–even for customers who did sign up for the credit card willingly;
6. Paypal employed unfair billing dispute practices.

You may not even be safe if you only used PayPal to pay for things online or have some funds in there from online payments. According to CBS Money Watch, PayPal actually signed up many users for credit cards without letting them know or sending them a physical card–meaning that many people didn’t even know that they were actually charging to a credit card, because they didn’t know they had one.

The result was an abundance of charges for users, particularly charges that were sometimes just taken out of the funds they had loaded into the website. Some consumers were also hit with overage fines and interest charges.

Why it Was Wrong

While all of the counts are bad enough to warrant a dispute, number five is particularly abhorrent. In fact, the CFPB described the conduct as “abusive” in its report. However there was some debate over that–the National Law Journal reports on the difficulty:

In its complaint, the agency listed six charges against PayPal, including one that details the conduct the CFPB said was ‘abusive.’ The agency has declined to define abusive conduct—a standard that’s apart from long-established consumer protection terms ‘unfair’ and ‘deceptive’—through any regulation.

Instead, the CFPB is laying out what it means one enforcement action at a time. For lawyers and their clients, and even members of Congress, understanding the parameters of abusive practices has been unsettling.

‘How can companies comply with this law?’ Rep. Sean Duffy, R-Wisconsin, asked at a 2012 oversight hearing, calling it ‘a subjective standard with no bright line.’

What happened to customers really depended on when they signed up–or were signed up–for a credit card. A customer with a PayPal card could have two balances: one for the card that was free from interest and another that had an interest-accruing balance. Customers were told they could decide what payments went where, but that was not true. They were also lied to about the minimum payment due–and attempts to talk to customer service often resulted in the age old “we are experiencing an unusually large call volume” message.

What Rules Do Credit Card Companies Have to Follow?

There are several laws in place that help protect consumers from being taken advantage of with their credit cards. These laws are part of the reason that the Consumer Financial Protection Bureau even found the problem with PayPal. In 2010, President Obama signed something called the Credit CARD Act, also referred to as the Credit Cardholders Bill of Rights. According to the CFPB, the law has two key purposes:

Fairness – Prohibit certain practices that are unfair or abusive such as hiking up the rate on an existing balance or allowing a consumer to go overlimit and then imposing an overlimit fee.

Transparency – Make the rates and fees on credit cards more transparent so consumers can understand how much they are paying for their credit card and can compare different cards.

That is the law that this particular case focused on, but there are a few other laws that credit card companies have to follow that illustrate the issues with PayPal’s deception.

Truth in Lending Act

When you go to get a credit card or a loan from your bank, you are immediately on an uneven playfield. The Truth in Lending Act is supposed to shield you from unfair lending practices. This means that a bank or credit card company has to tell you orally and in plain written language the terms, interest rate, and any other hidden fees.

Fair Credit Billing Act

This law kicks in once you have a credit card and protects you against inaccurate billing. If you meet predetermined guidelines, this act limits your financial responsibility for unauthorized charges up to $50. It also assures that you don’t have to pay for merchandise you ordered but never received, goods and services you didn’t accept, and double charges.

Fair Credit Reporting Act

Credit companies, lenders, and banks report your credit activity to the credit bureaus. The Fair Credit Reporting Act, most recently changed in 2003, ensures that your information is correct. It gives you the right to dispute inaccuracies and to access your credit score and file. This law also protects who can see your credit file. The only people who have access are those with need: a creditor, a landlord, an insurer, or a prospective employer.

What Can Those Affected Do Now?

For its part, PayPal (and parent company EBay) now seems to be remorseful over the situation, and in an email to Bloomberg, a spokesperson for the company seemed hopeful that it would take care of everything and make it right:

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.’

As for those who have been affected, $15 million will go right back into their pockets. PayPal is said to be sending out emails in the coming weeks to customers who qualify for reimbursement. There is also going to be a $10 million fine against the company.

Conclusion

At the end of the day, we have all signed up for things and haven’t read the fine print. However, it is a lot more difficult to read something when you don’t even know it applies to you. PayPal received a pretty hefty slap on the wrist, and the hope is that other credit card companies and money lenders see this and change some of their shady business practices.

