A class-action lawsuit has been filed against PayPal, accusing the e-commerce payment supplier of engaging in anticompetitive practices that result in higher transaction fees for consumers. The lawsuit alleges that PayPal's "draconian" anti-steering policies restrict competition from more affordable payment platforms, leading to consumers paying excess charges. The lawsuit, filed on October 5, 2023, in the U.S. District Court for the Northern District of California, was spearheaded by attorneys at Hagens Berman.
According to the lawsuit, PayPal's anti-steering rules prevent merchants from offering discounts on items purchased with alternative payment methods, such as Stripe and Shopify. This limitation forces consumers to bear the brunt of PayPal's high transaction fees, resulting in higher costs for transactions. In 2022, PayPal generated over $27 billion in revenue, with a significant portion coming from these fees.
Steve Berman, the co-founder and managing partner of Hagens Berman, highlighted the disparity between PayPal and its competitors, stating, "If consumers were allowed to see behind PayPal's pricing veil, they would see a clear and distinct difference between using PayPal and Venmo to complete their transactions and using its competitors."
The lawsuit reveals that PayPal has over 400 million consumers worldwide, with 75% of Americans among them. Approximately one million U.S. eCommerce websites accept PayPal as a payment method, processing around 41 million transactions daily.
PayPal's anti-steering policies, outlined in its user agreement, impose specific conditions on merchants. For instance, merchants accepting PayPal or Venmo payments are prohibited from offering incentives to encourage customers to choose cheaper payment options. They are also prevented from informing customers about more cost-effective alternatives or displaying other payment methods earlier during the checkout process.
The lawsuit draws a parallel between PayPal's policies and those previously enforced by Visa and MasterCard, which faced legal action from the Department of Justice in 2010. Berman remarked, "These draconian anti-steering rules are similar to rules Visa and MasterCard used to impose before they were sued by the Department of Justice in 2010."
The lawsuit claims that if PayPal's anti-steering rules did not exist, consumers would notice a price difference between PayPal and its competitors. As an example, the lawsuit suggests that if PayPal is used to purchase a box of Kleenex, the cost could be $5.83, whereas another payment method might result in a lower price. The lawsuit emphasizes that "the price differential would result in consumers paying lower all-in prices."
The complaint alleges a breach of federal and state antitrust laws and state consumer-protection laws, asserting that PayPal's anti-steering rules hinder normal price competition that would benefit consumers. The lawsuit seeks restitution for those who were overcharged due to PayPal's policies and a halt to the company's alleged anticompetitive practices.
