The Australian Securities and Investments Commission (ASIC) has commenced proceedings against PayPal Australia over its standard form contracts with small business customers which contain an unfair contract term.
According to ASIC, the contract term gives PayPal business account holders 60 days to notify PayPal of any errors or discrepancies in fees that PayPal has charged them, or else accept those fees as accurate.
The term appears in PayPal’s User Agreement, one of several documents that form the contract between PayPal and its Australian business account holders.
ASIC stated that this term is unfair because it would permit PayPal to retain fees it has overcharged or wrongly charged if the small business does not notify PayPal of the error within 60 days of the fee appearing in its account statement.
“ASIC has commenced this action to protect the interests of small businesses,” ASIC Deputy Chair Sarah Court stated. “We allege this term is unfair because it allows PayPal to escape the consequences of its own errors in overcharging small businesses, and places additional burdens on small businesses to detect and correct charging errors.”
ASIC further stated that the contract term is unfair within the meaning of s12BG of the ASIC Act as the term:
- “causes a significant imbalance in the parties’ rights and obligations under the contract”
- “is not reasonably necessary to protect PayPal’s legitimate interests,” and
- “would cause detriment to PayPal business account holders if the term were relied on.”
Since 1 July 2010, the unfair contract term regime contained in the ASIC Act has applied to standard-form consumer contracts for financial products and services. On 12 November 2016, the unfair contract term regime was expanded to include small business contracts.
Furthermore, on 9 November 2022, the Treasury Laws Amendment (More Competition, Better Prices) Act 2022 was assented to, which will impose civil penalties under the ASIC Act for breaches of the unfair contract term prohibition from 10 November 2023.
In light of PayPal’s alleged unfair contract term, ASIC has sought declarations that the term is void. ASIC is also seeking injunctions and corrective orders.
