The Federal Court has declared a term used by PayPal Australia Pty Limited (PayPal) in its standard form contracts with small businesses to be unfair.

The Court found that the term was unfair because its effect was to allow PayPal to retain fees that it had erroneously charged if the small business failed to notify PayPal of the error within 60 days of the fee appearing on its account statement.

The declarations affect small businesses who opened a PayPal Business Account between 21 September 2021 to 7 November 2023. As of 30 June 2023, there were over 600,000 small businesses with PayPal Business Accounts. PayPal agreed that the term was unfair and consented to the declarations, having voluntarily removed the term from its contracts on 8 November 2023.

The Court declared the unfair term void from the start of the contracts and ordered that PayPal be restrained from applying, relying on, or enforcing, the term in its contracts with small businesses.

Shortly following a hearing on 4 July 2024, Justice Moshinsky delivered oral reasons. His Honour found that, unlike PayPal, small businesses were not placed in a position where they were able to manage the risk of incorrect charging or overcharging.

His Honour also found that each small business only had 60 days to notify PayPal in writing of any erroneous deduction of fees or charges in circumstances where the account statements did not describe the various types of fees, or the manner in which they were calculated, in a way that was readily reconcilable with how those fees were described in the PDS.

His Honour also found that PayPal was not aware of any instance where it has caused a consumer to suffer loss or damage by relying on the Fee Error Term and ASIC’s investigation did not uncover any instance of PayPal having done so.

Deputy Chair Sarah Court said, ‘ASIC is dedicated to protecting consumers and small businesses from unfair contract terms and ensuring that all financial services providers use fair contract terms.’

‘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.’

The Court also ordered PayPal to pay ASIC’s litigation costs.

PayPal cooperated with and voluntarily assisted ASIC during its investigation and also cooperated in resolving this proceeding.