Knock-on effects for payments companies worldwide are likely after the Polish Office of Competition and Consumer Protection (UOKiK) initiated proceedings against payments company PayPal for alleged use of prohibited contract terms in standard contracts with consumers.
The preliminary investigation procedure, headed by UOKiK president Tomasz Chróstny, was launched in December last year, bringing formal charges against PayPal for use of the proscribed terms. This could lead to a fine of up to 10% of company turnover, according to UOKiK.
Francesco Burelli, a partner at Arkwright Consulting, suggests there could be widespread ramifications for the wider payments sector, now that the proceedings have now been formally initiated.
UOKiK’s case concerns PayPal’s authority to levy certain contractual fines, including the freezing of access to accounts, monetary sanctions and ending contracts. Among the list of prohibited activities identified in the model contract, on the basis of which PayPal may suspend the provision of its service, is reportedly extensive and open-ended. Their interpretation, therefore, lies solely with the trader, according to Mr Chróstny.
As with any other type of payments solution, wallets such as PayPal have their own terms and conditions (T&Cs) to address illicit and unwanted use of the account through penalties, account suspension and closure.
Unclear language
Mr Burelli says that while he personally doubts that the regulator will challenge provisions aimed at preventing services from being used for criminal-related transactions, there are a number of other circumstances, such as account inactivity, that are subject to potential penalties and potential closure.
“In the case of account inactivity, verbs such as ‘may’ and ‘could’ are common in these latter sections where PayPal is reserving the discretion to close an account or not,” he says.
The regulator’s charges concern three provisions of the PayPal user contract: a list of prohibited actions, a list of sanctions, and a ban on using an account when it is either blocked or suspended. The regulator believes that the content contained in the document concerned “may be contrary to best practices and lead to a gross disproportion of rights and obligations between the consumer and [PayPal]”.
Regulators are wary of big tech companies following each other’s initiatives, often leading to waves of similar investigations
Mr Burelli says that regardless of the outcome of UOKiK’s case – whether it results in fines, or even some kind of settlement – he would expect the action to lead PayPal to reconsider some parts of its T&Cs.
There are two key consequences, suggests Mr Burelli. The first is that other similar account interface services are likely to follow suit. The second, he says, is that other regulators may follow suit and take similar action to that of UOKiK. “Regulators are wary of big tech companies following each other’s initiatives, often leading to waves of similar investigations,” he adds.
Ripples across the industry
Whatever the outcome of the case in Poland, it will be appropriate for regulators concerned with consumer protection to take note, according to Mr Burelli, and the outcome is likely to have indirect consequences in the medium term for a range of other financial services providers that use similar wording in their T&Cs penalties sections.
According to UOKiK, the next step may be to initiate proceedings to declare the clauses used by PayPal in the model contract as prohibited, or to initiate proceedings for the infringement of collective consumer interests.
In a statement, the Polish regulator said its findings show that the prohibited terms have been described imprecisely, and lack specific examples or clarification of unclear and complex terms, “thus leaving interpretation in this respect only to [PayPal]”.
The reservations relate among other things to the formal and grammatical structure of the provisions. “The user, having read the contract, is not able to determine which of their actions may be considered prohibited by PayPal, or what sanctions the company may impose,” according to the regulator’s statement.
In the course of the investigation, Mr Chróstny will check whether the provisions of the relevant contracts, especially those concerning the rules of use of PayPal’s services and prohibited activities, are formulated in an unambiguous and clear manner, as well as whether they allow PayPal to impose arbitrary sanctions in the form of limiting or blocking access to services.
UOKiK’s case against PayPal is not the only action currently being taken against digital wallets, with a number of private cases being brought against other industry players.