Resources

Primary

Consumer Financial Protection Bureau: The Credit CARD Act

Federal Trade Commission: Fair Credit Reporting Act

U.S. Department of the Treasury: Truth in Lending Act

Additional

Credit Cards: Obama Signs Credit Card Reforms Into Law

National Law Journal: Why the CFPB Found PayPal’s Conduct ‘Abusive’

Bloomberg Business: PayPal Will Pay $25 Million to Resolve CFPB Bill Me Later Claims

CBS Money Watch: Feds Say PayPal Illegally Signed Consumers up For Credit

USA Today: PayPal to Pay $25M in Refunds and Penalties

SlashGear: PayPal Ordered to Pay $25 Million over Deceptive Practices

Wall Street Journal: PayPal Says it May Face U.S. Lawsuit by June

Wall Street Journal: PayPal to Pay $25 Million to Settle Online Credit Claims

Noel Diem

Law Street contributor Noel Diem is an editor and aspiring author based in Reading, Pennsylvania. She is an alum of Albright College where she studied English and Secondary Education. In her spare time she enjoys traveling, theater, fashion, and literature. Contact Noel at staff@LawStreetMedia.com.

The post Use PayPal’s Bill Me Later? You Might Get a Refund Due to Shady Practices appeared first on Law Street.

As we live in the New Media Age, the internet has become an omnipotent tool that millions of us use every day for a variety of reasons. The internet changed the way we go about our daily lives, providing a myriad of possibilities to meet people, organize tasks, buy products, and even search for people’s public records with the click of a mouse.

Read More: The Big Business of Big Data

As the information broker industry is rapidly growing, the United States is struggling to catch up and adopt comprehensive data protection laws to regulate it. This prompts a discussion on how to balance online access to public records and personal privacy. Read on to learn more about data protection and freedom of information laws, the data broker industry, and the consequences of easy access to online public records.

What are public records?

Public records are documents that can be openly accessed for inspection by any person. Often, personal information becomes a part of a public record when a person interacts with government agencies on the local, state, or federal level. Public records can include quite a collection of data: birth, marriage, death, arrest, tax, property ownership, driver’s license, occupational licenses, and voter registration information. Most of the time, providing personal information to government agencies is mandatory, leaving individuals no choice but to disclose their addresses, social security numbers (SSNs), and medical or employment histories. For example, if one donates over $200 to a political campaign, he has to provide his name, address, and employment information. All of the provided data automatically becomes a matter of an individual’s public record, and can be accessed through countless information broker websites. Court files are also public records, and all information contained within the files, with few exceptions, can be accessed without legal restrictions as well.

How do you access public records?

Historically, public records could be obtained only in paper form by physically going to the government agency or court house that collected and stored the applicable information. Starting in the mid-1990s, courts and government agencies began to provide online access to their public records directories, and to sell public files to information brokers and data compilers. Now, government or information broker websites can provide easy access with just the click of a mouse. The data broker industry is booming with thousands of companies selling all sorts of public records online.

What are information brokers?

Information brokers are companies that collect all sorts of data, including internet browsing information like consumer survey data and social media profiles, analyze an individual’s information, package it, and sell it to advertising and marketing companies. Some of the information brokers also obtain public records from local, state, and federal government agencies, and re-sell them online, adding appropriate packaging and a more sophisticated design to the reports. Many of these companies provide access to public records on a subscription basis, when a member pays a monthly fee for unlimited access to millions of public records. As there are virtually no laws that directly pertain to the information broker industry, public records can be accessed by anyone, regardless of their purpose and intentions. There are also no licensing requirements, no central registration system of any sort, and no mechanism through which it would be possible to request a copy of a personal public record that has been circulating online. Even though the information broker industry has been operating for decades, its volume and scope is much greater now, with thousands of companies mining and compiling individuals’ public records, ready to reveal our most sensitive personal data to anyone at any time.

Watch the video below to learn more about information brokers.

What are the laws that govern the information broker industry in the U.S?

The information broker industry is governed by various data protection and freedom of information laws. While the United States strongly adheres to freedom of information practices codified in the Freedom of Information Act (FOIA), there is no comprehensive data protection legislation, except for narrowly applicable laws that are subject-specific and limited in scope.

Freedom of Information Laws 

Freedom of information is a fundamental human right recognized in international law and in many national laws around the globe. As of 2012, there were 93 countries that adopted comprehensive freedom of information laws or similar administrative regulations. In the United Sates, the right to access information from the federal government is outlined in the Freedom of Information Act (FOIA), a comprehensive law that provides government accountability and safeguards the freedom to access public records. In addition to this federal legislation, each state has some sort of FOI laws, with different degrees of accessibility and restrictions. As the information broker industry provides services in relation to availability of information contained in public records, it operates within the FOI legal framework.

