An Australian court has ruled against PayPal's local entity for using a disadvantageous term in its contracts that was unfair to small businesses. In the ruling, the court declared the unfair terms void from the contract's start and ordered the payment giant to refrain from applying or enforcing them.

ASIC Fighting for Small Businesses

The ruling came as the Australian Securities and Investments Commission (ASIC) sued PayPal in September, flagging the unfair terms in the contracts with small businesses. The court also ordered the payments company to pay the regulator’s litigation costs.

“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,” said ASIC’s Deputy Chair, Sarah Court.

One Unfair Term

The Aussie unit of PayPal provided small businesses a time period of 60 days to notify them of any errors or discrepancies in fees that the payment platform was charging. If the 60-day deadline is passed, the small businesses have to accept those fees as accurate.

Now, the court has ruled that the terms were unfair because PayPal allowed small businesses to retain overcharged or incorrectly charged fees if they failed to point out the fees within 60 days of appearing in the account statement. The judge further highlighted that small businesses were not placed in a position to manage the risk of incorrect charging or overcharging.

The unfair term was in PayPal’s contracts between 21 September 2021 and 7 November 2023. The company also acknowledged that the term was unfair and removed it from its contracts on 8 November 2023.

Until 30 June 2023, PayPal had more than 600,000 business accounts. The court also found that PayPal was unaware of any instances where it caused a loss or damage to small businesses by relying on the fee error term. The regulatory investigation also could not find any such case.