Data Protection Laws

Data protection laws are centered on safeguarding personal information from unauthorized usage. Worldwide, more than 80 countries have adopted comprehensive laws to uphold the privacy of their citizenry. In 1970s there were only eight countries that had data privacy laws on the books; in 2010 the number skyrocketed to 89. The United States is one of only a few developed countries that doesn’t have a comprehensive law that protects online privacy, but instead relies on sectorial laws that provide limited amounts of regulation and have many loopholes. Most of these laws pertain to personal information held by the federal government, while legislation that regulates personal information in public records systems is essentially limited to the Fair Credit Reporting Act (FCRA).

The Fair Credit Reporting Act

The Fair Credit Reporting Act (FCRA) is guided by the fair information practices that were developed by the Department for Health, Education, and Welfare in the 1970s. On the whole, FCRA regulates the practices of credit reporting agencies. It promotes agencies’ accountability and safeguards security of personal data. The law requires information to be accurate, purpose specific, and accessible. It also outlines limitations on collection and usage of personal data as pertaining to credit reporting.

California’s Data Privacy Laws

California is one of the few states that protects the personal privacy of its residents as it pertains to online access to public records. In 2003, it enacted the Online Privacy Protection Act (OPPA) that requires websites that collect personal information on California residents to post and comply with the privacy policy of the state. In 2013, California enacted so-called “Don’t Track” legislation (AB 370) that requires certain websites to disclose information on how they collect data and track users. During the same year, the Right to Know Act was introduced in the State Assembly, but it failed to pass due to strong opposition from the trade groups representing the information technology industry. If enacted, it would require data brokers to provide a copy of an individual’s stored information upon request.

Case Study: Instant Checkmate

Instant Checkmate is a California-based people search engine that operates by compiling and selling instant access to criminal background checks. Originally, Instant Checkmate was a small internet startup, but it recently gained popularity due to its appealing packaging and additional features, such as its public criminal records directory, crime wire blog, and reverse phone look up.

Notably in 2014, Instant Checkmate paid $525,000 in a settlement for allegedly violating the Fair Credit Reporting Act. The lawsuit, filed by the Federal Trade Commission (FTC), claimed that the company was operating as a consumer reporting agency, but wasn’t complying with FCRA regulations, including accuracy of provided information and verification of the identity of those who were requesting consumer reports through its website.

Now, the company markets itself as a tool to locate childhood friends and check out online dates. When you enter the website, the first thing you see is a notice that states:

You may not use our service or the information it provides to make decisions about consumer credit, employers, insurance, tenant screening, or any other purposes that would require FCRA compliance.

As the FCRA is limited to regulating credit reporting agencies only, it’s not applicable to the rest of the information broker industry. In order to avoid FCRA regulations many information broker companies simply run a disclaimer stating that they are not a credit reporting agency, and continue to operate outside any legal framework that pertains to  personal privacy. Instant Checkmate is one of many information broker companies that has used this tactic to escape FCRA compliance.

Watch the video below to learn more about Instant Checkmate, how it operates, and how the information obtained through its platform can be used by the third parties.

What are the advantages of online access to public records?

Online access to public records further upholds freedom of information as a fundamental right, and provides certain benefits to consumers and employers.

Benefits for the Citizenry

Access to public records is a mechanism to monitor the government as it allows its citizenry to review official actions and keep government agencies accountable. Online access to public records is an additional and more powerful tool to safeguard liberties and to ensure transparency of governmental practices. In this regard, the internet provides a platform to oversee and track government actions in relation to various matters, including decisions in individual cases.

Benefits for Consumers

Access to public records is an important consumer tool that is widely used in spheres such as employment, child support, retirement, and identity theft prevention, just to name a few. Online access to public records can highly benefit consumers and those who directly interact with government agencies and courts, if public records are accurate and up-to-date.

Benefits for Employers

In addition, access to public records can help employers screen applicants to decrease liability implications in the future. If using appropriate channels of inquiry, online background checks can assist employers in choosing the right candidate for the position.

What are the disadvantages of online access to public records?

Online access to public records increases privacy concerns, especially when the information broker industry lacks government oversight and is poorly regulated.

Discrimination and the Rise of the “Dossier Society”

Due to the fact that everybody can access public records online, individuals’ pasts become a matter of the present, including any transgressions, law violations, or simply embarrassing moments. In turn, it leads to discrimination and disenfranchisement of individuals whose records are not squeaky clean, denying them employment opportunities, normal relationships, and, simply, privacy. Some experts predict that in the future we could become a “dossier society,” meaning a society where everybody has an electronic profile that provides a detailed account of the individual’s life. In this view, a dossier society won’t allow social forgiveness and will force those who have blemishes on their records to work low-paying jobs without any possibilities for professional growth and development.

Economic Crimes

Most public records, including divorce decrees, child custody cases, and bankruptcy filings, contain sensitive information such as SSNs, financial account numbers, and dates of birth. Allowing online access to those records increases the risk of economic crimes, particularly identity theft. Online access to public records exacerbates the problem of financial fraud as it’s relatively easy to obtain personal information on the web as there are hundreds of websites that provide detailed records for a small fee. Identity theft has devastating consequences for victims as they cannot obtain credit, home loans, employment, or rent apartments.

Data in the Courtroom

Details of court cases, including the personal information of plaintiffs, defendants, and witnesses, becomes a part of the court record, and, therefore, public records. Not only can revealing personal data discourage plaintiffs from proceeding with cases, but can undermine the safety of those who are involved in the proceedings, including witnesses who testify against one of the parties. In addition, defendants often use personal medical or sexual history to promulgate damaging allegations against plaintiffs in medical bill payment or sexual harassment cases. Online access to public records facilitates the process of obtaining court files, making it relatively easy to mine personal data that can be used to alter court proceedings.

Inaccurate Information

Many times allegations that are made during court proceedings turn out to be false, particularly in disputes between business partners, former lovers, or neighbors. As a result, inaccurate information becomes a matter of an individual’s pubic record. As public records can be widely accessed online, inaccuracies in connecting information to specific individuals also frequently occur. In addition, some information brokers’ files can be outdated, creating additional errors in background reports. Mismatches and inaccuracies in personal data reports can link individuals to crimes they didn’t commit, deny them opportunities for employment, and destroy their reputations. In 2002, a New York resident was awarded $450,000 in damages as his profile contained a false criminal conviction.

Personal Safety

As many information broker companies claim that their services can ensure personal safety by revealing criminal histories of online dates, neighbors, and other acquaintances, online background checks can also do exactly the opposite and jeopardize safety for some people. As personal information of witnesses and victims is a matter of a public record, if their identities and addresses are revealed, they can be targeted by criminals for retribution, stalked, or even re-victimized by their domestic partner.

Targeting Consumers

Information broker companies are clearly making money from compiling and selling public records online. Not only do they amass information from different government websites, but re-package and sort it, creating a brand new product in order to earn additional profit. Information from online public records is extensively used by commercial profilers for marketing and advertising purposes. Business owners also often use information from online public records to target specific groups, including those with credit or bankruptcy problems, for advertising.

Watch the video below to learn more about information brokers and how they are mining, compiling, and selling personal data to third parties.

Conclusion

Without a doubt, citizens of any democratic society should have a right to access public records in order to hold their government accountable and keep its practices transparent. At the same time, personal information of individuals should be protected, and, for that reason, the information broker industry should be regulated to make sure that unauthorized users don’t have access to sensitive and often private matters. As this technology progresses, these questions will all need to be considered.

 Resources

Primary

California Legislative Information: AB-1291 Privacy: Right to Know Act of 2013

California Constitution: Article 1 Declaration of Rights

California Legislative Information: AB-370 Consumers: Internet Privacy

U.S. Department of Justice: The Freedom of Information Act

Additional

Social Science Research Network: Global Data Privacy Laws: 89 Countries, and Accelerating

Privacy Rights Clearinghouse: Public Records on the Internet: The Privacy Dilemma

Electronic Privacy Information Center: Privacy and Public Records

Top Ten Reviews: Instant Checkmate

Yahoo Finance: Free Public Criminal Records Directory Offered on Instant Checkmate Website

New Media Institute: What is New Media?

International Association for Social Science Information Services and Technology: Data Protection and Privacy in the United States and Europe

FreedomInfo: 93 Countries Have FOI Regimes, Most Tallies Agree

CNN Money: Data Brokers Settle Charges Over Background Checks

Crime Wire: An In-Depth Look at Instant Checkmate

Crime Wire: What Kind of Background Check Does Instant Checkmate Perform?

National Consumer Law Center: Broken Records: How Errors by Criminal Background Checking Companies Harm Workers and Businesses

Valeriya Metla

Valeriya Metla is a young professional, passionate about international relations, immigration issues, and social and criminal justice. She holds two Bachelor Degrees in regional studies and international criminal justice. Contact Valeriya at staff@LawStreetMedia.com.

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